Compound Interest + Time = Fuel For Your Savings

Looking to plan for long-term financial security? Short of winning the lottery, inheriting a fortune from your Uncle Henry or hitting it out of the park on Shark Tank, the process is straightforward: spend less than you earn and save the rest. How you save can make a big difference, though. Your savings won’t grow anything but mold if stashed under your mattress. This is where investing and compounding comes in.

When you make regular contributions to an interest-bearing savings account or other investment account over time, you get to watch compounding at work. Compounding is when your investment earnings are reinvested – and can in turn start earning money for you. So basically, you get earnings on your earnings. It’s a snowball effect that gets more powerful the longer your money stays invested. And it’s particularly helpful in tax-deferred retirement accounts like 401(k) plans and 403(b) plans because your compounded earnings aren’t being reduced by taxes every year.

Three steps to compounding benefits.

To get the greatest benefits of compounding, you need to do three things:

  • Start saving early. Compounding builds up steam over time. The earlier you start saving, the less you’ll need to put away every month to reach your ultimate savings goal if you’re getting positive returns on your investments.
  • Save steadily and consistently. Take a disciplined approach and save a portion of every paycheck. In a 401(k) plan, your contributions are automatic so the discipline is built-in. Regularly adding money to your account helps increase the power of compounding.
  • Have patience. Keep your savings invested for the long haul and avoid taking any withdrawals until you absolutely need the money. Compounding can begin to make a long term difference in your account value after years of consistent investing and positive returns.

Time equals opportunity.

The younger you start saving, the better. A 27-year old could be looking at a 40-year investment time horizon. That’s a lot of years for compounding to do its thing. If that 27-year old waited 10 years to start saving, the difference in potential account value growth could be significant. How significant? Let’s look at a hypothetical example.

Maria and Connor are 27-year old friends who got hired at the same company. Maria immediately started saving $300 a month in her 401(k). Connor figured he had plenty of time to save for his future so he waited 10 years and started saving $300 a month in his 401(k) at age 37. They both got an average annual investment return of 6% and reinvested all their earnings.

Maria and Connor changed jobs over the years but they never wavered in making those steady $300 a month 401(k) contributions.

When they met at a local restaurant to celebrate turning 67, they each brought their 401(k) account statements to brag about what good savers they were and how much money they had built up over the years. Maria proudly showed off her $597,458 balance. Connor couldn’t hide his disappointment. His account was worth $301,361.1 “I guess those 10 years I didn’t save really made a huge difference,” he lamented.

Both Maria and Connor saved steadily and had the patience to let their investments grow. But Maria’s earlier start gave her savings 10 more years to compound. Yes, she contributed $36,000 more than Connor during those 10 years, but that’s not the only thing that made the difference. With those extra contributions and time on her side, she ended up with over $250,000 in extra compounded account growth.

It’s never too late to compound your savings.

If your twenties are a distant memory and your retirement account balances aren’t where you’d like them to be, you still have options. Get aggressive with your retirement plan contributions and start today. You may need to save more each month, reach for higher investment returns or even postpone your retirement date to give your savings a few more years of growth potential. The important thing is to get started, wherever you are in life. You’ll never have more time than you do today.

Some people are lucky enough to hit a windfall of cash they can use to retire, but most of us aren’t. And while saving early is very helpful, it’s never too late to start. The power of compounding can be the fuel you need to help get to the retirement lifestyle you want.


1 Compounding growth example is for illustrative purposes only. This is not meant to predict future investment performance. Assumes a $1.00 starting balance, average annual returns of 6% compounded monthly with all earnings reinvested in a tax-deferred account. Taxes will be due at distribution. Your returns may be higher or lower.


Insurance Policies You May Not Know About, but Should Consider

Open enrollment season is right around the corner, which means it’s almost time to re-evaluate your current benefits elections. When most people think of insurance, the basics generally come to mind: medical, dental and maybe vision. But did you know that other insurance options are available as well – and that your employer may offer them?


Do you or one of your family members regularly require prescription medications? If so, how convenient would it be to explain your symptoms to a doctor over the phone and have a prescription sent to your local pharmacy without having to go to the medical office? More and more employers are offering the “dial-a-doc” perk to their staff, so check to see if it’s available for you. The cost you pay each month could be well worth the convenience it affords you.

