Get Answers to 6 of Your Most Important 401(k) Questions

401(k) plans are hailed by many financial experts as one of the easiest and most convenient ways to save for retirement. However, according to data from the US Census Bureau, although an estimated 79 percent of American workers have access to a 401(k) plan through their employer, only 41 percent of those choose to take advantage of this retirement savings option.

Given the many benefits they can offer, why is 401(k) uptake so low? One possible reason could be the fact that many people, even those who do participate in a 401(k), find the rules and details of this type of plan confusing. When you’re not sure what the advantages of a 401(k) really are, or when and how you’ll get back the money you put in, it’s understandable that you might feel hesitant about funding such a plan.

If you share this confusion, and have avoided pursuing a 401(k) opportunity for that reason, read on for answers to some of the most commonly asked questions about 401(k)s.

What exactly is a 401(k)?

Simply put, a 401(k) is an employer-sponsored retirement plan that is funded, at least in part, by contributions deducted directly from your earnings. Your employer invests this money on your behalf in a retirement fund, where it will grow on a tax-deferred basis until you withdraw from it.

Why would I choose to participate in my employer’s 401(k) plan?

There are a number of reasons why investing in a 401(k) through your employer makes good financial sense. The first is the opportunity for a tax break. The money that you contribute to a 401(k) comes directly off your salary before taxes, which in turn lowers your taxable income and results in a smaller tax bill.

Another important reason to participate is to take advantage of employer contributions. As part of their 401(k) plans, many employers will offer to match whatever money you put in up to a certain percentage. This essentially amounts to free money from your employer, and is one of the biggest benefits that a 401(k) can offer over other retirement savings options.  For example, it is fairly common for an employer to contribute or “match” 50% of what you put into the 401k up to a certain percentage of your salary-such as 3% from the employer if you contribute 6%.  This is essentially a 505 return on your money, even if you leave it in cash in a money market choice! We urge all people to contribute up to the maximum match offered by the employer for this reason. 

Finally, investing in your employer’s 401(k) plan can be worth it simply because it’s so convenient. Once you’ve enrolled in the plan and set your desired contribution level, that money will be set aside each month without you having to make any effort or even think about it at all.

How much money should I invest in my 401(k)?

The amount you choose to contribute to your 401(k) will depend on a number of factors, such as your anticipated expenses during retirement, your current assets and debts, and the tax advantages you can gain from different contribution levels. As a general rule of thumb, however, most experts recommend that you put a minimum of 5-10 percent of your paycheck toward your 401(k).

Finally, do be aware that 401(k)s have contribution limits attached. For 2021, employees can put up to $19,500 towards a 401(k).

How is the money in my 401(k) invested?

While your employer does make certain investment decisions on your behalf with a 401(k), it’s important to understand that you do have some choices when it comes to how your 401(k) contributions are invested. Most plans offer some combination of actively managed domestic and international stock funds, domestic bond funds, and money-market funds, as well as low-cost index funds.

Depending on your investment goals and risk tolerance, you can choose how you want your money allocated, and you can also make changes to your investments over time. If you don’t know where you want your contributions to go, the default option will typically be a money-market fund or a target-date fund. Unfortunately, most 401k plans do not offer a truly broad menu of investment choices. For example, there are often no choices in the following asset categories, which can mean lots of lost opportunities for growth and returns over time:  precious metals; natural resources; emerging markets; real estate; foreign bonds; etc. It is therefore important for you to try to gain a presence in these other asset categories with non-401k funds, if possible, in order to be truly diversified in your pursuit of long-term growth for retirement.

What do I have to do if I want to join my employer’s 401(k) plan?

Some companies offer automatic 401(k) enrollment, which means that you’re automatically included in your employer’s 401(k) as soon as you start working. Other companies take an “opt-in” approach. This means that you’ll need to fill out a form and submit it to HR to set up your 401(k) and start having contributions deducted from your pay.

In either case, you can talk to someone from HR or payroll if you have questions at any time about your 401(k), or if you want to change details such as your contribution amount.

What happens to my 401(k) if I move to a new job?

Because 401(k) plans are employer-sponsored, employees are often confused about what will happen to their 401(k) if they leave their current job. The good news is that you do have several choices in this situation.

You can simply leave the money in your employer’s plan, where it will continue to be invested; you can roll the money into a 401(k) at your new employer, if they offer one; or you can roll the money into an individual retirement account (IRA). You also have the option to simply cash out your 401(k) when you leave an employer, although this is not usually recommended as it increases your tax burden significantly and wipes out future financial gains.  If you “roll over” the funds in your 401k to an IRA when you leave that job, there are no tax consequences. In other words, the entire amount of the 401k being rolled over into the IRA account will not be taxed-those funds will continue to grow tax deferred in the IRA, and now, in that IRA, you will have many more investment choices available to you. 

A Helpful Cryptocurrency Glossary That’s Great for Beginners

I recently did a webinar with a colleague on the subject of learning about Bitcoin and cryptos.

An Introduction to Crypto-Currencies

Hosted by Robert Ryerson, Dr. Jose Cao Alvira, Nikki Shank

Thursday, March 25 2021

6:00 PM Eastern Time (US and Canada) GMT -4

We have recorded the webinar event for you!

In case you missed the live webinar, or in case you would like to watch it again, here is the link to the replay video:

Enjoy the content!

A Helpful Cryptocurrency Glossary That’s Great for Beginners

If you’re thinking about investing in cryptocurrencies, familiarizing yourself with the industry’s most common terms is a helpful first step to take. The world of digital currencies is full of highly specialized terms, acronyms, and phrases that can be confusing to a prospective investor encountering them for the first time. Taking the time to learn the basic vocabulary helps give you a better understanding of what cryptocurrencies are and, therefore, a more secure foothold as you enter this exciting and fast-moving market.

The following are some of most useful cryptocurrency terms with which to start:

Address – An address is a specific code, represented as a string of numbers and letters, that identifies the location of every cryptocurrency coin on the blockchain. When cryptocurrency transactions take place, digital assets are sent to and from different addresses.

