I guess we all know that finances are the last big taboo subject among Americans. We just do not talk about our money – how much we have, what are our plans, what are our concerns. We don’t talk about it with strangers, not with colleagues, not with friends, and as it turns out, not with our parents or children either. A survey conducted by Merrill Lynch late last year revealed that over 70% of adults over the age of 25 have not talked with their parents about their plans for retirement, and 56% of adults over 50 have never talked with their adult children about wills, inheritance plans, or other big-as-life financial issues.
It isn’t just the talking with others that’s lacking, it’s the talking with ourselves, too – especially among women. Many of us tend to turn away even from internal conversations about where we’re heading financially. It’s an interesting phenomenon, and one we will be exploring at our Women At Woodstock retreats this fall. What’s your relationship with money? Love, longing, fear, hate? How much is your self esteem tied up with money? How powerful or powerless do you feel when you work on concrete plans for your financial future? Why do you have the feelings and the relationship that you have about money? What can you do to make that relationship better?
The first thing we can do is develop a working knowledge of basic financial planning – terms, options, rules of thumb. Then we can tackle the emotional aspects of our money affair. I’ve asked Ivy Menchel of Sagemark Consulting, one of our Women At Woodstock 2013 sponsors, to share a primer on financial management for all of us. It’s a good place to start. Here is Part 1: Investing and Saving.
Financially Savvy Women: Part 1
Investing and Saving
By Ivy H. Menchel
In conjunction with Sagemark Consulting
(a division of Lincoln Financial Advisors, a registered investment advisor)*
Having a career that brings you personal satisfaction and financial success places many demands on your time and energy. You may find yourself putting off important tasks simply because there’s no strict deadline for completing them. But, no matter how busy you are, there’s one task you shouldn’t put off — planning for your financial future. Married or single, with or without dependents, you need a comprehensive financial plan.
Chances are, you’ve taken care of the basics. You’ve set goals, diversified your investments to mitigate risk and outpace inflation, and started saving for retirement. Now it’s time to consider additional strategies. A financial plan tailored to your needs and personal circumstances can help maximize your potential assets.
Smart Investing — A Key Factor
Whenever appropriate, consider using tax-advantaged investment strategies to help you reach your goals. Tax-deferred investing, allows your investment to work harder for you. For instance, the tax rates on long-term capital gains and dividend income are generally lower than the rates on ordinary income. Taking advantage of the difference could help you realize investment growth potential. Consider holding interest-bearing and other investments that generate income that’s taxable at higher rates in a tax-deferred retirement account, and keeping investments that produce dividends and long-term capital gains in a taxable account. But remember that taxes, typically at ordinary income rates, would be due upon redemption of assets from a tax-deferred investment.
If employee stock options are part of your compensation package, your professional financial planner can explain the tax implications of exercising your options and help you integrate them into your investment and estate plans in a tax-efficient way.
Perhaps funding a college education for your grandchildren is one of your goals. Some state-sponsored 529 college savings accounts and prepaid tuition programs offer tax advantages to domiciled residents. All 529 plan qualified withdrawals are free of federal tax. The Coverdell Education Savings Account (ESA) is another tax-advantaged option you might consider.
Retirement Savings — An Essential Ingredient
Tax-advantaged retirement plans present another opportunity to grow and preserve wealth. If you participate in an employer-sponsored plan at work, such as a 401(k) or 403(b) plan, you have a solid head start on saving for your future. You and your spouse can also contribute to a traditional individual retirement account (IRA), even if not employed outside the home. And, if appropriate, the Roth IRA offers qualified distributions of earnings that are tax-exempt after five years from the contribution date and after age 59 ½.
If you’re self-employed, you have several options for tax-deferred retirement saving. In addition to a traditional IRA, you can save through a Keogh plan, a Simplified Employee Pension (SEP) plan, or a Savings Incentive Match Plan for Employees (SIMPLE). Your financial advisor can give you the details.
Looking beyond retirement, you might want to consider a “stretch” distribution strategy from an IRA to help pass retirement savings you won’t need on to a future generation in a tax-advantaged way. This strategy increases the period of tax-deferred growth beyond your lifetime. A “stretch” distribution strategy from an IRA is a sophisticated financial planning tool that is designed for investors who will not need money in the account for their own retirement needs. These types of distribution strategies from an IRA may require professional assistance to implement.
Next post: Part 2: Estate Planning
Any discussion pertaining to taxes in this communication may be part of a promotion or marketing effort. As provided for in government regulations, advice related to federal taxes that is contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue code. Individuals should seek advice based on their own particular circumstances from an independent tax advisor.
Ivy H Menchel, CFP®, CDFA™* is a registered representative of Lincoln Financial Advisors, a broker/dealer, member SIPC, and offers investment advisory services through Sagemark Consulting, a division of Lincoln Financial Advisors Corp., a registered investment advisor,1359 Broadway – Suite 820, New York, NY 10018, 646.532.3959, ivy.menchel@LFG.com. Insurance offered through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances.
*Divorce financial analysis not offered through Sagemark Consulting.