Financial Planning

Despite the issues with the current economy, the National Retail Federation estimates that Americans spent between $942-$960 billion during the holiday season. After last month’s spending spree, January is an excellent time to assess your finances and make some plans for the future, both short- and long-term. 

In this special section, you’ll find stories on best saving practices for each decade of your adult life, tips on planning for retirement, money resolutions to make this year, and more. May your new year be financially productive and prosperous!

Resolutions: to Help Plan your Retirement

We’ve all been there: January 1 is here and we charge forward with an aggressive – and sometimes unrealistic – financial goal for the new year, then by January 5 we lose that initial steam and find ourselves a bit defeated. Goals are nothing without calculated baby steps that help us see the end result, and of all of the lofty financial resolutions we may have this year, one that may need some extra attention is your retirement.

“Your financial resolution for something like retirement needs to be specific, measurable, and achievable,” commented Janet Leleux, a financial advisor for First Federal Investments in Sulphur. “Just saying that you’ll run a 5K by this time next year isn’t enough; you need to have a month-by-month goal of getting to that finish mark, and it’s the same with getting ready for retirement, no matter your age.”

For those who still plan to work for a few decades but want to start talking about retirement, here are some handy resolutions for the new year.

The Early Saver: Start now! 

Any day is a good day to start seeing your money grow. Take advantage of any employee match that your employer offers. A great way to start 2023 is to increase your own contribution to your 401(k). The more you contribute, the more your employer may be able to match. Look at your budget each month for 2023 and see how you can add more to your retirement each pay period.

Determine how much you need to retire. This will require a bit of soul searching so you can envision the type of life you want later. Will you pack up the dogs and travel the country in a camper? Or will you buy that beach condo and live out your Jimmy Buffet dreams? “To simply maintain your standard of living, you’ll need to have 70% to 90% of your annual pre-retirement income at the ready,” said LeLeux. “If you want to buy a second home or travel more, you’ll need to add that into your budget. Spend this year figuring out your retirement goals and what they will cost.” 

Choose the best plan for you. 

It’s always good to start with a 401(k) or other employer retirement plan with matching dollars, but if you don’t have this or if you want to open your own secondary account, consider a Traditional IRA or Roth IRA. 

A traditional IRA is a type of individual retirement account in which individuals make contributions and the investments in the account grow tax-deferred. Remember, if its tax-deferred, you’ll need to pay taxes on your distributions. A Roth IRA is an individual retirement account where you enjoy tax-free-growth and tax-free withdrawals during retirement.

If you see the light at the end of the tunnel and are getting excited about the prospect of retiring soon, the new year is a great time to decide the next steps in your planning process.

The Soon-To-Be Retired: Iron out your retirement budget and income plan. 

“Hopefully you’ve already been looking at this for a while, but things always change with the economy and investments, so spend each month adjusting your budget,” added LeLeux. You’ll need to figure out where you stand financially, and that means taking inventory of all your assets and liabilities. “Write down every single debt, liability, and savings balance,” said LeLeux. “It’ll give you a basic ‘Where You Are Today’ financial outlook. Don’t forget about properties, vehicles, and other valuable possessions that affect your bottom line.” If you plan on working part time or finally investing in that side gig, you’ll need to track and forecast your income.

Square away your health insurance. 

Healthcare is one of the biggest expenses you’ll face during retirement. If you retire at or after the age of 65, you can largely rely on Medicare for your retirement healthcare needs but pay close attention to what may not be covered. “Things can get trickier – and more expensive – if you plan on retiring early. Start shopping for health insurance plans a year or so ahead of your early retirement,” commented LeLeux.

Finally, plan out your estate.

In addition to creating a will, you’ll need to assign a power of attorney and healthcare proxy to make decisions on your behalf should you become incapacitated. You’ll also need to establish guardians for living dependents and appoint beneficiaries on life insurance plans, retirement accounts and shared assets. Ensure all documents are properly notarized and stored somewhere safe. Include an inventory of personal data like your Social Security number, date of birth, bank account numbers, insurance policy numbers and digital passwords to keep things organized and easy to access. 

If you haven’t taken a look at your plans lately, this is a great financial resolution to tackle this year. If you are just now planning to start your journey or if you are rounding the corner to the finish line, consider specific, measurable, and achievable goals. Retirement is a well-earned gold medal, keep your financial goals charging ahead into the new year!

Janet Leleux is a Registered Representative of the Cetera Investments Services LLC. Cetera Investment Services is an independent, registered broker-dealer. Member FINRA / SIPC. Securities and insurance products are offered by Cetera Investment Services. For more information, call First Federal Investments at (337) 625-3018 or visit https://investments.ffbla.bank.

