How To Reach Your Financial Goals

The great Zig Ziglar once said “If you aim at nothing, you’ll hit it every time.”

Goals serve as your financial compass. They point you in the direction you want to take your life. Whatever you want to achieve financially, is much more likely to come to fruition by setting out goals and having a plan of attack.

I suggest breaking your goals down into short-term and long-term.

Goals should be five things (SMART).

Specific

Measurable

Attainable

Relevant

Timely

I’ve found it beneficial to list out your goals with the following fields:

  1. What is the goal and what amount is needed
  2. How much do I need to set aside each month to achieve it
  3. Is it realistic for me to achieve this goal, why or why not
  4. By what date will I reach this goal if I follow my plan

The goals you set will be specific to you and your situation. Before you fill these out, take some time to think deeply about what you want to achieve financially.

To help with your thinking, here are a few examples…

Short Term Goals:

Build an emergency fund of $1,000 to cover any unexpected events

Save for a vacation to Hawaii next summer

Save for buying my family Christmas presents this year

Save for a down payment on a rental house for extra income

Long Term Goals:

Pay off all my student loans in 5 years

Contribute to my kids’ college funds every year

Pay off all of my credit-card balances

Save more and retire early at 60

Buy a rental property in 10 years

 

Simply listing out goals rarely does you any good.

You need to know exactly what amount you need and exactly how you’re going to get there.

It helps to break down the larger goals into smaller ones.

Don’t lose sight of the big picture, but break the big picture down into steps.

“Pay off $20,000 in credit card debt” can be overwhelming and paralyzing.

Instead think of it as “Contribute $500/month to pay off credit card debt in 3 years.”

If you’re keeping a budget and spending plan, incorporate your goals into this. If you don’t have a budget, feel free to use ours here: Free Budget Template

To take it one step further, set up auto-pay for your goals so you don’t have to think about them each month. With auto-pay on a certain day of the month, the money is automatically transferred, saved, etc.

The above should give you a clear framework and make you more prone to take action.

If you have any questions or would like help setting financial goals, contact us today!

-Your Friends at GPIS

5 Annuity Myths You Need To Know

Today, we’re going to take a closer look at one of the most popular retirement plans currently offered in the US – Fixed Indexed Annuities. Annuities have actually been around since the time of the ancient Romans. During these times, speculators sold financial products that promised to pay the buyers a fixed amount each year in exchange for a lump sum payment. Annuities eventually found their way to the Americas. The first known annuities in the US were created as a payment plan for pastors at a church in Pennsylvania in the 1700s. Annuities became even more popular when Great Depression hit, as investors wanted to find a safe haven asset from the volatile markets of the time.

Fixed Indexed Annuities (FIAs) specifically were developed in the 1990s as a type of retirement plan where people could have safety, security, and opportunity all in one place. These products served a need for customers as pension plans became few and far between due to their high cost to employers. Annuities possessed zero risk, someone could earn more money than bond yields of the time, and they could also provide a pension-like income and guaranteed paycheck for life.

Nearly $70 billion dollars of premiums went into FIAs in 2018 – it’s becoming increasingly obvious that more and more people are starting to see the value of these plans. However, if you google “Annuities” you might read some not-so-great articles online. Because of that, let’s clear up the Top 5 annuity myths.

Myth 1 – Annuities Have High Fees

Although some annuities have fees – there are plenty of annuities in the marketplace that have zero costs or fees. Typically, when there is a fee associated with an annuity, it’s for an added benefit. Examples might include: a return of premium feature, enhanced liquidity, a higher guaranteed income, or a higher death benefit. If an annuity does have a fee, most will never exceed 1-2% annually.

Myth 2 – I Can’t Touch My Money In An Annuity

Annuities today are extremely flexible. Many annuities give you the option to take up to 10% of your initial premium starting the first day of the contract, and some annuities offer as much as 20% access annually. There are also annuities where you can choose to take back your initial premium (return of premium) after a certain period of time. Most annuities also tend to be RMD-friendly, meaning no matter your RMD amount in a given year, you can take it out of your annuity with no additional penalty or charge. Compared to the past, annuities have much more liquidity options. And after the surrender term (typically 7 or 10 years), you are always free to move your money to another plan of your choosing.

