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Saturday, August 28, 2021 A Special Supplement to

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PLANNING

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How expenses can change during retirement Metro Creative Services Work is a major component of daily life, so much so that Andrew Naber, an industrial and organizational psychologist and an associate behavioral scientist at RAND Corp., determined that the average person spends 90,000 hours at work over the course of his or her lifetime. According to a 2014 Gallup poll, the average American retires at age 62, but roughly 64 percent of professionals bid farewell to the workplace between ages 55 and 65.

Retirees must make a number of adjustments once they call it a career. No such adjustment is as significant as the financial one. Most people find their post-retirement income is considerably less than when they were working full-time. That is why financial planners often recommend saving and investing enough during working years to be able to replace 80 percent of preretirement income. Certain expenses get lower after retirement, but some will rise. Here’s a look at what to expect when the bills come due during retirement.

Food costs Food costs may go down in retirement because shopping and preparing meals for one or two people is much less costly than feeding a family of four or

more. However, dining out may increase as you have more free time to visit local eateries.

Automotive costs According to data from the U.S. Department of Transportation, the average commuter spends 25.8 minutes behind the wheel twice a day, and the average driver puts in 13,474 miles behind the wheel each year — with people between the ages of 35 and 54 clocking close to 15,000 miles. Less time spent in the car means fewer gasoline fill-ups and longer durations between oil changes and other services.

In addition, based on the Internal Revenue Service reimbursement rate of 58 cents per mile, a typical commute of 20 to 30 miles a day costs $11 to $16 a day or $55 to $80 a week. In a year, you could easily be spending $2,000 to $4,000 a year commuting if you live within 15 miles of your job. Without commuting, that cash stays in your pocket.

Taxes Many people can expect to be done paying federal income taxes when they are retired and no longer earning an income. If the majority of retirement savings were in Roth IRA accounts, contributions are available for withdrawal tax- and penalty-free at any age.

Housing Your mortgage may be paid off before or soon after retirement. That eliminates the single largest expense in many people’s budgets. If your home will not be paid off, it’s possible to downsize to reduce monthly payments.

Travel While many other expenses can go down, travel is one expense that can shoot up during retirement.

But many people are happy to bear this cost. With more time for travel, retirees may allocate more funds toward vacations and other great escapes.

Health care Seniors often see their health care needs and costs go up after retirement. It’s important to understand what is covered by health plans, and it’s equally important to set money aside for unforeseen medical expenses.

Many costs of living decrease after retirement. However, it is wise to take in the whole picture to understand how to budget for retirement.

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establish financial goals and create a plan to reach those goals. While a person can create his or her own financial plan, oftentimes the help of a financial planner can make sure that all avenues are being explored, especially for financial novices.

Financial planning has become a catchphrase in recent years, and it’s something many consumers may not fully understand. Learning some key components of financial planning can help people have more capital on hand to help them achieve their short- and long-term goals.

A 2018 study commissioned by GuideVine that polled 1,000 Americans 30 and older about their finances found that many lack knowledge of basic financial terms. In addition, the study found that numerous people feel completely lost in regard to having a solid plan with their money. Financial planning can be intimidating, but learning the basics of sound money management can help people secure their financial futures.

According to the online learning resource WiseGeek, financial planning is a process of setting objectives, assessing assets and resources, esti-

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It’s important to note that financial planning may mean different things to different people. For some, planning may revolve around saving for a child’s college tuition but still having enough money left to retire. Another person may be looking to save extra money to invest in a business venture. Others who are living paycheck to paycheck may need help reevaluating their spending so they can grow their savings.

mating future financial needs, and making plans to achieve financial goals. Investing, risk management, retirement planning, tax requirements, and estate planning are key components of financial planning.

To get started with financial planning, the financial guide and online resource Ramsay says individuals will need to see where they stand financially,

One of the key components of financial planning is to begin doing it as soon as possible. A financial plan can be instituted at any age, and goals can be revisited as life changes occur.

Financial planning strategies are something anyone can learn and utilize to secure their financial futures.

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Start thinking about financial planning now

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How to find help with financial planning Metro Creative Services Financial advisors can be invaluable resources for people who need help managing their money.

There’s an existing misconception that financial advisors are only for the rich, but anyone can benefit from some guidance in regard to their finances. The key is finding a planner who understands your needs and is willing to work with you, no matter how big or small your financial dreams may be.

