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Bill Kinder & Associates

Debt vs. Retirement: How Much To Put Toward Each

May 27th, 2015

debt-vs-retirement-how-much-to-put-toward-each

Debt vs. Retirement: How Much Should You Put Toward Each?

You know that retirement planning is important, but should you be putting away for retirement while you still have a lot of debt? In most cases, it’s best to work on planning for retirement and debt eliminating. However, the amount you put toward each option will depend on many different factors. For example, your age may make your retirement fund a priority or the amount of debt owed could make paying down debt the greater priority. Here’s a closer look at saving for retirement and paying off debt, as well as a few tips to help you decide how much you should be putting towards each.


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When Should You Put More Towards Retirement Planning?

In some situations, it may make sense to put more of your money towards retirement planning. Some situations in which you may want to save more for your retirement include:

  • You’re getting older and you’re close to retirement. In this case, you may want to make a retirement fund a top priority.
  • If your employer matches the contributions you make to your 401(k), you may want to take the free money offered by contributing as much as possible to your 401(k) plan.
  • If you have a small amount of debt, you may want to continue putting more money towards retirement while making minimum payments, since you’ll be able to eliminate that debt soon anyway.
  • If most of your debt is a mortgage debt, paying off the mortgage may not be a priority, and it may make more sense to focus your money on your retirement savings.

 

When Should You Put More Money Towards Debt Elimination?

In some cases, it may make more sense to put more of your money towards paying your debts, particularly if you’re not receiving any retirement savings benefits from your employer and you’re far from retirement. Some of the reasons you may want to put more money towards your debts include:

  • Reduced debt may give your credit score a boost, which can help you get lower interest rates. This is particularly helpful if you plan to purchase a home or a vehicle.
  • When you have less debt, you’ll have lower monthly payments. By paying off debt, your monthly expenses will begin to decrease, making it easier to free up cash in the future.
  • Paying off debt results in lower balances, which means you’ll pay less interest. By paying more towards debt now, you can save a lot of money in interest in the future.


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Of course, everyone’s financial situation is difference, so you need to set up a budget and savings plan that meets your needs. Keep these tips in mind and you’ll find it easier to figure out how much money to designate for retirement planning and how much you need to use for debt reduction.

 


 

Bill Kinder  @BKAssocAdvisors

Bkinder

Bill Kinder is the President and Chartered Financial Consultant with Bill Kinder & Associates. A company that helps people from all walks of life and income levels to position & manage their money wisely, minimize their taxes owed, protect their assets and plan for a comfortable retirement. Bill has been in business for over 35 years, holds a BS degree, plus a Chartered Life Underwriter and Chartered Financial Consultant certifications, as well as the Million Dollar Round Table’s “Top of the Table” honor. Follow him @BKAssocAdvisors or if you would like to ask him a question, send it to billk@billkinder.com. If you’d like a FREE ‘WISE Money’ Consultation, call him at (304) 250-0250.

 

 

 

 

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Retirement Savings Accounts You Should Consider

May 27th, 2015

retire savings

Retirement Savings Accounts You Should Consider

Saving for retirement is something everyone knows they should do, no matter what age. However, many people fail to start early and then find themselves trying to catch up, tucking as much as possible into their 401(k) at work or into IRAs. The problem is, even if you have access to large amounts of expendable cash to invest, there’s a limit to how much you can invest into any type of retirement plan in a single year.


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For 2015, the limit for 401(K), 403(b) and most 457 plans is $18,000. The total contribution, employee and employer, can be as high as $53,000. People over 50 still have an opportunity to make a catch up contribution of $6,000, which helps but if you’ve ignored retirement planning until you’re almost ready to retire, it’s not enough.  People contributing to an IRA can invest $5,500 with a catch up investment of $1,000. Unfortunately, some people don’t have access to a 401(k) or employer sponsored plan and have to use an IRA for investing, so for them, finding alternatives for retirement is important.

 

Annuities make a good alternative for retirement savings.  The money is available at 59 ½ without penalty and the funds grow tax deferred.  Unlike regular retirement plans, if you don’t need the money by 70 1/2, you don’t have to take it. If you have funds in a rollover IRA, traditional IRA or employer sponsored retirement plan, you must take a specified amount based on federal calculations every year starting at 70 ½ or face paying a penalty.  When you remove the funds from a traditional retirement account or company sponsored retirement account, you pay taxes on the amount you withdraw, which is why some people wait to remove funds. If you don’t need to remove funds, you can leave them in the annuity for as long as you like. When you remove the money from an annuity, the last amount into the annuity is the first to come out. Since interest or growth is the last in, it’s considered the first out and therefore any growth is taxed, with principal not taxed but taken after the growth.

 

If you don’t have a retirement plan at work, an IRA is a good alternative. There are two types of IRAs, a Roth IRA and a traditional one. The traditional IRA allows you to take the amount you invest off your taxes, so basically you’re putting funds in tax free. However, with every benefit you have to give something back in return. In the case of the traditional IRA, you pay a penalty if you remove the funds before 59 ½ and you pay taxes on everything  each time you remove money.  The second type of IRA is a Roth IRA. You get no tax benefits from a Roth initially, but there are benefits. While you don’t get to take the amount you invest into the Roth off your taxes, you never pay taxes on the growth. If you remove funds from the Roth before you’re 59 1/2, you only pay a penalty on the growth of the fund, not the initial investment.