Myth 3 – I Lose All My Money If I Die Early

With annuities, your beneficiary will receive the full account value at the time of death. Many annuities also have spousal features, where a spouse can step into the shoes of the annuity, if desired. Also, you can elect a joint payout option on some annuities, meaning the annuity will pay a set amount of income over both you and your spouses’ lives. Even if you both were to pass away, the remaining account value would still be passed along to your beneficiaries.

Myth 4 – Annuities Are Confusing

While there are many different kinds of annuities, with many different features, your financial professional will be able to find one that matches your goals and needs. If you work with an independent agent, they have access to all types of annuities and are familiar with the best current annuities. Agents are also helpful in explaining the details of the annuity so you can make sound decisions when it comes to your retirement.

Myth 5 – I Can Lose Money In An Annuity

One of the biggest benefits of annuity is that you are protected from downside market risk. If the market goes down 20% in a year, rather than getting a -20% return, you simply receive zero interest credits. Zero is your hero in an annuity. Fixed Indexed Annuities are sometimes confused with Variable Annuities, which have market risk and the potential for principal loss.

How to Make Sure You Don’t Run Out of Money in Retirement

As you look towards your retirement, it’s normal to have worries about the unknown.

There are many risks you must try and navigate as you stop living paycheck to paycheck and rely on what you’ve saved during your working years.

The biggest concerns retirees often have include: market risk, health risk, interest rate risk, withdrawal rate risk, tax risk and longevity risk.

Today, we’re going to focus on longevity risk.

You can break down your retirement savings life cycle into three phases: Accumulation, Protection and Distribution.

In the accumulation phase, you typically receive a steady paycheck every two weeks and are saving a percentage of your income in your TSP and other savings vehicles.

The TSP is a great accumulation vehicle for a few reasons.

  1. You receive a match of 5% (if a FERS employee)
  2. You can choose funds based on your risk tolerance
  3. There are lifecycle funds available for your target retirement date
  4. It’s extremely low-fee

Ultimately, you are “accumulating” money that you will use for living expenses once you reach retirement.

Next comes the Preservation stage.

You’ve worked hard your entire life.

You want to ensure that you don’t lose any of that hard earned capital.

We’ve seen over the last few months how quickly the market can drop 30% – which makes the preservation stage that much more important. This is especially true if you are nearing retirement — you simply don’t have time on your side to recoup the losses without taking on a ton of risk.

As you get closer to your retirement date, surveys show that most retirees want to move their money into safe assets that have protection from downside market risk while also having an opportunity for growth.

Finally, is the distribution stage.

You want to distribute your money in an efficient way, and try to make it last as long as possible.

This is where longevity risk comes into play.

You want to make sure you don’t run out of money.

No one wants to have to depend on others in their last few years.

But good news, there are steps you can take to prevent that.

First, Social Security. Social Security is guaranteed for as long as you live if you’re eligible to receive it.

Also, most pensions will pay a fixed amount until you pass away.

It also makes sense to draw down money in the correct way out of your TSP and other retirement accounts, while limiting taxes.

For example, if you pull too much money out of your IRA in a certain year, you could end up having your social security benefit taxed.

There are also other vehicles, including fixed indexed annuities that allow you to receive a guaranteed paycheck for life.

These vehicles allow you to be protected from the downside risk of the market, and you have the ability to participate in the market when it goes up.

These plans can also give you a paycheck for life.

All of these together, when maximized, will give you the best chance at beating longevity risk and not running out of money in retirement.

Our federal benefit experts have extensive training when it comes to federal benefits, Social Security optimization and retirement income planning.

We can guide you every step of the way.

Please reach out if you’d like to learn more.