All Time High (ATH) – As the expression suggests, all time high (ATH) is the term for the highest price a particular cryptocurrency has ever reached on the market. If you’re interested in tracking the performance of different cryptocurrencies, comparing the ATH against the current price can give you a sense of whether a digital asset is a good buy at any given moment.

Altcoin – Also known as alternative coins, or simply alts, altcoin refers to any type of cryptocurrency other than Bitcoin. According to some estimates, there are currently close to 9,000 different altcoins in existence, and altcoins accounted for more than 40 percent of the total cryptocurrency market in March 2021.

Bag – In the cryptocurrency world, the term “bag” is essentially the equivalent of “portfolio” in that it refers to the full collection of digital assets that you hold.

Bitcoin – Launched in 2009, Bitcoin is the original cryptocurrency and still the most popular digital currency in the world.

Blockchain – The driving force that powers virtually every type of cryptocurrency, blockchain is a trail of verified digital transactions that have been linked together. Functionally, blockchain acts as a kind of virtual accounting ledger in which publicly viewable transactions are stored in multiple secure places.

Cryptocurrency – Money that exists in the form of encrypted, digital information. The most important thing to understand about cryptocurrency is that it is completely independent of banks or other traditional financial institutions and uses sophisticated mathematics to process and regulate how funds are created and exchanged.

Cryptography – The process of encoding and decoding information to keep it private and secure.

Distributed – This refers to the practice of spreading something out in different places or among different devices rather than keeping it in a single location. One term you’ll hear frequently in a cryptocurrency context is “distributed ledger,” which refers to the fact that the blockchain is essentially a shared database where transactions and related details are recorded in multiple places at the same time. The idea behind distributed-ledger technology is that, because there are many identical copies of the ledger in existence, the information it stores is far more secure and virtually impossible to counterfeit.

Exchange – One of the more easily identifiable terms found in the cryptocurrency world, an exchange is a marketplace where traders can buy, sell, and trade digital assets. Many different exchanges exist, each with its own rules around trading fees, exchange rates, and other key features. Note that it’s not usually possible to trade any type of cryptocurrency on any exchange; some exchanges only trade in a selection of cryptocurrencies.

Fiat Currency – Fiat currencies are what most people think of as “real money.” In other words, a fiat currency is any type of government-issued currency that a specific nation or region uses as legal tender, such as the U.S. dollar or the euro.

Mining – The term mining refers to the process of creating new units of a digital currency by verifying digital transactions and adding them to the blockchain. Another way to describe mining is the act of running software that solves cryptographic puzzles in order to obtain rewards in the form of digital currency.

Node – Any computer that hosts the blockchain is known as a node. Having many nodes running the blockchain is an essential part of its distributed-ledger technology.

Satoshis (Sats) – A satoshi is the term for the smallest fraction of a Bitcoin: one-hundred-millionths. The name comes from Satoshi Nakamoto, the pseudonym by which the person or group that created Bitcoin is widely known.

Token – Tokens are digital units issued on a blockchain. They are the primary means of transferring and storing value on the blockchain network.

Wallet – In the world of cryptocurrency, a wallet is the software that interacts with the blockchain and allows you to send or receive digital assets. Wallets can be either hot, which means they are connected to the Internet, or cold, in which case they are not connected (cold wallets are usually considered to be the most secure way to store cryptocurrency assets).

6 Signs That Can Tell You if You’re Financially Ready to Retire

Do you find yourself thinking about retirement with just as much fear as excitement? If so, it’s not at all surprising; workplaces seem to be full of stories about people who stop working too soon and find themselves in dire financial straits during their retirement years. In fact, according to the 2020 Transamerica Retirement Survey of Workers (an annual study now in its 20th iteration), the possibility of outliving savings and investments is the most common retirement fear, with 40 percent of American workers citing this as their top concern.

Fortunately, there are plenty of signs that can help you determine whether you are financially ready to retire. As you think about the timeline for your retirement, note how many of the following points apply to you to give you a more accurate idea of just how prepared you are to stop working.

1. You’ve reached full retirement age.

Even if you’ve done very little retirement planning, you’re probably aware that the age at which you retire is directly connected to the amount of Social Security benefits you’ll be entitled to. Although you can begin receiving Social Security benefits as early as age 62, you aren’t eligible to receive your full Social Security benefit until you’ve reached what is known as full retirement age (this is age 66 for workers born between 1943 and 1954 and 67 for US workers born in 1960 and later). If you do choose to claim your benefits early, the monthly benefit you’ll receive will be up to 30 percent lower than the amount you’d be eligible for at full retirement age—a significant reduction that can have big implications for your retirement finances.

2. Your debts are paid off.

One of the most important things you can do to set yourself up for a financially secure retirement is to pay off most or all of your debt before you stop working. Things like mortgage payments, car payments, and credit card interest can eat into a fixed income fairly quickly, not to mention the fact that these debts reduce the buffer you have available to deal with any unexpected financial emergencies.

3. You’re not financially supporting a dependent.

If you’re providing financial support to your children, parents, or both (15 percent of middle-aged adults fall into this last category, according to Pew Research Center), it may not be financially feasible for you to stop working just yet. A financially secure retirement assumes that, to a certain extent at least, you’ll be able to downsize and reduce some of your costs. However, this is extremely difficult to do if you’re responsible for expenses like college tuition for one or more kids or health-related costs for elderly parents. Furthermore, retirement plans tend to focus on individuals or couples only, and they don’t typically take into account the need to provide financially for other parties.

4. Your current income is (more than) enough for your needs.

Unless you’re extremely well prepared for retirement, your income is likely to take a hit as soon as you stop working (as suggested by many retirement planners and financial advisors, a good rule of thumb is to expect your retirement income to be about 75 percent of your working income). The assumption here is that this reduced income will be offset by the corresponding loss of other costs, such as retirement plan contributions, saving for a child’s education, or commuting. However, if you find that your current income is only just adequate for your needs, you may not be able to make ends meet effectively when that income is reduced by 25 percent, even if some or all of those previously mentioned costs are eliminated.