Legal insurance

A legal insurance policy can go a long way in helping you manage unexpected issues that involve the court system. In general, legal insurance gives you access to a network of attorneys who specialize in various areas that you can connect with quickly if needed. Some policies will also help pay if you hire an attorney who is outside of their network. Again, plans vary – so if you decide to enroll, make sure you’re clear on how it will work.

Multiple birth/infertility insurance

These days, more and more couples are turning to modern medicine for help when looking to start a family. That process can come with a hefty price tag, however. You could end up with steep medical bills if you go this route, as many health insurance policies don’t cover fertility treatments or the extra costs that come with multiple babies. If you and your partner are navigating this process and your employer offers this supplemental insurance, it’s worthwhile to explore.

Pet insurance

If you have a four-legged furry friend in your life, it could be worth looking into pet insurance. This is especially true if he or she is older and/or has medical conditions. It may make sense to pay a premium each month and then owe a smaller co-pay at the vet instead of paying 100% of costs out of pocket each time you have to make the dreaded trip to the pet doctor. Plans vary – you can opt into basic ones that cover general wellness exams and shots or more comprehensive ones that offer “nose-to-tail” coverage. Be sure to check the limitations of your plan, however, because insurance companies can deny coverage to pets with pre-existing conditions.

This open enrollment season, be sure to do your research. Find out the full extent of what your employer offers and evaluate your current situation to make sure you have optimal insurance coverage to meet your personal needs. Adjusting or adding new insurance policies can help improve your mental, financial and physical well-being.


The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Love, Marriage and …Taxes?

With wedding season in full swing, couples old and new alike have partnership on the mind. If you’re married (or about to be married), you probably already know that teaming up on financial planning is important. Joining your financial lives means having frank discussions about your goals, any outstanding debts and how you’ll handle the management of your accounts.

But you should also be aware of how your decisions can affect your income taxes. There are several tax issues related to marriage that are helpful to understand as you make your plans. First, you should pay close attention to your selection of an income tax filing status. To make your choice, it also helps to have some knowledge of the rules for innocent spouse relief and injured spouse claims. You can learn more about those claims by visiting the IRS’ website. Trying to decide if both spouses will work outside of the home? A second income analysis can help measure the after-tax benefit of both spouses working.

Choosing your filing status.

Your filing status is important because it helps determine your deductions and credits, the amount of your standard deduction and the correct amount of tax. So, you need to know which filing statuses are available to you and which one will best fit your needs. There are five possible filing statuses:

  • Single
  • Married filing jointly
  • Married filing separately
  • Head of household, or
  • Qualifying widow(er) with dependent child

Same-sex marriages are now recognized by every state and the federal government. However, for federal tax purposes, marriage does not include registered domestic partnerships, civil unions, or similar formal relationships recognized under state law.

Although many married couples choose to file their tax returns jointly, you should consider both the advantages and disadvantages of joint filing status. Advantages include ease of filing (one return instead of two!) and potential to maximize your tax savings. But be aware: if you sign a joint return, you generally take full responsibility for the accuracy of the information in your return.

Wait, I’m responsible for what?

Two people, one return – what could go wrong? If your spouse intentionally underreports his or her income, you could be liable for IRS interest and penalties. In some cases, however, you can be relieved of responsibility for your spouse’s mistakes. This is known as innocent spouse relief, and is requested by filing a claim with the IRS.

Another consideration is whether your spouse has certain types of debt that might affect your tax refund. If you file jointly, it’s possible that your entire tax refund could be used to offset your spouse’s debt, such as student loans, taxes, and past-due child support. Think it’s not fair to lose your portion of the tax refund because your spouse owes money? If you’re not responsible for that debt, you may be able to file an injured spouse claim to get your share.

To work or not to work.

Another decision you may have to make is whether both you and your spouse should work outside of the home. You may be thinking about this if you have children or if one of you is thinking about going back to work after retiring and collecting Social Security. If you’re wondering whether a second income is a good idea, consider the effect on your day-to-day life as well as the financial and tax implications.

To help with your decision, you can perform a second-income analysis to explore the benefits of a second income. Yes, you’ll be taking in more money if both of you work. But other expenses might come along with that, such as commuter expenses, daycare costs and dry-cleaning bills. You’ll also need to look at how a second income could affect your taxes. Will the extra money push you into a higher tax bracket or affect your eligibility for certain tax credits?

