A summary of our market outlook and current portfolio positioning. Please see the following PDFs:
The first step is to make sure you are on the same financial page and have a common vision.
Hopefully you have already had some fruitful discussions about mutual goals as well as expectations regarding spending/saving before walking down the aisle, but if not then I would encourage you to have these discussions as early in the marriage as possible. Check in with each other and see how you have individually progressed on your goals prior to marriage such as starting an emergency fund, budgeting process, identifying short term saving goals and contributing to a retirement plan.
I would suggest that you try to merge these individual goals and processes as much as possible so you can begin working as a team on your mutual financial goals.
Once you have had the common vision discussion, the next step in any newlyweds’ financial life should be to identify who is going to take ownership regarding the various aspects of your finances.
I think it is important to clearly establish who is going to oversee paying bills, maintaining the budget, and oversee investments and insurance. Be flexible though and willing to switch up roles as life dictates over the years.
The final step to strongly consider as newlyweds is the whole aspect of risk protection.
It is not too early to start thinking about the possibility of adding some additional life and/or disability insurance to protect either spouse in the event of untimely death. This should be especially considered as it seems like more and more young people are getting married later in life now and often already have significant debts from either owning a house or obtaining a college degree. You should also consider drafting a new will or updating one already created as well making sure your have updated beneficiary designations.
Money discussions aren’t always easy for newlyweds.
But, as with any marriage issue, it’s best to approach them with an open mind and as a team. The more thoughtfully you work together on money matters, the more financial harmony you’ll maintain in your life together.
Seems like every retirement conversation we have of late includes the question of whether it makes sense to defer taking Social Security.
Of course, given how long people are now living in retirement, sometimes it is us that is raising the question, and it is definitely something we think people should at least give some thought to as they prepare for that phase of life.
First, the basics: for each year that you choose to delay taking your full Social Security retirement benefit, your monthly benefit is increased by 8%, up until Age 70. After age 70, there is no benefit to defer.
The deferral benefit can be magnified by the fact that, once started, yearly benefits are inflation-adjusted throughout your life. [Also note that Age 65 is still the point at which you are eligible to begin Medicare no matter what you decide on your Social Security retirement benefit.]
There are tools out there that allow us to run some projections, given a variety of assumptions and scenarios, so that is a great place to start. Here are some of the things that, in the end, seem to drive the decision as to whether to defer after full retirement age:
How long do you anticipate living in retirement? Difficult question, I know, but typically family history and recent health conditions play into this assessment.
Do you have investment accounts and/or other retirement income that will cover your cost of living during the time you are deferring? An analysis should be done of (1) how much your required monthly income will be; (2) how much will be covered by other income sources, such as pensions; and (3) which other accounts you could most easily use and whether or not they are positioned appropriately.
Does the security of turning on a guaranteed income source (Social Security) now provide you with more comfort/peace of mind and thus allow you to continue to grow your other assets at higher rates of return? Many of the discussions we have center around the tradeoff between having a solid, base income stream now while allowing other assets to grow/stay invested more aggressively versus having a larger income base later in the retirement years often that can be reinvested each year because it more than covers needs.
It truly is an individual decision, given all the different variables. Having the discussion, though, helps to frame the things that are most important to you as you enjoy your retirement years.
Over the years, we have tried more and more to make financial education a cornerstone of what we do for people.
And as the old adage goes “the earlier the better.” So today I thought I’d spend a few moments speaking to those who are in the early part of their careers and financial lives…or in today’s vernacular, those who are "adulting."
It as actually a pretty timely topic because Connie and I have just launched our eldest daughter, Maddie, into her first full-time job, and we have spent time over the past year or so discussing these same issues (so this post would be for parents of young adults as well =).
The first step in any young adult’s financial life should be to make sure that you have an emergency/savings fund (funds that could be used for unexpected expenses, like dental or medical costs or even unplanned travel expenses).
A general rule of thumb is to try to build up at least 3 months of gross monthly income in this account (e.g if you currently are making $3,000/mo., then you would try to build up $9,000 in this account).
Of course, every situation is a bit different, so you need to consider what debt load you are currently under and the stability of your current job situation…both of those things would impact how much you would want to keep in a primary reserve. [I’m not going to spend time in this post about how to manage debt, although that is obviously a huge topic and challenge that exists for young people today. My encouragement for those that are carrying a high debt load (e.g. $10,000) is to seek individualized advice on how to attack that.]
Tied to this first step is the beginning of some sort of budgeting process.
I think it is important for every young person to have a tracking system, so you know where your money is being spent and then can be mindful of whether your spending is exceeding the money you are bringing in. There are lots of great apps out there nowadays to help with this. I like and use Mint to track our spending, and there are others such as Acorn, etc. that you could check out.
The second step would then be to identify any near-term goals that you want to begin saving for.
House or car down payments or further schooling would fall into this category. I am an advocate of setting up a separate bank or money market account and saving directly into that for these sort of items so you can see how you are doing.
Finally, it would be great if you could start contributing to a retirement account in this phase of your life.
The power of compound interest on early savings means that dollars put away at this stage are the biggest contributor to how much you’ll have in retirement. I can’t tell you how many middle aged/older adults have expressed undying thanks for a co-worker or friend in their life who adamantly encouraged them to begin saving for retirement in those early working year…even if it is just $50 or $100 per month. And if you work for an employer that matches what you put in, then that is a no brainer…starting your retirement plan sooner rather than later is a must do.
Little things done well at this stage can set you up for great success later in life.
The unfortunate news is that some of you will have to pay federal income taxes on your Social Security benefits.
This usually happens only if you have other substantial income in addition to your benefits (such as wages, pensions, self-employment, interest, dividends and other taxable income that must be reported on your tax return).
For purposes of determining how the Internal Revenue Service treats your Social Security payments, “income” means your adjusted gross income plus nontaxable interest income plus half of your Social Security benefits.
If your total income is more than $25,000 for an individual or $32,000 for a married couple filing jointly, you must pay income taxes on your Social Security benefits. Below those thresholds, your benefits are not taxed. That applies to spousal, survivor and disability benefits as well as retirement benefits.
The portion of your benefits subject to taxation varies with income level. You’ll be taxed on:
up to 50 percent of your benefits if your income is $25,000 to $34,000 for an individual or $32,000 to $44,000 for a married couple filing jointly.
up to 85 percent of your benefits if your income is more than $34,000 (individual) or $44,000 (couple).
Say you file individually, have $50,000 in income and get $1,500 a month from Social Security. You would pay taxes on 85 percent of your $18,000 in annual benefits, or $15,300. Nobody pays taxes on more than 85 percent of their Social Security benefits, no matter their income.
All of the above concerns federal taxes; 13 states also tax Social Security to varying degrees. If you live in Colorado, Connecticut, Kansas, Minnesota, Missouri, Montana, Nebraska, New Mexico, Rhode Island, North Dakota, Vermont, Utah or West Virginia, contact your state tax agency for details on how benefits are taxed.
Keep in mind:
If your child receives Social Security dependent or survivor benefits, those payments do not count toward your taxable income. That money is taxable if the child has sufficient income (from Social Security and other sources) to have to file a return in his or her own name.
Supplemental Security Income (SSI) is never taxable.
If you do have to pay taxes on your benefits, you have a choice as to how: You can file quarterly estimated tax returns with the IRS or ask Social Security to withhold federal taxes from your benefit payment.