5. You don’t foresee any major expenses in the near future.

Retirement planning is all about thinking ahead, so it only makes sense to hold off on retirement until you’ve addressed any major anticipated expenses. For example, does your home need a new roof? Are you thinking about purchasing a vacation home or a new car? It’s best to deal with these kinds of expenses before, rather than after, you stop working. Larger expenses can add up quickly, and if you’re withdrawing funds from taxable accounts to pay for them, it can have a significant impact on your portfolio that can, in turn, affect your retirement income.

You and your spouse are on the same page.

If you have a spouse or partner, your retirement will have just as big an impact on them as it will on you. It’s therefore essential to share your plans with your spouse and have an open conversation about what your retirement will mean for you both, particularly in financial terms. Points that are helpful to discuss together include how your spouse will be affected by a reduced income, whether your spouse will need to work longer to cover household expenses, and what your spouse’s own plans are for retirement.

Getting Started with Cryptocurrencies – 7 Big Questions Answered

There’s little doubt that cryptocurrency is one of the hottest topics in the financial sphere today, but this doesn’t necessarily mean that it’s easy to understand. Due to the sophisticated technology that powers it and the incredible speed with which it has evolved, cryptocurrency can be a confusing subject even for people with a good deal of financial knowledge, let alone for the average investor wondering about the best way to save for retirement.

To help demystify some of the current discussion around cryptocurrencies, New Century Planning Associates Inc. has just released a special presentation that aims to introduce the world of cryptocurrency to a general audience. Featuring New Century President Robert M. Ryerson and CUNY Professor Jose J. Cao Alvira, the presentation offers straightforward answers to some of the most common questions beginners have about cryptocurrency, including:

1. What are cryptocurrencies?

Also known as “cryptos” or “digital assets,” cryptocurrencies are digital currencies which take the form of virtual tokens or “coins.” As suggested by the name, the most important feature of a cryptocurrency is the advanced cryptographic protocol which secures the creation and processing of the currency and its associated transactions. It makes counterfeiting or replicating the currency nearly impossible.

2. How does Bitcoin work?

Although there are thousands of cryptocurrencies in existence today, Bitcoin still leads the field when it comes to market capitalization, user base, and popularity. Widely considered to be the original cryptocurrency, Bitcoin was launched in 2008 after the collapse of Lehman Brothers led to a global financial crisis and a widespread lack of trust in the international banking system.

The basic principle behind Bitcoin is the use of an online protocol to transfer value from one person to another via blockchain technology. Transfers may take place in exchange for goods and services—for example, you might buy something from another person and choose to pay them in Bitcoin—or simply for the purpose of transferring the value, much like a stock market trade.

3. How does mining work?

Mining is another (somewhat confusing) term you’ll often hear in discussions about Bitcoin. An instrumental feature of Bitcoin adoption, mining is, in essence, the practice of validating digital transactions that involve Bitcoin. This work is carried out by miners, or computer programmers, who are spread all over the world.

These miners monitor and confirm each transaction that is entered into the Bitcoin system, thus ensuring the validity and legitimacy of the system. For their efforts, miners are paid in Bitcoin. This provides an incentive to keep the whole system running efficiently and permanently, and it removes the need for a central authority to oversee the system.

4. How does blockchain work?

Blockchain technology is the driving force behind Bitcoin and virtually every other type of cryptocurrency. A blockchain is a trail of verified digital transactions, or “blocks,” that have been strung together. This happens when a transaction is verified by a miner, as described above: the verified transaction is then attached to other, previously verified blocks, producing a chain that gives blockchain its name.

You can think of blockchain as a kind of virtual accounting ledger in which every transaction is publicly viewable, and that is distributed, or stored, across a vast network of highly-secured computer servers. The transactions are stored in chronological order, and they are irreversible, which means that it’s impossible to eliminate evidence of historical transactions.

5. How are cryptocurrencies purchased?

If you’re interested in purchasing cryptocurrencies, the most common place to start is a cryptocurrency trading exchange. Coinbase, Kraken, Gemini, and Binance are some of the platforms where the more popular cryptocurrencies, including Bitcoin, can be purchased. To hold your new digital assets, you’ll need a special app known as a “wallet.”

Wallets can be either “hot” (that is, connected to the internet) or “cold” (this is an external storage device with no internet connectivity). Because they are not connected to the internet, cold wallets offer increased security, but are less convenient to access; hot wallets, on the other hand, may be more vulnerable to security breaches but offer easy access to your assets.

6. What other cryptocurrencies are worth investigating?

While Bitcoin remains the cryptocurrency of choice for most investors, many other cryptocurrencies are worth exploring. One digital asset that has risen significantly in popularity (and value) over the last year is the cryptocurrency known as Theta. First introduced in 2018, Theta is the token of the Theta blockchain, a purpose-built network for decentralized streaming video delivery. It is available on many popular exchanges, including Binance and Kraken.

7. Are cryptocurrencies right for you?

Despite their soaring popularity, cryptocurrencies aren’t always the right choice for every investor. To learn more about what role cryptocurrencies could play in your investment strategy, check out the New Century Planning Associates presentation, which includes a special offer for a free 15-minute consultation with New Century Planning advisors.

5 Reasons Why Retirement Planning Matters More Than Ever

If you’re finding it difficult to make retirement planning a priority, you’re not alone. Meeting your current financial obligations—such as rent or mortgage payments, recurring monthly expenses, and debt or interest repayments—can be challenging enough without having to think about the long-term future as well. Given how great this pressure from immediate financial demands can be, it’s perhaps not surprising that 42 percent of Americans say they have no retirement savings at all, as revealed in a 2018 report from the Center for Financial Services Innovation.

However, while this figure may not be surprising, it is certainly concerning. For people in the workforce today, retirement planning is more important than ever, and the longer you delay taking action about it, the more potentially serious the future financial consequences can be. Although you may think that you can’t afford to save for retirement, the simple truth is that you can’t afford not to. Here are five reasons why.

1. You may live longer than you think you will.

Did you know that the life expectancy for the average American is now close to 80? As a result of healthier lifestyles, medical advances, and many other factors, people all around the world are living longer than ever before. From a retirement planning perspective, this means that it’s important not to underestimate the number of post-retirement years you might have ahead of you. Even if you’re thinking about working past the traditional retirement age of 65, there could still be many years (or even decades!) where you’ll need a nonwork-based source of income.