According to U.S. News and World Report, some financial advisors are no longer interested in working with people without substantial portfolios. Certain firms have stopped paying commissions to brokers for accounts that are considered small, including customers with assets worth between $100,000 and $500,000. While that can make it difficult to find financial help, there are ways to receive assistance.

• Ask friends for recommendations. If a financial advisor has worked with a colleague, friend or family member, he or she may also be able to provide services to you. To find professionals with reputable credentials, look for someone who has a Certified Financial Planner or Personal Financial Specialist designation. Those who are relying on investment

advisors should work with one who has a Chartered Financial Analyst certificate. These credentials are indicative of proficiency in financial planning.

• Look around online. Various online resources, including U.S. News & World Report, offer searchable databases. The Garrett Planning Network at garrettplanningnetwork. com offers a map of the United States where users can find financial advisors in their areas who cater to the middle class.

• Contact a professional association. The National Association of Personal Financial Advisors can provide resources for finding local financial advisors. Visit www.napfa.org for a listing. Middle-income individuals can look at the Accredited Financial Counselor website at www.afcpe.org to find professionals. Accredited financial counselors often focus on helping low- and middle-income people at affordable prices with relevant financial assistance.

• Research compensation. Financial advisors may

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receive compensation in one of two ways: fee-only and non-fee-only. A fee-only advisor typically charges an hourly fee or flat rate for services. A non-fee-only advisor may be compensated at a percentage of assets earned or may receive incentives and commissions from their companies based on preestablished sales goals or objectives. There are no right and wrong answers to fee schedules, but find a situation that works for you.

Some people need help navigating the ropes of financial planning. Financial planners can help people from all backgrounds establish and achieve their financial goals.

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emergency fund. The fund should cover expenses on the absolute necessities paid each month, like utilities rent/mortgage and groceries.

Saving is a vital component of financial planning. However, more than half of Americans are saving too little and do not have an accurate grasp of their spending habits.

A recent survey from Intuit Mint Life found that, in 2019, 59 percent of Americans were living paycheck to paycheck and 65 percent didn’t know how much they were spending on a monthly basis.

The situation is similar in Canada, where the annual BDO Canada Affordability Index indicates 53 percent of Canadians are living paycheck to paycheck and 25 percent say their debt load is overwhelming.

While there’s no magic formula to save money, and the amount of money one should save each month depends on how he or she wants to live now and in the future, a handful of strategies can help people save more money each year.

• Follow the 50/30/20 rule. The popular 50/30/20 rule advocates for allocating 50 percent of your

• Set goals. Savings goals can help a person stay on track and provide motivation to put money away. Establish separate savings accounts for each goal to reduce the temptation to spend. For example, if the goal is to save more for vacations, then a person can open an account where funds are used exclusively for vacations.

budget to essentials like rent, food and housing, 30 percent for discretionary spending and 20 percent for savings. Many people cannot save 20 percent of their income. In such instances, people can make a concerted effort to save 10 percent of their takehome pay.

• Build an emergency fund. The credit reporting agency Experian recommends consumers keep between three and six months’ worth of expenses in an

• Automate with your employers’ help.

Certain employers allow workers to direct deposit a paycheck into more than one bank account. It’s easy to request the payroll manager put 10 percent or 20 percent of a paycheck into a savings account while the remainder is deposited into a checking account. Automated deposits can help individuals get accustomed to living on less.

Saving money isn’t always easy, but with goals and certain strategies in mind, it’s possible for individuals to grow their savings and secure their financial futures.

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Get in the habit of saving more each month

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Behaviors that can hurt your credit score Metro Creative Services Credit plays a vital role in helping people realize their personal and financial goals. A good credit score can help people qualify for favorable home loan terms, ultimately paving the way for them to move into their dream homes. Strong credit histories also can help consumers earn perks, and young people who learn to use credit wisely can avoid potentially costly interest charges that tend to hamper many young adults’ financial freedom.

Many consumers struggle with managing credit. According to FICO®, a data analytics company that developed the FICO score that many lenders use to determine consumer credit risk, more than 10 percent of consumers in the United States have credit scores lower than 550. Any score below 550 is considered very poor.

No two consumers are the same, but many struggling to establish good credit histories may engage in certain behaviors that can hurt their credit scores.