If you’re retired and receiving Social Security, you should consider how going back to work might affect your benefits. In certain cases, you may have to include 50% to 85% of Social Security benefits in your taxable income. Also, if you’re under the full retirement age and earn more than the annual exemption amount, your Social Security benefits may be reduced.

Remember that there are no “right” or “wrong” answers to choosing your filing status or deciding whether to work. Your financial situation is as unique as your marriage. Partner up and tackle tax topics like you do everything else – together.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Financial Considerations for Summer Vacations

For many people, summer is the ideal season to take a vacation. Whether you want to take a dream trip around the world or simply visit your cousin in a nearby city for a few days, you can benefit from some pre-trip financial planning. Read on for some things to think through before you head out.

How to pay: cash or credit?

There are upsides and downsides to paying for your vacation with cash as opposed to paying with a credit card. The main benefit of using cash is that you’ll be less likely to overspend. If you can clearly see how much you’re spending, you’ll have an easier time sticking to your budget. Plus, you won’t have to pay your trip off little by little long after your vacation has ended.

On the flip side, paying for a trip with a credit card can better protect you if something goes wrong. If you use a credit card to pay for refundable airline tickets, you can apply for a refund if you need to cancel your trip. The airline has to credit to your account within seven days of receiving your application.

You can also use a credit card to guarantee your hotel reservation, which can be useful if you arrive late. The hotel will hold your reservation until midnight instead of canceling it if you don’t arrive by a certain time. Finally, depending on your credit card, you may also enjoy additional perks, such as:

  • Travel insurance
  • Travel assistance
  • Baggage protection
  • Accident insurance
  • Rewards, mileage or cash-back

Or, consider getting the best of both worlds: Buy your tickets and hotel with your card, and pay for your day-to-day expenses with cash.

Getting your money back when you can’t travel.

Before making travel arrangements, find out what will happen if you have to cancel your trip. In most cases, you’ll pay some penalty if you cancel. For example, many low-fare airline tickets are nonrefundable, but may allow you to rebook your trip. You’ll generally have to pay a fee to do so, and usually have to rebook within a year. Since cancellation policies vary widely, make sure you understand how and when you will be charged if you cancel. Some companies offer optional trip-cancellation insurance that costs about 5% to 7% of the cost of the trip. These policies reimburse you if you’ve paid for a trip and then can’t go due to illness, natural disaster, accident or other reasons out of your control.

Preparing a daily budget.

Have you ever returned from a trip happy because you spent less than you anticipated? If you’re like most travelers, the answer is no. Most people return from trips feeling overextended or even guilty because they spent more money than they wanted to. If you want to avoid this, plan a daily budget before you leave on your trip. This can mean simply deciding how much you want to spend each day, or it can mean breaking down how much you want to spend on certain items on your trip.

Budgeting is particularly important if you’re traveling abroad. You may underestimate how much you’ll spend overseas because food and other items often cost more than you are used to paying in the United States. Exchanging your currency before you go and only taking with you what you have budgeted for that day can help keep you on track. In addition, if you’re on a group tour or have purchased an all-inclusive package, make sure you understand what your tour or package covers and what it doesn’t.

Summertime travel can help you make memories that last a lifetime. But you’ll want to make sure that these memories are fond ones of your experiences, not negative ones of how much money you spent. Planning your vacation finances before you take off can help you enjoy experiences that will be remembered for years to come.



Taxes Now or Taxes Later? How Different Retirement Accounts Can Work for You

Retirement savings accounts such as IRAs and 401(k)s offer certain tax advantages. The type of advantage depends on what kind of account you have, and revolves around when you choose to pay taxes. Uncle Sam will always collect his share at some point!

Here are three considerations about how and when taxes get paid on common retirement accounts – and some penalty pitfalls to avoid.

Tax-deferred savings accounts – pay taxes down the road.

  • Traditional IRAs and employer-sponsored plans (401(k), 403(b), 457 plans). Tax-deferred accounts allow you to postpone paying taxes on the money you contribute and on any investment earnings. A big advantage of tax-deferred accounts is that you can deduct contributions from your taxable income. This can lower your current tax liability, and may even put you in a lower tax bracket to further reduce the amount of taxes you pay.