2. You may not get to decide when you retire.

Of course, even if you’re planning to keep working after you turn 65, the fact is that the timing of your retirement may not be something you have control over. According to data from the Retirement Confidence Survey (RCS), an annual survey of working-age and retired Americans led by the Employee Benefit Research Institute, there is a significant gap between the age at which most workers think they will retire and the age at which they actually leave the workforce.

Specifically, it’s quite common for workers to retire earlier than planned. As reported in the 2020 RCS, 31 percent of workers said they planned to retire at or after age 70, but only 6 percent of retirees had retired in that age range. Similarly, only 11 percent of workers said they planned to retire before the age of 60, but 33 percent of retirees reported that they had retired that early. For many respondents, their early retirement was due to issues such as health problems or disabilities (35 percent) or to changes at their company (35 percent). As an individual worker, neither of these scenarios is usually within your control.

3. You may have underestimated future medical costs.

When thinking about your retired life, the age at which it starts isn’t the only thing that might be out of your hands. While many working people assume that they’ll be able to remain healthy and fit throughout their golden years, the reality doesn’t always work out that way, and, unfortunately, unexpected medical bills can have a serious financial impact on someone without a solid retirement plan. Furthermore, even seniors who do enjoy good health during their retirement usually face far higher healthcare costs than they imagine. As reported in a 2018 article from The Motley Fool, the average 65-year-old man and woman will need to spend $189,687 and $214,565, respectively, to cover medical care in retirement, not including long-term care costs.

4. Your expenses may not decrease in retirement.

Healthcare expenses aside, many retirees are also surprised to find that their other expenses don’t decrease as much as they expected—if at all—after they retire. Many basic expenses, such as food, personal care, utilities, and car payments, simply remain the same. Other expenses may decrease, but they can be offset by additional costs. For example, if you own your home, you may have your mortgage paid off by the time you retire, but your (older) home may now require costly repairs and renovations.

Finally, the expense category that may increase the most, depending on your vision for your retirement, is leisure. If you’re planning to travel or enjoy more entertainment opportunities than you did while you were working, you may find you need a higher income to support this lifestyle.

5. Social Security alone isn’t sufficient.

Many workers assume that they don’t need to put aside independent savings for retirement because Social Security will provide them with the income they need. However, while Social Security is indeed an important source of retirement income, it shouldn’t be—and was never intended to be—the only source. For most people, Social Security will fall far short of the income needed to meet basic expenses in retirement, let alone pursue travel or other leisure opportunities. As an example, if you’re a 30-year-old currently earning an annual salary of $50,000, at the age of 67, you would receive less than $22,000 per year (in today’s dollars) in Social Security payments.

How Can A Financial Professional Help You?

Today, the field of financial planning is growing in popularity, with more people than ever working to create some type of financial plan for their future. For those who possess little understanding of the financial industry, financial planning can be overwhelming and difficult. In these cases, it might be prudent to seek the services of a financial professional, such as a financial planner or a financial advisor, to help you. What do financial professionals do and how can they help you with your finances?

Financial Planners and Financial Advisors

When looking for a financial professional to assist you in planning your finances, you will encounter two common types: financial planners and financial advisors. For those who are unfamiliar with the financial industry, they might sound interchangeable, but are, in fact, quite similar. However, there are a few key differences that you should be aware of when choosing which type of financial professional you should work with regarding your finances.

The term “financial advisor” is the broader of the two. Financial planners can be financial advisors, but not all financial advisors are financial planners. Financial advisors can obtain more than 100 different types of certifications. These professionals can help you to manage your money and investments in a broader sense, serving as close partners throughout the financial planning process. Together, you may highlight a wide array of financial topics.

The term “financial planner” is specific to financial professionals who help companies or individuals when creating a financial plan designed to meet their long-term monetary goals. These professionals may focus on certain areas of finance in order to better assist clients with their specific needs.

No matter which type of financial professional you choose to work with, they will typically ask you to complete a financial health questionnaire of some kind. This will give them a more complete look at your finances, thus enabling them to offer you relevant and helpful advice.

Benefits of Working with a Financial Professional

A financial professional can help anyone, regardless of their income level—especially when it comes to helping them to achieve their long-term financial goals. Financial advisors leverage their industry knowledge to give their clients relevant advice regarding investment opportunities, tax strategies, insurance, bulking up savings, and creating a functional budget. It is that knowledge that can prove most beneficial to you, particularly if you lack knowledge in a particular area of your finances.

Both financial advisors and financial planners are helpful when you’re seeking to attain specific financial goals. They could include aspects such as saving for a down payment on your first home or your child’s college education, or paying down student loan debt. Financial advisors can help you with these long-term goals, as well, but they can also advise you on shorter-term goals like tackling credit card debt or establishing an emergency fund.

Financial Goals

Most financial professionals recommend that people create a budget to manage their finances, but this isn’t always easy. Establishing a budget that you can successfully follow requires financial planning. With the help of a financial professional, you can develop a budget that will accommodate your specific lifestyle, whether you are able to set aside a large amount of money each month, or you live paycheck to paycheck and saving is a distant dream. You can adjust your budget to meet any monetary goal, and a financial advisor can help you to determine where you should be putting your money as you seek to achieve that goal.

If you decide to work with a financial planner or a financial advisor for the long-term, then they will most likely set up regular sessions with you to check in on the state of your finances. This is important because your finances and personal situation will change over time. To get the most out of your financial plan, you need to regularly take stock of your financial situation.

You may think that the services of a financial professional do not fit into your budget, but you don’t necessarily need to pay for financial advice in the long term. Depending on the type of advice you need, it may be possible to hire a financial professional for only a few sessions. For instance, you can enlist their services to develop a financial plan or to consult with them before starting a family or retiring.

Working with a financial planner or a financial advisor can guide you through a variety of financial situations. Whether you are planning for retirement, seeking investment advice, or paying off debt, these professionals can advise you in making the most effective financial decisions for you and your family.