Financial Planning: Decade by Decade

A financial plan is a great antidote to market uncertainty. Here’s a decade-by-decade guide to help you stay on track. Are you concerned about the market and the economy, wondering what this new year will bring? Whether you’re in your 20s and paying attention for the first time or in your 70s experiencing déjà vu, economic uncertainty can be an emotional rollercoaster.

The broad answer that applies to everyone is this – have a financial plan and stick to it. A financial plan is a roadmap to keep you going forward no matter what the economy is doing. Your plan will change as your life and goals change. But maintaining a big-picture view while following certain guidelines at each stage in your life will help you take control of your money and be less concerned about current headlines.

In your 20s: Set your direction

Set yourself up for greater financial security by establishing good money management habits from the beginning.

Create a budget: Know how much money you have coming in and be conscious of your spending. Needs come first, then wants. Live within (and hopefully below) your means.

Start saving: Creating an emergency fund should be your first savings priority. To make saving easier, include it as a line item in your budget. In addition to an emergency fund, You should also start saving for retirement in your 20s—no, it’s not too soon. Take advantage of a 401(k) or open an IRA and invest those funds—don’t leave them in the account uninvested. Once you’re on track for retirement, start saving and investing for other goals.

Establish good credit: Use credit cards wisely. Avoid unnecessary debt and aim to pay off balances in full each month.

Get insured: Health insurance is a must. You may also need auto, renters or homeowners insurance, depending on your circumstances.

In your 30s: Start building

Career, family, homeownership—the 30s are often a time when life changes at a fast pace. And your financial planning has to keep up.

Increase your savings: Contribute as much as you can to a 401(k) or other employer plan and take full advantage of any company match. Make sure your emergency fund covers a minimum of three to six months of necessary expenses. Keep saving toward your other goals.

Become an investor: Put your money to work in a diversified portfolio that matches your timeline and feelings about risk. Maintain a long-term view no matter what the market is doing.

Plan ahead: Have at least a basic will naming a guardian for minor children. If you do have kids, start saving for their education. Look into life insurance.

In your 40s: Ramp it upA

t this point you’re likely approaching your peak earning years, so this is the time to ramp up your savings and avoid lifestyle creep. Protect what you have and plan for the future.

Make retirement a priority: Make the most of tax-advantaged savings accounts. Employer retirement plans, IRAs, even Health Savings Accounts (HSAs)—contribute the max to not only get the tax benefit but to ensure you’re on track for retirement.

Increase your insurance: Consider adding umbrella and disability policies. Also think about increasing your life insurance as your income increases.

Include your family: If you have a partner, make sure you both are on the same page about financial goals and future plans. Take money out of the closet. Openly discuss finances with your parents as well as your children as age appropriate.

In your 50s: Keep it moving

Whatever direction you’ve set for yourself, don’t stop now. But do review where you are and make additions and changes to increase future security.

Plan for retirement: Start by looking at what you’ve saved and what your expenses may be. Set a timeframe for when you’d like to retire. If you’re behind, see how much more you can save, and take advantage of catch-up contributions.

Review your portfolio: Stay diversified, rebalance at least annually, and make sure your portfolio is in line with your current feelings about risk. Keep in mind that the money you’ll need in the next five to seven years shouldn’t be in the stock market.

Look into long-term care insurance: It’s not something most of us like to contemplate, but now’s the sweet spot to consider LTC insurance, since it usually becomes more expensive as you age.

Create or refine your estate plan: You may already have a will and possibly a trust, but if not, act now. Also create an advance healthcare directive.

In your 60s: Start to transition

This is the time to make important decisions about how you’ll handle your finances in retirement.

Be specific: Think practically about how and when you want to retire. What’s a realistic timeframe? Will you stay where you are or move? What will your expenses be? Make sure you and your partner agree.

Explore Social Security and Medicare options: These are valuable benefits that can make a real financial difference in retirement. Understand the timing rules and regulations so you can take maximum advantage of both.

Create a retirement paycheck: Add up income from outside your portfolio like Social Security, pension, real estate, etc. Then calculate what you’ll need from your portfolio to cover expenses and decide how best to make withdrawals. Aim to keep enough in cash to cover one to two years of expenses so you’re not forced to sell in a down market.

In your 70s (and beyond): Adjust as needed and enjoy!

If you’ve stayed on track—and kept your cool despite economic ups and downs—you deserve to enjoy what you’ve worked so hard to achieve.

Strike a balance: Many seniors remain active and working, for good reason. Part-time work can be a pleasure as well as a financial boost. Travel, family, and personal pursuits can also be fulfilling. Find the balance that suits you personally and economically.

Modify your retirement income plan as needed: You may need more income early in retirement, less as time goes by. Keep on top of resources and expenses. Factor in required minimum distributions (RMDs)—and take them on time, or you’ll be penalized!