-Your Friends at GPIS

New Lifecycle Funds Added to TSP on July 1st

Starting Wednesday, July 1st, five new lifecycle funds will be available within the Thrift Savings Plan (TSP).

These new funds will be in addition to the five L Funds that are currently available.

The target dates on the funds will be separated by five years instead of ten like they are now.

 

The TSP currently has:

L 2020

L 2030

L 2040

L 2050

L Income Fund

 

Starting July 1, these additional funds will be added:

L 2025

L 2035

L 2045

L 2055

L 2060

L 2065

 

Simultaneously, the L 2020 funds will go away.

Anyone who is currently enrolled or invested in the L 2020 fund will have their investment automatically transferred into the L Income Fund.

The L fund options were started back in 2005.

The purpose of these funds was to make it easier for participants to match their risk tolerance and investments with their desired retirement time frame.

Each fund is comprised of the five core funds (G, F, C, S and I) and automatically adjust as someone gets closer to their target retirement date.

Funds that have retirement dates further out into the future take more risk, and seek greater rewards.

As target dates & retirement nears, the funds shift towards more conservative investments.

Also, with the addition of the L 2060 and L 2065 funds, younger federal workforce employees are given options that are more in-line with many of their expected retirement dates.

Just a reminder, you can always make interfund transfers and the L fund you choose doesn’t have to correspond to the date you retire.

Here’s a link to a Fact Sheet you can find on TSP’s website that gives additional information about these changes.

If you any questions about your TSP and other federal benefits, our specialists are always standing by to help.

 

-Your Friends at GPIS.

Will You Pay Taxes On Your Social Security Benefit In Retirement?

Will Your Social Security Be Taxed in Retirement?

As you’re on the brink of retirement, you might be wondering to yourself…

“I’ve paid into Social Security my whole life as a tax, will it be taxed AGAIN!?”

The answer to this question won’t be the same for everyone.

Put simply — it depends.

First, it’s important to understand exactly how your Social Security benefits are taxed.

If you’re a FERS employee, you’ve paid into Social Security your entire working career.

Social Security has been a “tax” coming out of your paycheck (6.2%) each pay period.

Your employer also contributes 6.2%.

In theory, the government holds on to this money for you, and then it’s given back in the form of a SS payment when you decide to start receiving it.

Unfortunately for you, once you start receiving benefits, those benefits could be taxable.

It all depends on your “combined income” amount.

Your “combined income” is made up of your adjusted gross income, nontaxable interest income and half of your Social Security benefits. If your combined income exceeds $25,000 annually, a portion of your Social Security can be taxed.

Your FERS pension, and any withdrawals and distributions from your TSP and IRA accounts are going to contribute to your “combined income” amount.

Up to 85% of your Social Security benefit can be taxed in you are in the higher combined income thresholds! See the chart below from Investopedia.com.

https://www.investopedia.com/articles/retirement/12/will-you-pay-taxes-during-retirement.asp

 

The way to reduce or offset your combined income amount is through tax deductions.

The biggest tax deductions federal employees have typically include:

  1. Mortgage interest
  2. Dependent children
  3. Contributions to tax advantaged retirement plans

As you can imagine, these deductions often phase out or disappear completely in retirement.

(You might pay off your house, your kids are likely older and out on their own, and you’re no longer making contributions to a TSP or IRA).

If itemizing doesn’t make sense for you, the standard deduction in 2020 is $12,400 for single filers and $24,800 for married filers. These amounts will reduce your “combined income.”

 

https://www.nerdwallet.com/blog/taxes/standard-deduction/

 

Let’s look at an example…

You’re a single individual who received a “combined income” amount $34,000.

You don’t have many deductions, so you use the standard deduction of $12,400.

This would reduce your combined income amount to $21,600.

You would NOT have any of your Social Security benefits taxed because the taxation starts at $25,000.

We’re only scratching the surface here, but I hope you have a good idea of how your Social Security benefits might be taxed in retirement and why.

 

-Your Friends at GPIS.