Are Multiple Financial Advisors a Smart Idea? What You Need to Know

Working with a financial advisor to help you achieve your financial goals has become increasingly common. Where once people considered financial advisors and financial planning in general only appropriate for the very wealthy, now people from a broader range of income levels are interested in creating a comprehensive financial plan for themselves and using a professional to help them do so.

If you have one financial advisor, you might wonder whether that one is enough. Maybe you have considered multiple financial advisors to address multiple distinct financial needs. Maybe you’re wary about putting all your assets in one advisor’s hands and are wondering if multiple advisors might mitigate that risk. Whatever your motivation, if you’re considering hiring more than one financial advisor, here are a few pros and cons to think about.

The Cost Factor

First and perhaps most importantly, you should think about the overall cost implications of employing more than one financial advisor. Financial advisors are instrumental in helping you achieve your overall long-term financial goals, helping you invest your money, reduce your tax burden, and save for your retirement. However, if you’re employing multiple financial advisors, it could be possible that the amount you are spending for their services outweighs the benefits they are providing. For example, you could end up paying more in fees and commissions if you split your money among several advisors, rather than investing one large amount with one advisor or firm. Calculate the combined cost of your financial advisors before deciding on that particular course of action, because the expenses could outweigh the benefits for your situation.

The Time Factor

Something else you might consider is the amount of time you’re likely to spend dealing with your different financial advisors. Multiple advisors can be a benefit, but you won’t see those benefits unless there is someone in a leadership role who has oversight of everything. In many cases, that role falls to you, meaning you have to spend a considerable amount of time managing all the advisors you are employing. Two advisors means twice the meetings, twice the phone calls, and so on. You’ll have to serve as a go-between as well.   

Alternatively, you could decide instead to designate one primary advisor and direct the rest of your financial advisors to report to that person before they make decisions. This can be a workable alternative to free up your time, since you can communicate your needs and goals with one primary individual, rather than having to spend a lot of time talking with each advisor individually. The key to effective use of multiple advisors is, of course, communication.

Consider a Specialist

If you already have a financial advisor helping you manage your goals, a second advisor could fill in the gaps in the other’s skills and expertise. For example, your primary financial advisor may manage your retirement savings, but may not have expertise in estate planning. In this case, engaging with a second financial advisor who specializes in estate planning could be an excellent idea. No matter your financial situation, multiple financial advisors are always most effective when they work in coordination and fill in each other’s knowledge gaps. When your financial advisors’ work overlaps, or when they aren’t coordinating, problems can arise.

The Cons and Caveats

In many situations, multiple financial advisors can be effective, in particular for high net worth individuals. With considerable means at your disposal, multiple financial advisors can mean multiple investment strategies that provide good portfolio diversification.

However, for this strategy to be effective, you must ensure that your assets really are being diversified, and that your team is working in concert. In some cases, the overlap created with multiple financial advisors has the potential to put you at risk. If more than one advisor chooses to purchase the same assets, the result could be that you end up with too much exposure in one asset class.

That’s why all your advisors must be working under the same strategy, and each must know what the others are doing. Remember that none of them will be able to provide good advice if they do not have a comprehensive understanding of your finances. They need to be able to see the entire picture—your total income, liquidity, wealth, debt, and risk exposure—and not just the assets they’re managing. Advisors have a fiduciary duty to do what’s best for their clients, and they usually need to understand your whole picture to fulfill that.

For those individuals looking for a more diverse approach and reduced risk, but who are not comfortable with multiple financial advisors, the alternative is to look for an advisor or firm with experience in multiple financial specialties. In many cases, an advisory firm that utilizes this kind of team approach is a great solution. This way, you can get the benefits of multiple advisors with different specialty areas.

Consider Your Goals

Before deciding to use multiple financial advisors, consider the solution that will work best for your specific financial goals. You may be looking for an advisor specifically for your retirement or estate planning needs, or you might be looking for someone who can handle all your finances. Depending on your goals, multiple financial advisors could be beneficial. However, always be sure to weigh your options—including the financial and time expenses of having multiple advisors—before deciding to add more to your team.

What Is Dogecoin? Understanding the “Joke” Cryptocurrency

The cryptocurrency market is perhaps one of the most volatile and unusual investment opportunities in existence today. From the original Bitcoin came hundreds of other cryptocurrencies of all types and for all different purposes. Of these, the most well-known are probably still Bitcoin, Litecoin, and Ethereum.

However, there is another cryptocurrency that has spent a great deal of time in the news lately, which you might be wondering about: Dogecoin. Originally created in 2013 as a joke based on a popular internet meme, Dogecoin is the latest cryptocurrency in the news. Here is a look at what has fueled the strong interest in Dogecoin and what’s driving the latest surge.

What Is Dogecoin?

Dogecoin came onto the cryptocurrency scene as a joke—literally. It was meant as a sort of satirical homage to Bitcoin, the original cryptocurrency that surged onto the market in 2008. Dogecoin began as a joke tweet from Jackson Palmer, then an employee of software company Adobe. He purchased the domain dogecoin.com and created a website with the meme image. IBM software engineer Billy Markus saw the site and reached out to Palmer, and together they co-created the cryptocurrency.

In many ways, Dogecoin is similar to Bitcoin. Like Bitcoin, Dogecoin is a form of cryptocurrency—a digital asset that functions as a unit of exchange and allows people to conduct peer-to-peer transactions without a central banking authority.

Cryptocurrencies are facilitated by blockchain technology. Blockchain is essentially a digital record of transactions linked together using cryptography. Each “block” of records contains a cryptographic code from the previous block, making it virtually impossible to alter records after the fact. In this way, blockchain facilitates peer-to-peer transactions without oversight of a central authority.

Dogecoin differs most drastically from Bitcoin in that it does not have a hard limit on the total supply of Dogecoin available. Bitcoin is limited to about 21 million coins, though not all of these have been mined yet. By comparison, Dogecoin currently has more than 100 billion coins outstanding, and even more hit the supply each year.

The Dogecoin mascot, the shiba inu, originally became popular as a 2013 internet meme that included a picture of the Japanese dog with a quizzical look on its face, accompanied by colorful text intended to display the dog’s internal monologue in broken English. Originally, the meme borrowed its “doge” name from an Internet cartoon series popular in the early 2000s; in one episode, the misspelling “doge” was used to refer to a dog.