When you take withdrawals from tax-deferred accounts (usually in retirement), the money is considered regular income for that year. You’ll then owe income taxes based on your tax rate at that time. If you expect your tax rate to be lower in retirement than during your working years, this provides incentive to contribute to a tax-deferred account. But be forewarned. If you take money out before age 59½, you may be subject to a 10% federal income tax penalty unless you meet certain requirements.

One note about traditional IRAs, however: If you have access to an employer-sponsored retirement plan and your income exceeds a certain amount each year, some or all your contributions are no longer tax-deductible. Details about the rules are available on the IRS website.

After-tax retirement accounts – pay taxes up front.

  • Roth IRA, Roth 401(k), Roth 403(b), Roth 457(b). With Roth accounts, your contributions are made with after-tax dollars, meaning you don’t get a current tax deduction. However, qualified withdrawals – including any investment earnings – are tax-free.

Be aware of the difference in how you’re taxed on contributions (the money you put in) and how you’re taxed on investment earnings (any interest, dividends or other gains in your account). You’ve already paid taxes on your contributions so you won’t owe taxes when you take them out, and you can make a penalty-free withdrawal at any time. The earnings portion of your account won’t be taxed at all if you meet certain qualifications. To qualify for tax-free withdrawals of earnings, you must be age 59½ or older (or disabled) and your money must have been invested in the account for at least five years.

Keep in mind that there are limitations based on income when it comes to how much money you can invest in a Roth IRA or whether you can invest in one at all. If a Roth 401(k) option is available to you, you may be able to contribute much more to help maximize this benefit.

Required minimum distributions.

You can’t avoid taxes indefinitely, though. At some point, the government will require you to start withdrawing a certain amount from your retirement accounts each year. This is known as a required minimum distribution (RMD). Accounts that are subject to an RMD include:

  • Traditional IRAs
  • Most employer-sponsored retirement plans (such as a 401(k))
  • Roth 403(b)
  • Roth 457(b)

Note that Roth IRA owners are not required to take RMDs.

If you’re required to take an RMD, you’ll need to do so by April 1 of the year after you turn age 70½. You can, however take your RMD by December 31 the year that you turn age 70 ½. This can help you avoid you taking two RMDs in one year (the first being by April 1 after you turn age 70 ½ and the second by December 31 that same year). For employer-sponsored retirement plan accounts (both traditional and Roth), you can delay this date for as long as you keep working. Beneficiaries must also take RMDs if the account owner was taking them at the time of death.

If you don’t take your RMD each year, you’ll have to pay a penalty tax of 50% of the amount you should have withdrawn, plus regular income taxes. So it’s very important to get your RMD right!

You should take taxes into consideration in all aspects of your personal finances, but especially when it comes to your retirement savings accounts. Making the most of available tax benefits can be a significant step toward meeting your retirement goals.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

To Rent or To Own? That Is the Question.

If you’re like most people, buying your home may be the biggest purchase of your life. With that much money on the line, it’s no wonder the process can be stressful, frustrating and confusing. Before you begin, ask yourself, “Should I rent or buy a home?”

Many people think that renting is a waste of money and believe you should buy a house as soon as you can. But that’s not always true. Although there are many benefits to homeownership, renting has advantages as well. Which is better for you? You’ll need to weigh the pros and cons based on your own personal situation.

The benefits of renting …

Moving. When you need a new place to live, renting can be a lot simpler than homeownership.  This is especially true if your job calls for you to relocate often. Just find a new home to rent, give the required notice, pack up and go. Repeat if necessary.

Call the landlord. When you rent, you don’t need to hire someone to do repairs – or pay for them. That’s why you have a landlord. Faucet leaking? Air conditioner blowing hot air? No worries – just call your landlord. You also generally don’t need to maintain the property when you rent. Most leases include services like snow removal and lawn maintenance.

Up-front costs. When you buy a house, you’ll need a significant amount of money at the outset. A down payment, closing costs and property taxes can all add up. If you’re renting, however, you’ll generally just need to pay two months of rent up front plus a security deposit to get into your lease.

Avoid market risk. Remember when the housing bubble burst in 2008? In the financial crisis that followed, many homeowners faced foreclosure or found themselves owing more money on their home than it was worth. Renters were by and large spared from any repercussions.

