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The Ultimate Retirement Guide for 50+: Winning Strategies to Make Your Money Last a Lifetime Hardcover – February 25, 2020
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..... **** **** ******** ********* ******* **********************Money and relationships intertwine closely, so here are five essential money moves to get your union off on sound footing:Get more money-saving strategies sent straight to your inbox with the MoneyWise newsletter.
1. Put all your cards on the table
If you don’t already know your spouse’s financial status, or you haven’t shared your own, it’s well past time to have the money talk.
You need to know your respective salaries, savings and debt. Avoid hiding anything. Trust is the basis of marriage.
Even if you’re aware of your spouse’s debts — including student loans, credit card bills, car payments and more — you need to stop and think about the impact of that debt on your future plans.
Now that you’re married, your spouse’s creditworthiness plays a major role in your collective ability to borrow. If one spouse’s credit is good but the other’s is less-than-stellar, joint mortgage approval may prove difficult, if not impossible.
Lenders fixate on the lowest credit score in a married couple, the credit bureau Experian reports, instead of using the higher score or an average. Even if a loan is approved, expect to pay higher interest rates.
You may need to look at ways to improve the poor credit score of one spouse before you start looking for loans. Start by visiting annualcreditreport.com to get free copies of your credit reports, then check them over for accuracy. If everything looks right, you’ll have to start tackling the tougher strategies — as a team.
2. Get specific about your financial goals
Newly married couples might assume they share the same financial goals. Without an in-depth discussion, you don’t know that for certain — and even small differences can cause big disagreements.
Related video: The 10 Rules of Wealth and Happiness (Money Talks News)
For example, you both agree you want to buy a home. But what’s the time frame? Is a single-family home a must, or will a townhouse or condo fit the bill initially? Do you stay in your current area or relocate somewhere more affordable?
Discuss both short-term and long-term financial goals. Perhaps one partner’s assumptions were incorrect. Maybe there are deal breakers you never talked about before.
No matter. Marriage is the art of compromise. Only by engaging in honest discussions about your goals will you come to a satisfactory decision.
3. Double your emergency fund
You never know what life will throw at you, but you’re in it together. Now that there’s twice the chance of a job loss, sudden illness or other disaster affecting your balance sheet, you need to make sure you’re using both your incomes to prepare.
That’s why reinforcing (or establishing) an emergency fund is one of the most critical money moves. As a general rule, put away enough money to pay for three to six months worth of living expenses.
The Consumer Financial Protection Bureau recommends setting up a dedicated fund with your bank or credit union. Emergency funds belong in the safest of investment vehicles, such as high-interest savings accounts. Stocks, mutual funds and ETFs are fine for long-term investing, but they aren’t stable enough for this purpose.
Whether you choose to maintain separate funds or combine them is up to you. Some advisers tell couples to merge their finances completely. Others prefer a “yours, mine and our” approach. There is no right answer for every couple.
4. Lock down life insurance
When you’re single, life insurance is seldom a priority. Once you’re wed, it rises to the top of the to-do list.
Sufficient coverage will make sure that anyone relying on your income won’t struggle to pay the bills if you die unexpectedly. As Brides magazine puts it, "Life insurance is the greatest gift you can give your significant other.”
Buying a home or having a child — goals for many newlyweds — are common catalysts for purchasing a policy. That said, locking in life insurance when recently married is another one of those wise money moves. Rates are more affordable for young people without serious health issues.
How much coverage you’ll need depends on several factors, including each spouse’s current and projected income. If there’s a primary breadwinner, that person requires more coverage. However, a lower-earning or nonworking spouse still needs coverage. Should the worst happen, their life insurance can pay for expenses such as child care.
5. Consider filing your taxes jointly
Most of the time, it’s advantageous for married couples to file their taxes jointly rather than separately.
Joint filing offers numerous benefits, such as a larger standard deduction and the ability to qualify for a range of tax credits and deductions.
There is a caveat: If a spouse owes back taxes or child support or has defaulted on their student loans, “married filing separately” may be tempting. That’s because the IRS may offset any joint tax refund to satisfy your partner’s debts.
