Archive for the ‘Uncategorized’ Category

Social Security Benefits: Facts & Figure

In 2015 the average employee paid Social Security taxes of 6.2% on income up to $118,500. Once a worker has accumulated 40 quarters of coverage (usually 10 years of working and paying into the system) they are considered fully insured. A fully insured person is eligible for retirement, survivors, and disability benefits for themselves and their family.

Social Security is a significant source of income for many elderly people. Nine out of 10 individuals age 65 and older receive Social Security benefits. In 2015, the average monthly retirement benefit was $1,365. For low to moderate income folks it tends to replace a greater percentage of pre-retirement income. Higher income individuals are likely to face a major  lifestyle change if they do not have other sources of income.

The amount of the retirement benefit you receive is reduced if you start benefits at age 62. For example, in 2015, if you retire at full retirement age in 2015, your maximum benefit would be $2,663. However, if you retire at age 62 in 2015, your maximum benefit would be $2,025. If you retire at age 70 in 2015, your maximum benefit would be $3,501.

One important feature of Social Security benefits is that a Cost of Living Adjustment (COLA) is included. This means the amount of benefits paid can increase each year with inflation. The percentage increase is based on the Consumer Price Index (CPI). In 2015 it was determined that the cost of goods and services in the CPI did not increase so there will not  be an automatic increase in benefits in 2016.

Track  Social Security earnings and get an estimate of future benefits by setting up an account at


A Tale About Jack and Jill

Time and compounding grow your investment |dollars. Consider the tale of Jack and Jill.

Jill started investing at age 25. Each year she put $5,000 in her 401(k) plan. At age 45, Jill stopped
depositing money in this account, but left the money in the account. The money earned an 8% average annual return.

When Jill turned, 55, she decided it was time to retire. Since the money was in a 401(k) plan she knew she could access the money penalty free if she was in retirement and age 55. Jill checked the account balance and it had $493,983.

Jack started work at age 25, but did not start investing until he turned 35. At age 35 he started depositing $5,000 a year into his 401(k) plan and his money earned an average of 8% annually. At age 55, Jack decided he wanted to retire. He checked  his 401(k) plan balance and saw that the balance was $228,810.

Jack and Jill both set aside $5,000 a year for 20 years. They both contributed a total of $100,000. The difference – Jill started 10 years earlier than Jack. So Jill’s money had 10 more years of compounding. That 10 years of compounding meant Jill earned  an extra $265,174.

There are two morals to this story. The first is start investing as early as possible. The second is that in retirement you can access money penalty free from your 401(k) at age 55. If you roll that money over to an IRA you have to wait until age 59.5 years old.

Investing for the future

Measure Your Financial Stability

Financial benchmarks are a way to measure financial fitness and stability. Below are some of the most common to help you analyze your financial situation. Keep in mind that these are just a starting place. For a more holistic approach you need to factor in your goals, stage in the life cycle and personal comfort level with your financial situation.

Housing to Income: The guideline is 30% or less of gross income for housing. For a homeowner this includes a mortgage loan (principal and interest), taxes, and insurance.

  • For example if gross household income is $4,000 then you probably want to keep housing costs (PITI) to no more than $1,200 per month.

However, if you have unusually high expenses in another area – such as medical expenses- then carrying less mortgage debt may be helpful.

Overall Debt to Income Ratio: Overall debt includes mortgage debt, student loans, credit cards, and auto loans. The guideline is 36% or less of gross income.

  •  For example if gross household income is $4,000 then you probably want to keep housing and all other creditor debt to no more than $1,440.

Savings Rate: A person that can regularly invest 10% their income in a diversified portfolio will likely to be in a good financial position after about 30 years. A person who starts later in life usually needs to invest more than 10% of their income, retire at a later age, or decrease lifestyle.

Emergency Fund: This fund is the basis of financial stability. It is recommended to have 3-6 months of non-discretionary (can’t live without) expenses in safe, liquid accounts.

  • For example if expenses such as mortgage, utilities, food, transportation, medical needs, and insurance equal $2,000 per month, try to build a reserve of $6,000. This can be a challenge, so start by setting aside what you can. Even $10 per week ($1.43/day) will leave you with a solid $520 start after 1 year.

Assets to Debts: The benchmark depends on our stage in the life cycle. Close to retirement assets such as investments and savings should be considerably greater than debts.

Keep an eye on these benchmarks as you move through your working life. Try to decrease debt and increase assets that are likely to appreciate in value.