The benefits of owning …

Tax Deductions. While you’ll need to lay out a fair amount of money up front, there are ongoing tax benefits when you buy a house. Unlike rent, mortgage interest and property taxes are deductible on your federal income tax return, as long as you itemize. Qualified mortgage insurance may be deductible, too.

Equity. Homeowners can borrow against the equity in their homes using a second mortgage or home equity line of credit. Lenders generally allow you to borrow up to 90% of your home’s value and you can use the money a variety of ways, such as paying for home repairs, a child’s education or reducing high-interest loans.

Asset appreciation. You can buy your home with some of your own money and a lot of someone else’s. And if your home’s value increases, the profit is all yours when you sell. You’ll benefit from your house growing in value even though you originally used only a small amount of your own money for financing.

Home Sale Tax Exclusion. When you sell your home, you can exclude up to $250,000 of your capital gains if you’re single and $500,000 if you’re married in 2017, provided that you qualify. And again, don’t forget those ongoing tax deductions in the years before you sell. For many, those alone are enough incentive to buy instead of rent.

Stability and flexibility. While homeownership can have financial advantages, an additional benefit can be the sense of security you may not feel when you rent. You’ll also have unlimited flexibility to personalize your home, unlike renters who need permission from their landlord to make changes like painting or landscaping. You also won’t be subject to arbitrary rent increases, or be forced to move if the owners decide to sell their rental property.

Whether you rent or buy is ultimately a personal matter. It’s also a complicated one – so be sure to get clear on the details and understand the pros and cons of each to decide what makes sense for your situation.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
The information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Financial Engines disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.

Financial Engines Market Update, Q2 2017: Global Improvement

Building on the strong performance of the first quarter, global equity markets continued to show optimism about the future. Higher corporate earnings, improved growth rates and low inflation boosted investor confidence, and the S&P 500 index gained +3.1% in the second quarter. Stocks of smaller companies, as represented by the S&P Small Cap 600 index, did less well, returning +1.7% for the three months ending in June.

International stock markets continued to outperform domestic equities with Europe leading the way. The MSCI Europe, Australasia and Far East (EAFE) index gained +6.1% in the second quarter. Emerging markets did slightly better, gaining +6.3% as they benefited from a weakening U.S. dollar.

Bonds were positive in the second quarter, with the Barclays U.S. Aggregate Bond index gaining +1.4%. Although the Federal Reserve raised rates for the second time this year, low inflation expectations kept longer-term rates on the decline for most of the quarter.

The Financial Engines perspective

The second quarter of 2017 generally brought more of the same: higher equity markets, lower bond yields and positive economic forecasts. As we saw in the first quarter, volatility remains unusually low in equity markets. However, this can change at any time based on unexpected economic or political developments, and maintaining a well-diversified portfolio continues to be a sound strategy. The second half of the year may include some surprises, so make sure you are comfortable with the level of risk in your portfolio. At Financial Engines, we continue to monitor markets to keep your portfolio on track. Have questions? Financial Engines advisors can help.

© 2017 Financial Engines. All rights reserved. This publication is for informational purposes only and does not constitute investment advice or an offer to buy or sell any security. Future market movements may differ significantly from the expectations expressed herein, and past performance is no guarantee of future results. Financial Engines assumes no liability in connection with the use of the information and makes no warranties as to accuracy or completeness. Future results are not guaranteed by any party. Financial Engines® is a trademark of Financial Engines, Inc. All other intellectual property belongs to their respective owners. Index data is derived from information provided by Standard and Poor’s, Barclays Indices, and MSCI. The S&P 500 index and the S&P SmallCap 600 Index are proprietary to and are calculated, distributed and marketed by S&P Opco, LLC (a subsidiary of S&P Dow Jones Indices LLC), its affiliates and/or its licensors and has been licensed for use. S&P®, S&P 500® and S&P SmallCap 600®, among other famous marks, are registered trademarks of Standard & Poor’s Financial Services LLC, and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC. © 2017 S&P Dow Jones Indices LLC, its affiliates and/or its licensors. All rights reserved. Source: MSCI. The MSCI information may only be used for your internal use, may not be reproduced or redisseminated in any form and may not be used to create any financial instruments or products or any indices. The MSCI information is provided on an “as is” basis and the user of this information assumes the entire risk of any use made of this information. MSCI, each of its affiliates and each other person involved in or related to compiling, computing or creating any MSCI information (collectively, the “MSCI Parties”) expressly disclaims all warranties (including, without limitation, any warranties of originality, accuracy, completeness, timeliness, non-infringement, merchantability and fitness for a particular purpose) with respect to this information. Without limiting any of the foregoing, in no event shall any MSCI Party have any liability for any direct, indirect, special, incidental, punitive, consequential (including, without limitation, lost profits) or any other damages.