Update your legacy and charitable planning: Make sure your beneficiary designations, wills, trusts, and charitable giving plan reflect your current wishes. Be open with your family about what you’ve set up so there are no surprises.

A financial advisor can help you fine tune your plan. But wherever you are on your economic timeline, remember: Life will change—and so will these uncertain times. Having a financial plan, no matter your age or the state of the economy, will help keep you on track.

schwab.com

5 Tips to Help Weather a Recession

Whether we’re on the verge of a recession is anybody’s guess. But one thing’s for certain: Recessions are an inevitable, albeit painful, part of the business cycle. Since 1948, the U.S. has experienced 12 recessions – an average of one every six years. To put that in perspective, an individual who begins investing at age 25 could expect to experience between six and seven recessions by the time they reach retirement.

Recessions—generally defined as a contraction of economic activity lasting at least six months—are a relatively regular and even natural part of the economic cycle, so it’s important to have a plan for when they occur. You may not be able to make your portfolio recession-proof, but you can make it recession-resistant.

Take these five steps before and during recessions to mute the impact on your savings—and perhaps even capitalize on the opportunities that recessions can usher in.

Batten down the hatches

Recessions often coincide with bear markets, or market declines of 20% or more—although bear markets often come first, with investors anticipating an economic slowdown. However, while the average recession lasts just 11 months, it generally takes the market more than two years to bounce back to its pre-bear peak.

To make your portfolio more recession-resistant, first shore up your cash reserves. Otherwise, you may be forced to sell stocks during a market decline, thereby locking in losses and undercutting your portfolio’s capacity to recover.

For nonretirees, that means setting aside three to six months’ worth of living expenses in a relatively safe, liquid account—such as an interest-bearing checking account, money market savings account, money market fund, or short-term CD—plus enough cash to cover any upcoming sizable expenses, such as tuition payments.

For retirees, cash reserves should be much larger—ideally covering two to four years’ worth of expenses. If you don’t have enough cash on hand, taking a big withdrawal in a down market can seriously increase your longevity risk, or the risk that you’ll outlive your savings.

Hold firm

If you’re tempted to bail on the market when the going gets tough—don’t. There’s a reason those in the know describe investing as a marathon, not a sprint.

In fact, trying to time the market can set you back significantly. Some of the best days in the market have occurred right on the heels of some of the worst. For example, moving your portfolio into cash for just one month following a market decline of 20% or more would cut your returns almost in half one year later.

As long as you have sufficient time and money—whether from wages, retirement income, or cash reserves—it’s important to stay the course so you can potentially benefit from the eventual recovery.

That said, it generally makes sense to sell some investments and buy others as part of your regular portfolio maintenance. “Paring back on those investments that have become overweight and reinvesting those funds in assets that have become underweight help you maintain your target asset allocation and take advantage of the relatively low prices a down market often affords.

Double down

When the market is falling, it’s natural to want to wait until it recovers to put more money in, but you should really be doing the opposite if you can afford it. As famed investor Warren Buffett once put it: “Bad news is an investor’s best friend. It lets you buy a slice of America’s future at a marked-down price.”

Still, there are a couple of caveats:

Don’t use your emergency funds for new investments. You might be tempted to dip into that pool for especially tempting opportunities, but they’re called emergency funds for a reason.

Don’t hoard cash hoping to land a bargain. The sooner your money is in the market, the sooner it can benefit from the effects of compounding, trying to pinpoint the perfect time to get in is notoriously difficult.

Consider tactical tweaks:

Beyond buying shares at a discount, a downturn offers the opportunity to make strategic adjustments to your portfolio. Tactical tweaks should be refinements rather than wholesale changes. Never deviate from your target asset allocation by more than five percentage points.

You might consider:

High-quality stocks: Companies with low debt, positive earnings, strong cash flow, and low volatility tend to outperform when recessions hit and investors turn to businesses with ample financial cushions.

Lower-volatility sectors: Defensive sectors—including Consumer Staples, Health Care, and Utilities—tend to be less volatile than the broader market and therefore have greater potential to outperform when returns go negative.

Fundamental index funds: These index funds weight holdings by fundamental factors such as adjusted revenue, dividend yields, and earnings, and, as such, they favor value relative to market-cap-weighted index funds.

Longer-maturity bonds: As interest rates rise, consider shifting your long-term fixed income allocation to longer-maturity bonds. The Federal Reserve may be raising rates now, but it typically begins cutting them once economic conditions deteriorate. You want to lock in today’s higher coupons before they fall.

Reach out

While there’s a lot you can do to make your portfolio more recession-resistant, you may not think you have the expertise or time to do so effectively—or you may simply want a second opinion before responding to prevailing market conditions. Working with a financial planner can help align your investments with your spending needs and goals, as well as prioritize which—if any—of these steps make the most sense for your situation.