Free Tax Filing Assistance

Filing a tax return is not a pleasant task. So, think of it as an opportunity to review your finances and plan ahead. If you are expecting a refund, make a strategic plan for using the money before it arrives.

If  that refund is very large you may want to adjust withholding to keep more money in each paycheck. If you owe a large amount, make sure you are getting all the credits and deductions to which you are entitled. Evaluate whether increasing tax deductible contributions to a retirement plan would be beneficial.

Whether expecting a refund or owing money, check out these options for free tax preparation assistance:

Hillsborough County Extension will be offering free tax preparation assistance for those who earned $58,000 or less in 2013. Tax filers will be able to access a self-guided tax preparation program and receive assistance from an IRS  certified volunteer. This service will be available by appointment on Tuesdays & Wednesdays from 2:00 p.m. – 7:00 p.m. starting February 4 through April 8.

This is being offered as part of the United Way of Suncoast’s Prosperity Campaign. For a list of other free tax prep sites visit

The IRS offers free taxing filing options and an Interactive Tax Assistant program at


Three Steps to Protect Your Identity

ImageThe data breach at Target has been much in the news. It highlights the fact that once our personal data is collected we have limited control over who gets access. So as the saying goes, control what is in your power. Below are three steps you can take to protect your credit information.

1. Monitor and check all account statements at least once a month. By federal law you can not be held  liable for more than $50 in fraudulent credit card charges. Most creditors are likely to waive all charges, but you need to report the unauthorized charges. For debit cards, how much of the unauthorized charges you are liable for depends on how quickly you report the incident. Most banks will work with you.

2. Order your free credit reports annually from . This is the only federally authorized site to get a free report.

3. Consider putting a security freeze on your credit  reports. The freeze stops access to your credit reports without your authorization. This stops a potential thief from opening new accounts in your name, but there are advantages & disadvantages. For more information about security freezes, visit our web site and click the hot topics link in the financial management section.

How Much Life Insurance Do You Need?

Do you have enough life insurance to provide for your family if something happened to you? Protecting your family is important, but you also need to avoid spending extra money on insurance that is needed for other purposes. The key is to find the right balance. The amount needed depends on your situation and usually fluctuates throughout the life cycle.

If you have dependent children, life insurance is most likely a necessity. If you are single with no dependents and have other assets to cover funeral expenses and outstanding liabilities you may need little or no coverage. Divorced couples may want to consider carrying a policy on the ex-spouse if he or she depends on that person for child support.

Consider the following questions when estimating your life insurance needs:

  • How much will my family need to meet immediate needs such as funeral expenses and outstanding debts such as a mortgage?
  • How much will my family need to sustain their standard of living?
  • How much is needed for long-term expenses such as college for children?
  • What financial resources such as investment assets, Social Security survivor benefits, and other life insurance policies would be available to meet these expenses?

For additional information read the publication “An Overview of Life Insurance” which discusses different types of life insurance

How Much Should We Spend?

There are many rules of thumb for how much to allocate for specific items in your personal budget. For instance, it is often said that a consumer should set aside 10% of their income towards savings and/or investing. For some this will work just fine, for others (such as those of us who did not save enough early in our working life), this amount may be too small. The truth is there is no definitive answer to the question of how much should you spend and save. Your budget allocations will depend on your personal goals,  circumstances, and stage in the life cycle. However, it may be helpful to consider some general guidelines and national consumer trends before you dive in and evaluate your own budget. 

Housing: The guideline is to keep the amount spent for  housing expenditures (mortgage loan principal & interest, taxes, and insurance) to about 25-29% of your income. Insurance and tax expenses tend to increase each year. So if housing expenses start off at a high percentage of income they may increase to an unaffordable level if your salary does not keep pace.

 Transportation: The 2011 Consumer Expenditure (CE) survey reported that US consumers on average spent about of 16.7% of their income on transportation. This included gasoline and other transportation related expenses.

Food: In 2011, spending on food averaged about 13.0 % of income. This included 7.7% for food at home and 5.3% for food away from home.

Debt: The general rule is that non-mortgage debt repayments should consume 15% or less of take-home income.  

Planned Saving: As mentioned, there is a general 10%  rule of thumb. But if debt repayment is a priority you may need to allocate more for debt and less for saving. The key point is to find a savings amount that is achievable and making this a regular fixed allocation.

The goal with budgeting is to cover all the necessary allocations and some non-discretionary items such as entertainment and vacations. High spending in one area may necessitate reductions in other areas.