We have every reason to expect an eventful year. Start it off on the right foot by automating your savings and investment account contributions using a low-cost money management app like Acorns.
Then, lay the groundwork for a more prosperous future — this year and beyond — by setting ambitious savings goals, optimizing your payroll withholdings and contributions, and taking advantage of more opportunities to grow your wealth.
1. Automate Your Investment Account Contributions
Make 2022 the year you start investing for your future. Your first move: opening a low-cost taxable brokerage account that makes it easy to invest small chunks of change — literally, pennies on the dollar — every time you swipe your debit card.
The natural choice is Acorns Invest, a micro-investing suite available for just $1 per month through Acorns’ base Lite plan. With Acorns Invest, you can transfer funds from your linked bank account at any time to invest in a diversified portfolio of low-cost ETFs at any time. But the real value here lies in two features designed to boost your contributions without disrupting your budget.
The first is Round Up Investments. Round Up Investments automatically rounds up the change on every qualifying transaction in your linked checking account and transfers the difference to your Acorns Invest account. Every purchase is another opportunity to grow your investment portfolio.
The second is Found Money, a rewards program that delivers bonus investments to your Acorns Invest account whenever you make a qualifying purchase with a partner merchant. More than 350 Found Money partners ensure you don’t have to look far for an opportunity.
2. Make a Plan to Grow Your Emergency Fund
Your emergency savings fund should be sufficient to cover at least three months’ expenses in the event of an unexpected financial setback that significantly reduces your income. The ideal emergency savings fund is even bigger: enough to cover six months’ expenses for those with predictable and stable income, and nine to twelve months’ expenses for people with irregular incomes.
Setting aside tens of thousands of dollars in cash takes time, especially if you’re currently living paycheck to paycheck or close to it. This year does offer a leg up, thanks to the second round of coronavirus stimulus checks that went out in January. If you don’t have high-interest debts or need the funds for more urgent expenses, padding your emergency fund is an excellent use of your stimulus check.
It won’t get you all the way to your emergency fund goals, of course. Moving forward, settle on a realistic savings percentage that you can set aside from every paycheck before covering any other expenses. Many savers start at 3% or 5% of take-home pay and work toward 10% or 15% as they trim expenses elsewhere.
3. Define and Fund Discrete Savings Goals
On the subject of savings, make 2022 the year you begin organizing your set-asides in discrete, goal-oriented “buckets.”
Bucketing your savings is a logical endgame of “giving every dollar a job,” a core precept of the zero-based budgeting method. Rather than treating your savings account as a slush fund to spend on as-yet-unknown future needs, give it the same consideration — and manage it with the same discipline — as your day-to-day budget.
What you choose to save money for is up to you, of course. A new laptop, a long-deferred home improvement project, a well-deserved vacation — your goals are your own.
While you don’t need a separate savings account for every goal, you do need a reliable, flexible way to keep track of your financial goals and your progress toward them. If spreadsheets are too bland for your taste, use a free or low-cost budgeting app like You Need A Budget.
4. Review Your Paycheck Withholdings
The first quarter of the new tax year is a logical time to review your payroll withholdings and make sure you’re not paying Uncle Sam too much upfront or shortchanging your financial future.
If you plan to claim dependents or have a more complicated employment situation — for example, you work multiple jobs or only work seasonally — calibrate your federal and state income tax withholdings using the IRS’s withholding estimator. Consult a tax professional if you need more information.
Next, evaluate your pretax payroll contributions: health savings account, health care or dependent care flexible spending accounts, employer-sponsored retirement plan or pension, and company stock ownership plan. Each of these accounts represents a layer of financial security or stability in the near-, medium-, or long term — or all three. It’s in your financial interest to contribute as much as you can afford without exceeding statutory maximums — for example, the annual 401(k) contribution limit for the 2022 tax year is $20,500 for workers under age 50 and $27,000 for workers over age 50.