Financial Basics for Millennials

If you’re a millennial, you face financial challenges unique to your generation.

For example, a competitive job market and heavy student loan debt (among other things) can make it hard to be financially stable.

But there are plenty of reasons to be optimistic about your future, too. Good money management skills can help make it easier for you to reach your personal financial goals, and time is on your side. Learn a few financial basics below. Your future self will thank you for it.

Establish your financial goals.

Setting goals is important when it comes to finances. If you haven’t done that yet, you can get started with a few simple questions:

  • What do I want now – a new car? A vacation?
  • What comes next – a new home, maybe?
  • How about the long-term – a child’s college education or my retirement, perhaps?
  • How important is each goal?
  • How much do I need to save for each goal?

Take stock of where you are now.

Once you get clear on your goals, you can create a budget to help you reach them. Start by calculating your current monthly income. Then, do the same with your expenses. Include entertainment, travel and hobbies (known as “discretionary spending”) as well as fixed expenses like housing, food, utilities, loan repayments and transportation. Now, compare the totals. Are you spending more than you earn, or is there money left over at the end of the month? Were you surprised at how much money you’re spending on going out to dinner, for example? Understanding your spending habits is the first step towards being able to change them.

Build a budget.

Now that you’ve written down where your money goes today, you can make a plan for how you want to spend it going forward. Did you find that you’re spending more than you make? Get back on track by cutting some discretionary spending. Do you have extra money in your budget? Pay yourself first by adding to your retirement account or emergency fund. The key is to plan ahead for how you’ll spend your money in the coming months. Be sure to include plans to set some money aside each month for your most important goals. You can make adjustments to your discretionary spending budget as needed to help free up the money for this. Having a specific plan in place can help ensure you achieve your long-term financial goals.

Establish an emergency fund.

Protect yourself from a personal financial crisis with an emergency fund. That way, you don’t use money earmarked for something else – like a down payment on a home – or go into debt when disaster strikes. How much you’ll need depends on your personal situation. Consider things like job security, health, income and debt when deciding the amount. You can build an emergency fund by putting a percentage of each paycheck aside to reach your goal. And when you get there, don’t stop. The more you can save, the better.

Be careful with credit cards.

Today, credit cards are almost a necessity, but they can lead to overspending. Before accepting a credit card offer, do the following:

  • Read the terms and conditions closely
  • Know the interest rate and how it’s calculated
  • Understand hidden fees such as late-payment and over-the-limit charges
  • Look for rewards and/or incentive programs most beneficial to you
  • Call the credit card issuer with questions about the language used in an offer

Your credit card use affects your overall credit score. Set a balance you’re able to pay off fully each month to avoid overspending. You’ll build your credit while being financially responsible. Avoid missed payments, too. They can cause your credit score to suffer, making it more difficult and expensive to borrow money later.

Deal with existing debt.

At this stage in your life, you’re probably wondering how to manage debt such as student loans. You’re not alone. 86% of your peers have debt.1 Repayment plans make it easier to pay off student loans. See whether you qualify for income-sensitive repayment options or income-based repayment. Even if you don’t, you may be able to refinance or consolidate your loans to lessen the impact on your budget. Explore all your options to see what works best for you.

Beware of new borrowing.

You’re working to pay off your current debt so think carefully before you borrow more. Ask yourself the following first:

  • Is this purchase necessary?
  • Am I getting the best possible deal?
  • How much will this loan cost me over time?
  • Can I afford another monthly payment?
  • Can I wait to borrow more until I’ve paid off my current debt?

If you answered ‘no’ to any of these, you may want to pass on your purchase for now.

Take advantage of technology.

These days, there’s virtually an app or a program for everything and that includes financial basics. Many offer built-in calculators that simplify tasks like monthly budgeting or loan repayments. Experiment with what you find and you’ll most likely develop skills and insights you can use for future planning.