 

DISCLAIMER: GPIS is not a tax advisor. As always, please consult your tax advisor and/or Certified Public Accountant for any items relating to taxation.

 

New CARES Act TSP Loans AVAILABLE!

New TSP Loan Rules Now in Effect (6/15)

The Coronavirus Aid, Relief and Economic Security (CARES) Act created special loan rules for TSP participants who have been affected by COVID-19. Under this temporary rule, TSP participants may now borrow more money than ever before – and TSP loan payments may be suspended until the end of 2020.

 

According to tsp.gov, to be eligible, the participants must meet one of the three criteria outlined. They include:

  1. The participant has been diagnosed with COVID-19
  2. The participant’s spouse or dependent has been diagnosed
  • The participant is experiencing adverse financial consequences (furloughed, laid off, work hours reduced, inability to work, etc).

If a participant qualifies, the total maximum loan amount has been increased from $50,000 to $100,000 and up to 100% of their vested balance instead of the usual 50% max. These loans are available through September 22, 2020. Loans may be applied for on tsp.gov in “My Account” then “Loans”.

 

Also, those who have active loans and meet the criteria outlined above have the ability to suspend any loan payments until December 31, 2020.  Form TSP-46 must be submitted and received by TSP no later than November 30, 2020. If a participant separates prior to the suspension period being over, the loan will become due and must be paid off within 90 days (or else become a taxable distribution). Just as a reminder, these loan suspensions are NOT automatic and must be requested.

 

Stay tuned! Next month, another provision is the CARES Act is expected to happen for eligible TSP participants. A one-time withdrawal of up to $100,000 will be available with typical requirements waived (participants need not be at least 59.5 or facing a financial hardship to avoid 10% tax penalty).

 

Please reach out the federal benefit specialists at GPIS with any questions on how these programs work or if you qualify.

Take Financial Inventory

Free Retirement Services

Have you ever tried to get your finances in order before?

If you haven’t, I bet you’ve at least thought about it.

What you probably came up with in your head was…

“I don’t even know where to start”

“It’s a lost cause”

“I’ll probably be OK with what I’m doing now”

Well good news for you — we’re going to show you where to start!

If you want financial freedom or if you simply want to relieve stress and anxiety, you have to put a plan in place.

But even before doing that, you need to figure out where you currently stand.

This might give you anxiety or make you uncomfortable.

Answer this question honestly: Did you put off getting your finances in order because you didn’t want to know the answers?

When something in life is painful, we tend to avoid it.

It’s human nature.

But, the only way to move forward is through.

If you’re embarrassed or feeling insecure about where you are now – don’t worry.

You don’t have to share these numbers with anyone – these are for your eyes only.

Deal?

Great! Let’s get started.

 

Assets – Liabilities = Net Worth

 

First, let’s figure out your assets and liabilities — this will calculate your present net worth.

You can write these on a piece of paper, or create a document in Excel / Google Spreadsheets.

You’ll want to visit this and update it regularly.

 

Assets (these are things you own or anything you currently possess)

Cash

Checking Accounts

Savings Accounts

Retirement Accounts

Other Investment Accounts

Vehicles (Blue Book Value)

Real Estate/Residence

Other Property/Misc. Assets

=Total Assets

 

Liabilities (these are things you owe including any debts)

Credit Card Balances

Auto Loans

Mortgages

Student Loans

Other Personal Loans

Other Misc. Liabilities

=Total Liabilities

 

(Total Assets – Total Liabilities) = Net Worth

 

See, that wasn’t so bad!

And I can tell you from experience…

It’s extremely encouraging to see progress made when it comes to your net worth number.

And once you have momentum, objects in motion tend to stay in motion.

Ever started a fitness routine?

The hardest day is the first day.

But once you’ve been going for a week or two, you don’t want to break the streak, and you feel better overall about yourself.

You can also use this net worth number as a goal.

For example, maybe you want to hit a certain number by a certain year ($200K by age 60, etc).

In our blog post next week, we’ll go through setting financial goals and how it relates to your financial inventory.

 

Stay tuned!