When it debuted in December 2013, one Dogecoin was valued at around USD $0.00026; it rallied on December 19th of that year to increase more than 300% to $0.00095 within 24 hours. Dogecoin’s trading volume briefly exceeded that of Bitcoin and all other cryptocurrencies combined in January 2014. During the early 2018 cryptocurrency bubble, Dogecoin reached a value of $0.017/coin and a market capitalization of $2 billion.  

The Influence of Elon Musk

Speculators have flocked to Dogecoin recently. In late January 2021, Dogecoin’s value increased by more than 600% in one day. It ultimately reached $0.085/coin on February 9, 2021. By the 12th, it had fallen slightly to $0.071/coin. These figures mean that Dogecoin’s year-to-date rally is nearly 1,500%.

But why now? What happened?

The answer lies with well-known entrepreneur Elon Musk. He has been credited with sparking this latest round of speculation through a series of tweets about Dogecoin. Several of his past tweets have caused spikes in Dogecoin and Bitcoin, though he has often been quoted as saying the tweets are just jokes.

Rocker Gene Simmons and rapper Snoop Dogg also helped fuel Dogecoin’s recent surge, with Snoop Dogg tweeting a mock album image captioned “Snoop Doge” and Simmons calling himself the “God of Doge.”

Dogecoin’s surge is also likely due to activity on TikTok and Reddit, and further demand for cryptocurrency fueled by Bitcoin’s recent surge. Investors on Reddit and elsewhere have openly said they are trying to push Dogecoin’s value to $1 and have called on others to hold their coins until it reaches this peak—just for kicks, it seems.

All this activity has pushed the market valuation of Dogecoin above $10 billion, making it the tenth most valuable cryptocurrency currently in circulation.

However, Dogecoin remains a risky and extremely volatile investment—it’s more a news headline. The value is almost guaranteed to collapse. Experts say that the speculation resembles a “frothy market” where investors ignore market principles and inflate the value of an asset beyond its real worth. Apparently, enough traders have cash to burn and want a laugh, so this fact doesn’t matter much to them! However, serious investors would do well to avoid the speculation.

Featured Image courtesy Ivan Radic | Flickr

How to Choose a Life Insurance Policy

Retirement planning covers a variety of different areas, from 401(k) plans to estate planning. Navigating this complex area on your own can be a challenge, so it is beneficial to seek out the services of an experienced financial planner, particularly one who is knowledgeable about retirement. One aspect of retirement planning that is sometimes overlooked is life insurance. Many different types of life insurance plans are available, and the one you choose will depend on a variety of factors specific to your situation. Today, the two most popular types of life insurance are term life insurance and whole life insurance. When considering which type of plan is right for you, there are a few things you should consider:

Term Life Insurance

A popular option, term life insurance is cheaper and often easier to understand than others. The reason is because it is simple and straightforward, without any accompanying extras. Term life insurance, as its name suggests, refers to life insurance designed to cover a specific term or period of time. Due to the simplicity of these plans and the limitation of the term, they are less expensive than whole life insurance policies. The purpose of a term life insurance policy is to provide a death benefit for your beneficiaries in the event that you pass away during the term. If for some reason this does not happen, the policy will simply expire and offer no additional value. A term life insurance policy has no “cash value,” and it cannot be used as a way to save on taxes or to build wealth.

Term life insurance is used to provide for your family in the event that you should die prematurely. For example, you might choose to take out a term life insurance policy that would cover the amount of time until your children finish college and enter the workforce so that they could be protected financially if you should die before them. By the time a term life insurance policy expires, many people would be in a position where they would not need it anymore. It may seem to some as though they have spent a large amount of money simply for their own peace of mind.

Whole Life Insurance

Another popular type of life insurance is known as “whole life insurance,” and this type of policy can offer a great deal more in terms of benefits than a simple term life insurance policy. The biggest difference between a whole life insurance policy and a term life insurance policy is that a whole life insurance policy will not expire, and will cover you for your “whole life”, so long as you continue to make premium payments. Whole life insurance policies can also provide cash value separate from the death benefit that can be used for other purposes.

Typically, this type of life insurance policy has a “level premium,” where you pay the same monthly amount for the duration of the policy, or for a period of years. A portion of this payment goes towards the insurance component of the policy, while the other goes toward building the cash value of your policy. Initially, and for many years, the full amount of your premium payment will likely be more than the actual cost of the life insurance. Known as “front-loading” the policy, this eventually results in a payment that would be less than what a term life insurance policy might cost for an older individual. This type of policy also allows you to make a withdrawals from the cash value of your policy. The cash value in a whole life insurance policy will grow on a tax-deferred basis, and it is possible to use occasional or regularly occurring ( once the policy has had 10-20 years to “bake”) loans on a tax free basis for various purposes, including  college tuition or costly repairs and renovations to your home, or a supplemental income in retirement. While it is usually a good idea to pay back loans, in the case of these policies, you would be taking out intentional loans that you do not intend to pay back. You would be taking out some of the growth that has occurred in the policy, and would be content to leave the remaining death benefit to loved ones. 

Remember, however, that taking a withdrawal from the cash value of your policy will result in a lower death benefit, unless you pay back the full amount, which could end up causing your beneficiaries to lose out on monetary benefits. This type of policy is also significantly more expensive than a term life insurance policy, sometimes as much as 15 times the cost of a term life insurance policy. This can make keeping up with the payments challenging for many people, but those much higher payments are also intentional, as cash value life insurance has a number of tax-free benefits that other financial vehicles do not offer.  Also, whole life policies do not have the income or contribution limits that ROTH IRAs have.

Stopping payment on a whole life insurance policy is more complex than doing so on a term life insurance policy. With term life insurance, you can simply stop making payments and allow the policy to lapse. But a whole life insurance policy often comes with a surrender charge of as much as 10% of the cash value, which will decrease over the years. It is also possible to keep the policy in place without paying more premiums, making it a “reduced paid up” policy.