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Choosing the right type of IRA should be based on your age and your income. If your income is high and you need a tax savings, a traditional IRA may be best. If you’re older and won’t have much time for the funds to grow, a traditional IRA is also best. However, for those who are young, putting money into a Roth is normally the best solution for retirement planning.  You never pay tax on the growth if you’re older than 59 ½ when you take it out and you don’t have to take the funds if you don’t want to do that. Rather than save the small amount of tax you’d pay on the funds initially, you’ll save thousands of dollars of tax on the growth later.

 


 

Bill Kinder  @BKAssocAdvisors

Bkinder

Bill Kinder is the President and Chartered Financial Consultant with Bill Kinder & Associates. A company that helps people from all walks of life and income levels to position & manage their money wisely, minimize their taxes owed, protect their assets and plan for a comfortable retirement. Bill has been in business for over 35 years, holds a BS degree, plus a Chartered Life Underwriter and Chartered Financial Consultant certifications, as well as the Million Dollar Round Table’s “Top of the Table” honor. Follow him @BKAssocAdvisors or if you would like to ask him a question, send it to billk@billkinder.com. If you’d like a FREE ‘WISE Money’ Consultation, call him at (304) 250-0250.

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Early Retirement Tip #3

May 8th, 2015

Have You Ever Thought About Early Retirement?

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Bill Kinder, ChFc

Early retirement, as an option for you, may have become more affordable due to “The Affordable Care Act”. Many people like you, have hesitated to think about early retirement due to health insurance costs. With the advent of the ACA, depending on your monthly retirement income need, there may be subsidies available to drastically reduce what you have to pay for health insurance.

 

IMPORTANT, if you make withdrawals from your IRA or 401k plan in excess of your monthly income need, without the advice of a knowledgeable income planner, you could face significant additional taxation and possible recovery of part of the government subsidy that funded your health insurance costs.

 

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Should You Save More For Retirement Or Pay Off Your Mortgage Early?

April 2nd, 2015

house

Whether it’s better to pay off your mortgage ahead of schedule or invest and save towards retirement is a perennial – and perennially difficult question in the world of retirement planning. It really depends on your current financial situation as well as your age. More to the point, it largely comes down to whether you’re still working and expect to for at least the next several years or you’re close to retirement or already out of the workforce.

 

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Still Working

If you plan to pay off your mortgage early, you’ll want to make sure you already have some kind of cushion for emergencies. Paying down your mortgage is a great thing, but don’t break the bank to do it; it’s better to keep some savings to allow you to continue paying your regular mortgage payments if something unexpected happens.

 

Another consideration is whether the savings on mortgage interest are greater than the income you could reasonably expect to generate through investments. Obviously, you’ll want to take a close look at the interest rate on your mortgage and make a conservative estimate of what your investments should yield before you make this decision.

 

Mortgage interest is fairly straightforward, but remember to include the tax implications in your calculations. Depending on which tax bracket you’re in, you’ll be able to deduct most (and maybe all) of your mortgage interest, which can reduce your effective mortgage rate by as much as 1%.

 

Figuring out how much you’ll make investing is a more complicated question. The market can be unpredictable, so don’t overestimate your potential returns – somewhere in the neighborhood of 4% to 5% is probably a reasonable return for the average investor.

 

Retired Or Close To Retirement

If you’re out of the workforce, you’re generally better off going for a mortgage payoff than investing, given the inherent volatility of the stock market. This isn’t to say that you shouldn’t invest at all, but keep in mind that the stock market can see periods of a decade or more of below average returns – which could give you a much lower ROI than just paying off your mortgage early. Also, the tax advantages of having a mortgage in retirement are much smaller than they are when you’re still working. You’ll probably be in a lower tax bracket and you’ll be paying more in principal and less in (deductible) interest.

 

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There is no one size fits all answer to this or, for that matter, a lot of questions people have about retirement planning. A mortgage payoff could be the right answer for you, but depending on your circumstances, it might make more sense to keep investing. Keep the guidelines here in mind and you should be able to arrive at a solution that works for you. Finally, remember that whether you choose to pay off your mortgage or invest more towards your retirement, they’re both far better than doing nothing at all to plan for the future.

 


 

Bill Kinder @BKAssocAdvisors

Bkinder

Bill Kinder is the President and Chartered Financial Consultant with Bill Kinder & Associates. A company that helps people from all walks of life and income levels to position & manage their money wisely, minimize their taxes owed, protect their assets and plan for a comfortable retirement. Bill has been in business for over 35 years, holds a BS degree, plus a Chartered Life Underwriter and Chartered Financial Consultant certifications, as well as the Million Dollar Round Table’s “Top of the Table” honor. Follow him @BKAssocAdvisors or if you would like to ask him a question, send it to billk@billkinder.com. If you’d like a FREE ‘WISE Money’ Consultation, call him at (304) 250-0250.

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  • A Ticket To Our Upcoming Seminar

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