5. Spend Your FSA Funds Before They Expire
Funds held in a health care or dependent care flexible spending account (FSA) don’t roll over in perpetuity. Health care FSA funds can expire as early as December 31 of the year in which they accrue, although many sponsoring companies defer expiration to March 15 of the following year and allow employees to roll over up to $500 into the subsequent plan year, extending those funds’ expiration to the following December 31 or March 15. Funds held in dependent care FSAs generally expire on March 31 of the year following the year in which they’re incurred.
Bottom line: Making sure you spend your FSA funds before they expire is a financial housekeeping item you’ll need to repeat every year, most likely during the first quarter.
6. Open a Tax-Advantaged Retirement Account and Make a Plan to Maximize Your Contributions
Even if you contribute to a 401(k) or other employer-sponsored retirement plan, you may be eligible to open and contribute to an individual retirement account (IRA). When you’re ready to get started, turn to Acorns Later — a tax-advantaged retirement plan that’s included with Acorns’ Personal plan. Acorns Later regularly rebalances your portfolio automatically to match your long-term financial goals, ensuring you’ll never stray too far from your financial plan.
7. Look for Opportunities to Earn Bonus Cash and Investments
Why settle just for the investment account contributions you can afford on your salary? Look for opportunities to increase your contributions and accelerate your progress toward financial independence without diverting funds from your nondiscretionary budget.
We’ve already discussed two bits of low-hanging fruit: Acorns Round-Up Investments and Found Money partners, both of which generate lots of little contribution bonuses that add up over time. Upgrade to the Acorns Personal plan to open an Acorns Spend account and take advantage of another opportunity: up to 10% bonus investments on eligible debit card purchases.
While you’re at it, apply for a cash-back credit card and plow your returns back into your Acorns Spend or Invest account. Credit card rewards won’t make you rich and should never be used to excuse overspending, but every little bit helps.
8. File Your Tax Return Before the Pre-Deadline Rush
The sooner you file your tax return, the sooner you’ll claim your refund — and the sooner you can begin putting that windfall to work. File early through a preparer like H&R Block and your refund probably won’t be held up by IRS and state processing delays, which tend to occur close to the April 15 filing deadline. And if you’re not due a refund, filing early gets your tax-due payment out of the way and reveals what, if anything, you’ll need to pay in quarterly estimated tax throughout the year.
9. Chat With a Tax Professional About Maximizing Your Deductions and Credits
It’s likely too late to reduce your tax burden for 2021, with the possible (and sizable) exception of making additional profit-sharing contributions to a self-employed retirement plan. But it’s the perfect time to optimize your tax situation for 2022. Pencil in an appointment with your tax professional shortly after tax season ends — say, in early May — to get your 2022 tax to-do list set.
10. Make a Plan to Pay Off Your High-Interest Debts
Carrying credit card debt into 2022? Even if full-on debt freedom is unrealistic this year, move the ball forward by applying for a balance transfer credit card with a long 0% APR promotion and making a plan to pay off your transferred balances by its end date. Just be sure you know how to use balance transfer cards responsibly before you begin, as failing to pay off the full balance before the regular interest rate kicks in can actually add to your debts’ long-term carrying costs.
11. Apply for Disability Insurance
What would you do if you suddenly found yourself unable to work for months on end, your eligibility for unemployment benefits or paid medical leave drained?
If you don’t have a good answer to this question, you need disability insurance.
Short-term disability coverage through a company like Breeze, a common employee fringe benefit, is useful for new mothers not eligible for paid family leave and injured workers expected to recover fully within months. You should also look into long-term disability coverage, a more sustainable source of replacement income for workers who find themselves unable to work productively for many months or years at a stretch. Depending on your policy and employment status — underwriters tend to be stingier with business owners and self-employed folks — your policy could replace 60% to 70% of your current pay.
12. Apply for Life Insurance
Here’s another unhappy hypothetical: What would happen to your loved ones, financially speaking, if you died this year?
This question gained new urgency amid the COVID-19 pandemic, which felled untold thousands of relatively young, healthy people with years of productive life ahead of them and no plan for the alternative.
Even if you consider your risk of untimely death to be quite low, the unthinkable can and does happen. You owe it to your would-be survivors to prepare by taking out a term life insurance policy that’s adequate to replace — at minimum — the expenses they’ll shoulder as a result of your death. That might include your current home’s outstanding mortgage balance, additional child care costs incurred by a newly single surviving parent, and higher-education expenses for surviving dependents.