A professional financial advisor can help you to weigh the benefits and disadvantages of life insurance policies so that you can choose the right plan for yourself. Take the time to consider which life insurance policy best fits your needs.

RMDs And Your Retirement: How Will You Be Affected?

For most Americans, large portions of their money sit in retirement accounts without a second thought. Few even consider those funds again until they begin to approach retirement age. One often-overlooked area in retirement is the issue of required minimum distributions (RMDs) and how they might affect you in the future.

Many people reach their 60s with little to no knowledge of what the rules are for RMDs and how this could affect them during their retirement years. What is happening for the most part here is that Americans are simply postponing taxes on 401(k)s or other IRAs until they retire. But this might not always be an ideal scenario, depending on your situation.

What should you consider about RMDs as you approach retirement age? Let’s find out!

What Is an RMD?

The law prohibits leaving your money in a retirement account indefinitely. Unless you have a Roth IRA, you are required to take what are called ‘required minimum distributions,’ or RMDs, each year once you reach a certain age. That age requirement used to be 70 ½, but it has recently been changed to 72.

If you do not take your RMD, there can be serious consequences for you, in addition to the normal taxes that will be due on the distribution.  There is a 50 percent tax penalty on any funds you do not remove by the deadline, and you are, of course, still required to take out your RMD in addition to paying the tax penalty.

Aside from this tax penalty for not taking the RMD for which you are eligible, you can also experience tax issues with the RMD itself. RMDs are taxed just like any other ordinary income despite being obligatory. Even if you have large long term gains on many holdings in your IRA or 401k, you will not receive the more favorable capital gains treatment when you take that money out. All dollars leaving an IRA or 401k or 403B are taxed as ordinary income! These distributions can increase your overall tax bill, and make up to 85% of your Social Security taxable every year as well.

Pandemic Effect

This past year, 2020, the world experienced a global health crisis with the onset of the coronavirus pandemic. Because of the CARES Act passed by the United States government, RMDs were waived for the year 2020 to offer seniors some necessary tax savings during an extremely trying time for the nation.

But so far, RMDs will be back for the year 2021, so you must plan for the consequences. Not taking your RMD in 2020 may save you some on taxes, but it may also have increased your RMD for next year, leaving you with an increased tax bill for 2021.

Planning for RMDs

For some individuals, the RMD is not something they consider. Many Americans need this money for daily living expenses during retirement and rely on those funds held in their 401(k) or IRA to pay the bills.

But if you are in a position where you do not need to withdraw that money, or even a good part of it,  for your everyday expenses, RMDs can become more of a hassle and create an unnecessary tax burden. It is for those individuals that planning for your RMDs can become a huge benefit. If a single person, or married couple, has a significant income from Social Security, having all that Social Security income be tax free every year, instead of largely taxable, can be a very big difference for lifestyle and net spending purposes. By using a series of ROTH conversions over time, many retirees can avoid or reduce the taxes on their Social Security income.  

The Roth Conversion Option

Postponing taxes until retirement might serve some people well. For others, it would be better to have a tax-free source of income to access during retirement. Thankfully, there are ways to make that happen. One is to utilize a Roth 401(k) option if offered by your employer, and another is to convert your IRAs and 401ks or 403Bs to Roth IRAs before reaching the age at which RMDs begin.

Unlike other retirement accounts, Roth 401(k)s and Roth IRAs do not have RMDs and individuals can receive those benefits tax-free during retirement. Though there are income limits on Roth contributions, there are none for Roth conversions. This means that you could conceivably transfer or “convert” your funds to Roth status and Roth accounts over several years, paying taxes along the way. This can help you spread out your tax burden and minimize your taxes during retirement.

Traditional tax advice often assumes you will be in a lower tax bracket during your retirement. Those for whom this will be the case are generally advised to max out their tax-deferred accounts for as long as they can. However, that is not always the case. For some, retirement might bring about an even higher tax bracket, in which case another strategy is required.

The Early Distribution Option

When considering RMDs in the future, it is helpful to consider your total assets and the size of the RMD you expect. If you have large amounts in tax-deferred accounts in retirement, your RMDs could be quite substantial, resulting in a significant tax burden. Many states also tax IRA distributions as well.

Another strategy for lowering your tax burden during retirement is taking withdrawals before reaching the age for RMDs (72). Though it is possible you will pay higher taxes initially, taking withdrawals early might help to lower or even eliminate your RMDs later on, since the amount held in your tax-deferred accounts will be lower, or zero if you have converted it all to ROTH status.

Planning for RMDs and other aspects of retirement can be challenging. It can be useful to consult a financial planner to help you make these decisions.

Resolutions You Need to Change Your Finances in 2021

A new year is a time for people to reflect on new resolutions and changes they want to make, and finances are no exception. Nearly 97 million Americans have plans to make a resolution in the year 2021, according to a recent survey by WalletHub. Many people choose to attempt financial resolutions to change their financial future for the better and establish better habits when it comes to money.

As 2021 begins, consider establishing a few financial resolutions of your own to help improve the way your money can work for you in the new year. Here are a few of the most popular financial resolutions people often make at the start of a new calendar year.

Getting Out Of Debt

One of the most common financial resolutions is to start paying down or eliminate completely any outstanding debts. These debts can be anything from high-interest credit card debt to student loan debt, but reducing them can make a big difference to your overall financial health. With less debt, you’ll free up more money to go toward savings and retirement— and you’ll also simply feel less stressed about your finances.

Some easy ways to start paying down outstanding debt can include taking on a side job to make extra money, cutting back on your spending, reducing your credit card use, and directing money toward an emergency fund. Though it might not seem like putting money in an emergency fund can help pay down debt, having one available can help you avoid using credit cards to cover any emergency situations or other unplanned expenses.

Find the Right Job

A lot of people search tirelessly for ways to save money, reduce debt, and improve their budgets, but few consider the overlooked second half of improving your finances: your job. Especially during this past year in dealing with the coronavirus pandemic, it has become clear that having the right job with the right pay and benefits is vitally important. Jobs that allow for remote work have been extremely important as businesses shut down offices and in-person work, but remote work has benefits beyond those seen during the pandemic.