Millennials certainly face special challenges. If you’re in this generation, however, you also have the opportunity to get your “adult life” started off on the right financial foot. If you’re financially responsible now, you can help set yourself up for a more secure situation later.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
1 July 2015. The Complex Story of American Debt. Pew Charitable Trusts. Retrieved June 30, 2017, from

What You Need to Know About Tax-Advantaged Savings Accounts

Taxes can take a big bite out of your total investment returns. So when making your investment decisions, you’ll want to look for ways to help maximize tax benefits in addition to the usual considerations of potential investment risks and returns.

The first thing to understand is the difference between tax-deferred, after-tax and taxable savings accounts.

Tax-deferred savings accounts, such as a traditional 401(k) or IRA, allow you to delay paying taxes until a future date.

Instead of paying taxes when you contribute to these accounts, you pay taxes when you withdraw money from them, which could be 30 or 40 years down the road.
Tax-deferred accounts have many benefits, including:

  • The dollars you invest may reduce your current taxes. So money you would have paid in taxes gets invested for your future instead.
  • You may be in a lower tax bracket when you withdraw the funds.
  • Your investment earnings aren’t taxed when they’re reinvested, which may help your account grow faster.

After-tax retirement accounts, such as a Roth IRA or Roth 401(k), help you create tax-free retirement income. You fund these accounts with dollars that have already been taxed. Your money then grows and can be taken out completely tax-free as long as you meet certain qualifications.1

With taxable accounts, such as bank savings accounts, certificates of deposit (CDs), and brokerage accounts, you have to pay taxes on interest and investment earnings each year. Like a Roth account, the money you put into these accounts has already been taxed.

Tax-advantaged savings accounts for retirement.

One of the best ways to save money for retirement is to use tax-advantaged (i.e., tax-deferred or tax-free) savings accounts.

  • Traditional IRA — Anyone under age 70½ who earns income (or who is married to someone with earned income) can contribute up to $5,500 to an IRA in 2017. If you’re age 50 or older, you can contribute up to $6,500 in 2017. Depending on certain factors, you may be able to deduct IRA contributions to reduce current taxes. Investment earnings grow tax-deferred and you’ll owe income taxes when you take withdrawals.2

Given that these rules can be complicated, it can help to consult a tax advisor.

  • Roth IRA — Only people with income below certain limits can contribute to a Roth IRA. Contributions are made with after-tax dollars so there is no current tax deduction. Over time, investment earnings grow and qualified withdrawals are tax-free.3 Contribution limits are the same as traditional IRAs. If you contribute to both types of IRA, the combined contributions cannot be more than $5,500 (or $6,500 for those age 50 and older) in 2017.
  • Employer-sponsored plans (401(k), 403(b), 457 plans) — Contributions to these plans can help reduce your current taxes. You can contribute up to $18,000 in 2017 if you’re under 50 or up to $24,000 if you’re over 50. Note, however, that both contribution limits are subject to plan rules. Investment earnings grow tax-deferred and you’ll owe taxes when you take withdrawals.4 Some employer plans also offer a Roth option, allowing you to build a source of tax-free income with the flexibility of higher contribution limits than a Roth IRA.

Tax-advantaged savings accounts for college.

  • 529 plans — College savings plans and prepaid tuition plans are tax-deferred ways to save for college. Money can be withdrawn tax-free if used for qualified education expenses. The plans are open to anyone regardless of income level. Contribution limits are high—typically over $300,000—but vary by plan.5
  • Coverdell education savings accounts — These accounts are available only to people with incomes below certain limits. If you qualify, you can contribute up to $2,000 a year per child. Contributions grow tax-deferred and withdrawals are tax-free if used for qualified education expenses. Typically, balances in this account must be disbursed by the time the beneficiary is 30 years old or may be given to another family member below the age of 30.

You shouldn’t make investing decisions based only on tax considerations. But when you put your money into tax-advantaged accounts, it may allow you to keep more dollars in your own pocket and put fewer in Uncle Sam’s.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
1, 3 To qualify for tax-free status, Roth funds must have been held in the account for at least 5 years and withdrawals must be made after age 59 ½ or after becoming disabled.
2, 4 Withdrawals before age 59 ½ may be subject to a 10% federal income tax penalty unless an exception applies.
5 Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. The availability of tax and other benefits may be conditioned on meeting certain requirements. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated. For withdrawals not used for qualified higher-education expenses, earnings may be subject to taxation as ordinary income and possibly a 10% federal income tax penalty.