Taking out too many lines of credit Consumers without much experience managing their finances, such as college students and young adults, often find credit offers hard to resist. Retailers may offer significant discounts at checkout counters to shoppers willing to sign up for store credit cards. Inexperienced consumers may not recognize that such cards often feature inflated interest rates, especially when compared to more consumer-friendly cards. Avoid opening too many credit accounts, as doing so can adversely affect your credit score and make it easy to lose track of spending.

Letting interest charges pile up Paying interest on consumer debt like credit cards will not help consumers improve their credit scores, so pay balances off immediately. That’s easier to do if you only have one or two lines of credit that you monitor regularly.

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Using credit for daily purchases Credit is not cash in your pocket and it isn’t money withdrawn directly from a checking or savings account, which is the case when using a debit card. So it’s easy for consumers to lose track of their daily spending if they’re doing that spending with a credit card. Balances can quickly pile up and, if they can’t be paid off in full when the bill comes due, interest charges will begin to accumulate. This trap can be avoided if consumers commit to using credit only in emergency situations or when purchasing big-ticket items that they know they can pay off when the credit card bill is due.

Failing to monitor credit score It’s now easier than ever for consumers to track their credit scores. In fact, many credit card companies provide free monthly updates to card holders, who won’t have to lift a finger to see if their scores have improved or worsened over the last 30 days. Consumers should take advantage of this relatively recent perk so they can see just how their use of credit is affecting their overall scores. They can then use that knowledge to improve their scores going forward.

Certain behaviors can negatively affect consumers’ credit scores. By learning about such behaviors and taking steps to avoid them, consumers can take a big step toward realizing their short- and long-term financial goals.

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Metro Creative Services “Financial planning” is an umbrella term that can be applied to various aspects of money management. Many people associate financial planning with retirement. However, effective financial planning can help people confront today’s challenges just as much as it can help them prepare for their golden years.

The pandemic that spread across the globe throughout 2020 posed numerous challenges, including a recession sparked by widespread job loss and declines in economic activity. The U.S. Bureau of Labor Statistics noted that the unemployment rate in the United States exceeded 10 percent in July 2020, while Statistics Canada reported the Canadian unemployment rate was just under 11 percent in that same month. While each country has since witnessed declines in their respective unemployment rates, tens of millions of workers in both nations remain out of work.

The sudden rise in unemployment and decline in global economic activity underscores the need to plan for recessions, even during those times when economies are thriving. Taking steps to reces-

sion-proof your finances is an important component of financial planning that can help people overcome the stress of living during a downturn.

• Build up your savings. A recent poll from the Kaiser Family Foundation found that 45 percent of adults said their mental health had been negatively affected due to stress related to the virus. That poll was conducted in March, shortly after lockdown measures were instituted and the term “social distancing” entered the North American lexicon.

As the pandemic wore on through the summer, fall and into the winter, stress remained a big concern for many people. Much of that stress stemmed from the economy, but one way to ease that stress is to have a substantial amount of money in savings.

Each person’s financial needs are different, but many planners recommend clients have at least six months’ worth of expenses in their savings as a cushion to help them get through job loss.

• Pay down debt. Debt, particularly high-interest debt, can compromise your ability to save. A 2019 survey from Bankrate.com found that 13 percent of Americans admitted that debt was preventing them from saving more money. Pay down debt like credit cards and only make credit card purchases if you

have the money to pay the bill in full when it’s due.

• Avoid overspending. Many financial planners recommend a 50-30-20 approach to money management. Such an approach advises people to devote 50 percent of their earnings to needs, 30 percent to their wants and 20 percent to savings.

Spending more than 30 percent on wants can make it difficult to build up a savings account to levels that can protect you in the event of a recession.

• Expect the unexpected. The American economy was doing historically well as recently as January, only to have the bottom fall out during the pandemic. If you want to recession-proof your finances, do not take your foot off the gas in regard to insulating yourself from the next recession. No matter how strongly the economy is performing, continue to expect the unexpected and prioritize saving so you have a soft landing awaiting you should the economy again take a sudden turn for the worse.

The timing of recessions is unpredictable, but they are inevitable. Effective financial planning can help anyone overcome the challenges posed by economic downturns.

How do you plan your financial future?

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306 Backbone Rd. East, Suite 1 • Princeton, IL Visit us online at kbelliot.com

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