If you have a job that allows you to work remotely, you can save significantly on commuting costs and even potentially move to a new area with a lower cost of living. Maybe this year should be the one you start looking for a better paying job with more benefits.

Getting a new job is not completely within your control, of course—but it never hurts to start looking and asking yourself what you can do to position yourself for a better career. For example, do some research to see if getting a certification or taking a few low-cost classes (for example, at a community college) could set you on the right path to a higher-paying job.

Retirement Plans

If you haven’t already begun saving for retirement, now is the time. Retirement planning is essential to ensure your financial future, and the earlier you start saving, the greater your returns. Check into the retirement options from your employer. If you have access to a 401(k) plan that provides matching contributions, do what you can to contribute the maximum amount your employer will match. Employer matching allows you to add additional money to your retirement for free. Another smart strategy is to increase your 401(k) contribution with every raise you receive, to be sure you are getting the most out of your paycheck.

Increase Your Savings

New Year’s resolutions that focus on finance are frequently focused on saving. WalletHub notes that the top financial resolution for 2021 is to save more. To get started on a savings goal in the new year, you might try a temporary spending freeze or other smaller types of savings challenges. Even a small increase in your savings—say $10 per week—can start you on the right path to improving your financial health. The coronavirus pandemic has shown that a savings cushion is extremely important in successfully navigating emergencies and other unexpected financial situations. If you have not already started building up an emergency fund, now is the time.

Create a Realistic Budget, and Stick with It

Many people struggle to stay within their established budge because it’s not realistic for their needs. The new year is a great time to reassess your current budget and ensure that it accurately reflects your income, needs, and wants. Make sure that your spending limits work for you. Sometimes, people get overzealous and create a budget that is extremely restrictive in an attempt to save money. However, this can backfire and encourage more overspending—leading you to become frustrated and give up the budget altogether, in exasperation. Always remember that good budgets allow for spending in “fun” categories like entertainment, while prioritizing basic needs.

The Bottom Line: Ensure Your Financial Future

As we head into the new year, consider focusing your resolutions on improving your financial health to ensure a secure and prosperous future. Though some things are out of your control—like the movements of the larger economy—there’s almost always something you can do to improve your spending, saving, investing, or earning.

Important Steps in the Retirement Planning Process

Planning for retirement is an important part of securing your financial future. But many people either do not have any sort of plan at all, or are simply not doing enough to ensure their financial security in their retirement. Retirement planning is similar to regular financial planning in many ways, although it requires longer-term thinking and thus more estimates and guesswork. Like any other financial plan, retirement plans should be able to evolve over time, changing and shifting with your financial situation.

If you are ready to start planning for your retirement, here are a few steps you need to take to establish the best plan for you.

Account for Longevity

One of the steps that is often overlooked when creating a retirement plan is the issue of longevity. In order to plan properly, you must at least consider how long you and any dependents (for example, a spouse or an adult child) might live. It may sound a bit morbid, but the truth is that it is essential to helping you ensure you have enough to last. Try the Social Security Administration’s life expectancy calculator to obtain a reasonable estimate.

With advancements in medical treatment, people are living today longer than ever. Many end up draining their retirement savings early because they underestimated their lifespan—perhaps a welcome mistake! However, many people also fail to account for the cost of long-term care because they don’t think they’ll need it, or they mistakenly assume it is covered by Medicare. (It’s not.)

According to the US Department of Health and Human Services, about half of Americans turning 65 will need long-term services and supports (LTSS)—this includes people who will need long-term care in a facility as well as those who need in-home assistance with daily tasks like getting dressed, bathing, and eating. The department’s research also indicated that people turning 65 in 2016 would rack up about $138,000 in LTSS costs. Since women tend to live longer than men, they are more likely to require LTSS, as are people who live alone.

Consider Your Lifestyle

Once entering retirement, most people simply assume they will downsize their lifestyle. Generally speaking, the traditional advice was to assume that your monthly expenses during retirement will be around 70-80% of what you spent previously. But that assumption is not always realized, and in fact, it is often untrue, especially considering medical expenses and other costs like a mortgage that is not paid off. Look carefully at your own lifestyle now and consider what it costs you on a monthly basis to maintain it. If you truly think you’ll downsize, estimate those new monthly expenses as well.

However, be honest with yourself about whether you’ll actually be able to cut back, or whether you even want to. Perhaps you want to maintain your current lifestyle, or perhaps you want to travel extensively or purchase a vacation home. That’s something you’ll need to plan for if you want your retirement plan to work for you.

Think about Generating Income

Though savings are certainly an important part of any retirement plan, one often-overlooked aspect is earnings. Think about how you’ll generate income in retirement. Investments can help you establish a revenue stream that will make your savings last longer. You might also consider taking on a part-time position to earn wages during the early years of your retirement. Many people find an abrupt retirement, from working full-time to not working at all, boring. They miss having a job in some capacity. Working a part-time job can ease you into retirement and provide some intellectual and social stimulation, in addition to generating extra income to help your savings last.

Keep in Mind Your Risk Tolerance

Risk tolerance is an important part of assessing your retirement investment portfolio. In general, experts advise that the younger you are and the further from retirement, the more risk you can afford to take on in your investments. Conversely, as you start to approach retirement age, you may want to reduce your risk exposure by adjusting your portfolio. The idea is that you can afford to take greater risks when you’re younger because you’ll have more time to recover from any mistakes or downturns; when you’re older, you won’t have time to build back after a significant loss.

That said, risk tolerance is an extremely individual aspect of investing, one which you’ll need to determine for yourself, in consultation with a professional financial advisor. Remember that risk tolerance can change from year to year, and it is completely acceptable to adjust your portfolio depending on your financial health. When you’re doing well financially, you can afford to take on more risk in your investments when compared to other years when things are tight.

Start Early

No matter your financial situation, your best bet for ensuring financial stability throughout your retirement is to establish and start contributing to a plan as early as possible. Let time work for you, rather than against you, as many people who start saving too late discover. The earlier you begin to save, the better—thanks to compound interest, your investments will generate exponentially more money the more time you give them to grow. Start saving and investing for your retirement today!