Resolve to Avoid these Money Mistakes

by Kristy Como Armand

All of us are guilty of a few bad financial habits, but it’s easy to overlook the true expense impact of each one. However, the combination of multiple of these poor habits over time could lead to bigger problems. 

The good news is that some of the most frequently made missteps are also the most preventable – and easiest to rectify, according to Bryan Armentor, Vice President with Lakeside Bank. “Finance-related resolutions are among the most common each year. Instead of just making a broad resolution to ‘save more,’ or ‘pay down debt,’ why not shift that focus to more specific goals that will eliminate some   money mistakes. These mistakes may be preventing you from reaching those bigger financial goals.”  

Armentor provides the following examples of common financial mistakes and steps to take to avoid them:  

Paying late fees 

Late fees not only add to expenses; they can also negatively impact your credit score. Many people pay late fees simply because they forget the due date, not because they don’t have the money to pay them. Technology has made this an easy fix. Set up automatic payments with the lender or with your bank’s online banking system.

Recurring payments 

Some bills, such as your insurance premium or an online subscription, for example, allow you to choose between making one big annual payment or a series of installments. In many cases, the monthly or quarterly options include a service charge. It may be just $5, but that adds up to $20 to $60 annually and much more over multiple expenses and annual year. Check on the options and pay annually if you can and prevent that service fee. 

Borrowing to buy things that lose value. 

A good debt is something that will help you build wealth over time, such as a loan to go back to school or a home mortgage. Bad debt is the kind that you accumulate by financing purchases things like vehicles, furniture, appliances, technology – things that quickly lose value. Paying interest means getting hit twice, first by the value loss and then by finance charges. Use cash whenever possible, and if you do finance, pay off as quickly as possible. One good way to do this is to pay extra toward the principle with every monthly payment

Carrying credit card debt. 

This has become such a widespread habit that many people don’t even think twice about having a stack of credit card bills to pay each month. It’s a big mistake to use a credit card for everyday items such as groceries, clothing or gas if you are not going to pay the full balance off right away. You’ll end up paying way more than these items are worth in interest fees over time. Other tips:  shop around for low-interest-rate cards, don’t carry a lot of credit cards with you and restrict credit card use for emergency situations. 

Being careless with your financial information. 

Identity theft is rampant, so protect your personal identification information in all situations. You should not carry your social security number, ATM passwords, bank account numbers, credit card numbers, or any other personal, financial information with you, or within an easily accessible device such as a laptop, iPad, or smart phone. Those numbers are all a thief needs to access your account and steal not only your money, but your identity, which enables them to do far more damage to your finances if they secure additional credit in your name.  

Not having a plan. 

Many people procrastinate when it comes to finances, but study after study has found that planning is associated with wealth accumulation. Develop a plan for budgeting, credit use, and for saving money for emergencies and other long-term goals, and you are much more likely to be successful. 

Paying full price. 

This can be a big drain on your finances. In today’s digital age there are many tools available to help consumers make better buying decisions. The asking price is rarely what you have to pay when it comes to many goods, and especially services. If you aren’t inquiring about discounts, researching coupons, checking sales promotions, cash discounts or negotiating for a better price, you won’t get them.

Not checking your credit score. 

Potential lenders could have a much different picture of you than you think, and if they erroneously think you’re high-risk, they’ll charge you more to borrow. Checking your credit report is a simple process: Request a free credit report online from one of the three credit rating agencies — Equifax, Experian, or Transunion. Each is required to provide you with a free report once a year. Flag any errors or unexpected changes to your report and file any discrepancies to the credit rating agencies. A few months later, check again using another of the agencies to make sure any mistakes have been corrected. 

Saving whatever is left at the end of the month.

If you do that, don’t be surprised when there isn’t anything left to save. Instead, have your savings automatically set aside before you even have a chance to spend it. The easiest way to do that is in your employer’s retirement plan if this option is available. The same is true for medical expenses and dependent care if you’re eligible for an FSA (flexible spending account) or HSA (health savings account). You can also have money automatically transferred from your checking account to savings or investment accounts. 

Wasting a windfall. 

Getting a big lump sum of money is exciting, and all too easy to view this as extra spending money. Many people get this opportunity every year with tax refunds, inheritances, year-end bonus or any unexpected lump sum of money. If you’re lucky enough to be in this situation, don’t make an impulsive purchase. Use this as an opportunity to pay down debt or build up your savings. 

“Mistakes like these can derail the plans you have for your money – and your future,” says Armentor. “It takes care and discipline to achieve your financial goals; don’t put your plans for your future at risk because of poor money habits today.”  

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