Medigap: What You Need to Know

Medicare, Medicaid, Medigap – understanding healthcare options in retirement can be as confusing as reading a medical chart if you haven’t had the right schooling. Here’s a primer on Medigap to help get you started.

What is Medigap?

Millions of Americans rely on original Medicare to help cover healthcare costs in retirement. Medicare is not costless of course: you will still be responsible for co-payments and deductibles. To help pay for these, you may want to buy a supplemental medical insurance policy known as Medigap. Medigap policies are offered by private insurance companies and are designed to cover costs not paid by Medicare. As you might guess by the name, Medigap can help you fill the gaps in your Medicare coverage.

What’s covered by a Medigap policy?

Under federal law, Medigap has 10 standardized plans: A-D, F, G and K-N. (Note that Massachusetts, Minnesota and Wisconsin each have their own standardized plans.) Each Medigap plan offers a different set of benefits. All cover certain out-of-pocket costs, including Medicare coinsurance amounts. Some plans also cover other costs, such as:

  • All or part of Medicare Part A and Part B deductibles
  • Foreign-travel emergency costs
  • Medicare Part B excess charges

Medigap policies don’t cover long-term care, vision, dental or prescription drugs, among other things. To get prescription drug coverage, you can buy a Medicare Part D Prescription Drug Plan.

With 10 plans to pick from, you can choose Medigap coverage that best suits your needs. However, it’s important to note that not all plans are available in every state. Again, remember to check which coverages are available in your state.

When’s the best time to buy a Medigap policy?

The best time to buy a Medigap policy is during open enrollment. This is because you can’t be turned down or charged more if you’re in poor health. If you’re age 65 or older, your open enrollment period starts on the first day of the month you’re 65 or older and enrolled in Medicare Part B. This open enrollment period lasts for six months.1 A few states also require a limited open enrollment period for people on Medicare under age 65. Be sure to check your state’s rules.

If you don’t buy a Medigap policy during open enrollment, you may not be able to buy the policy you want later. Once open enrollment closes, insurance companies have more freedom to deny applications or charge higher premiums for health reasons. As a result, you may find yourself settling for whatever type of policy an insurance company is willing to sell you.

Are all Medigap policies created equal?

Yes and no. Although private insurance companies sell Medigap policies, the plans themselves are standardized and regulated by state and federal law. A Plan B purchased in New York will offer the same coverage as a Plan B purchased in Texas. All you have to do is decide which plan you want to buy.

Even though the plans are identical, insurance companies differ. Review each company’s reputation, financial stability and customer-service standards. You also need to check out what you’ll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state. You can find a tool on to help you compare policies offered in your area.

Does everyone need Medigap?

No. In fact, it’s illegal for an insurance company to sell you a Medigap policy that duplicates any existing coverage you have, including Medicare coverage. In general, you won’t need a Medigap policy if you:

  • Take part in a Medicare managed-care plan or private fee-for-service plan (sometimes called Medicare Advantage), or
  • Qualify for Medicaid, or
  • Have group coverage through your spouse.

Also, you may not need a Medigap policy if you work past age 65 and have employer-sponsored health insurance. If you’re in this situation, you may want to enroll in Medicare Part A since it’s free. If you enroll in Medicare Part B, your open enrollment period for Medigap starts. If you don’t buy a Medigap policy within six months, you could be denied coverage later or charged a higher premium. Because of this, you may want to wait to enroll in Medicare Part B until your employer coverage ends, and reconsider Medigap at that time.

Similarly, you may not need a Medigap policy if you’re covered by an employer-sponsored health plan after you retire. (Some employers offer this as part of a retirement severance package, so be sure to check your employer’s terms). In this case, your employer’s plan may cover costs that Medicare doesn’t.

Health care is one of the most important considerations in retirement, so it pays to be prepared. Be sure you have as much coverage as you need, and know what your options are. A little bit of knowledge may be just what the doctor ordered to help make healthy choices for your future.


Part of this content has been contributed by Broadridge Investor Communication Solutions, Inc.
1 Mack, J. When You Can Buy a Medicare Supplement (Medigap) Insurance Policy. Retrieved June 30, 2017, from