13. Give Your Credit Score a Boost
Raising your credit score won’t immediately put money in your pocket. But over time, your financial position is likely to improve along with your credit. Borrowers with good credit scores or better are more likely to see their credit applications approved, to qualify for more favorable rates and terms on approved loans or credit lines, and to have higher borrowing limits. Good credit can also have indirect financial benefits, such as lower insurance premiums.
Building and improving credit is a time-consuming process, not a switch to flip at will. Order a free credit report from each of the three major credit reporting bureaus, then focus on financial maneuvers known to improve credit over time: paying your bills on time, reducing your credit utilization, and keeping older credit accounts open even if you don’t use them regularly.
14. Set Your Kids Up for Long-Term Financial Success
It’s never too early to begin teaching your kids to spend, save, and manage money responsibly.
In addition to delivering age-appropriate money lessons as opportunities arise and using free or cheap digital financial education tools for kids, there’s no better way to get the ball rolling than with a kid-friendly investment account
And there’s no better kid-friendly investment account than Acorns Early, which automates small-dollar investing, tailors advice to user families’ individual financial situations, and offers potential tax savings as minor account holders age. Acorns Early comes with Acorns’ Family plan — a steal at just $5 per month.
15. Reevaluate Your Auto Insurance Needs
For much of the world’s white-collar labor force, 2021 was the year of working remotely. Among other perks, like greater flexibility to set working hours, the shift to remote had a silver lining: temporary reprieve from long, tedious car commutes.
For many, that reprieve could prove durable, perhaps even permanent. Employers that successfully transitioned to all- or mostly-remote work and remained productive are in no hurry to return to the way things were. Many see remote work as a blessing in disguise, one that accelerates cost-cutting measures like consolidating office space and trimming pay for remote workers in lower-cost-of-living regions.
If you expect 2022 to be another low-mileage year, consider reevaluating your auto insurance needs. Simply reporting to your insurer that you’re driving less could trigger a premium recalculation in your favor, although the reduction won’t be huge. The real savings come when you consent to more invasive monitoring of your driving habits through insurer programs like Allstate’s Drivewise.
If you’re uncomfortable with downloading an app or installing a beacon that tells your insurer every move you make behind the wheel, consider raising your collision and comprehensive coverage deductibles or eliminating those coverages altogether on older, less valuable vehicles.
16. Make a Plan to Reduce Your Housing Costs
Finally, think seriously about taking measures to reduce your housing costs. Prevailing rents are significantly lower in many cities than before the pandemic and interest rates are near historic lows, creating rare opportunities for renters and owners alike to save serious money.
If you rent, your first move is an easy one: asking your landlord to reduce your rent when your lease comes up for renewal. You should do this even if you’re not experiencing acute financial hardship that impacts your ability to pay rent, although you’ll of course have a stronger leg to stand on if you are.
If your landlord isn’t willing to budge and you’re willing to shoulder the upfront cost of moving, look for better rental values nearby and give your landlord notice that you won’t renew — which may prompt them to reconsider cutting you a break. Consider breaking your lease and moving early if you find a truly amazing deal that’s not likely to last.
And if you own? Assuming you purchased your home with mortgage rates were significantly higher, look into taking advantage of historically low interest rates and refinancing your mortgage. Refinancing does carry substantial closing costs: at least 1.5% to 2% of the refinance loan’s principal, and possibly as much as 4% or 5%. Refinancing therefore might not make sense if you plan to sell within a few years or can’t meaningfully reduce your interest rate. But if you plan to remain in your home for years to come and can reduce your rate enough to make money on the transaction, go for it.
Final Word
Like every year before it, this year is sure to present unforeseen challenges and unanticipated opportunities. If you don’t get around to making every single one of these moves by midnight on New Year’s Eve, all is not lost. There’s always next year. And if there’s one thing financially savvy folks know from experience, it’s that it’s never too late — or too early — to make smart money moves. Even if the payoff takes months, years, or decades to arrive.
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