Atlantic Capital Management

Atlantic Capital Management (93)

Keep an eye on where it goes, as some destinations may be better than others.

You can probably envision how most of your retirement money will be spent. Much of it will be used on living expenses, health care expenses, and, perhaps, debt reduction. Beyond the basics, you will unquestionably reserve some of those dollars for grand adventures and great experiences. If your financial situation permits, you may also contribute to charity.

You just have to remember that your retirement fund is not a bottomless well. If outflows begin to exceed inflows (that is, you repeatedly withdraw more than you make back), you will face a serious financial problem.

With that hazard in mind, be wary of these four spending sieves. Some retirees fall prey to them, and all four can potentially reduce a retirement fund at an alarming rate.

Spending some of your retirement money on your adult children. According to the Federal Reserve Bank of New York, the average indebted college graduate is shouldering $34,000 in student loans. No wonder some millennials live without a car, live with a couple of roommates, or live with their parents. It is easy to feel empathy for a son or daughter in this situation, but you need not bail them out.1

You may be tempted to pay off some bills for an adult child, even some education debt – but should your retirement dollars be used for that? Frankly, no. (If you face the prospect of retiring with outstanding student loans, attack yours instead of ones linked to your kids.)

Spending some of your retirement money on your home. Should the mortgage be paid off? Does the landscaping need work? Should you put in solar panels? In asking such questions, question whether you want to assign your retirement dollars to such expenses.

Making a big lump-sum payment to erase your mortgage balance can also erase that money right out of your retirement savings. Some retirees find it better just to carry their home loans a little longer, enjoying the associated mortgage interest tax break. Certain home improvements might raise the value of your residence; others might not be cost effective.

Spending some of your retirement money at casinos. It is amazing how many retirees flock to gaming establishments. As AARP noted last year, about half of visitors to U.S. casinos are aged 50 or older. Gambling addiction is, fortunately, rare, but even casual gamblers can have a hard time walking away due to the comfort and conditions of the casino experience. Would any retiree be able to defend such spending as purposeful?2

Spending too much of your retirement money at the start of your “second act.” Often, retiree households get a little too ambitious with their travel plans or live it up just a little too much in the first few years of retirement. Either on their own or through a talk with their retirement planner, they learn that they must reduce their spending – and fast.

Aim to spend your retirement money in a way that you will not regret. Recognize these potential traps, strive to steer clear of them, and consider options that may give your retirement fund the possibility of further growth.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - tinyurl.com/ldkz9yt [4/4/17]
2 - aarp.org/money/scams-fraud/info-2016/casino-traps-older-patrons.html [2/16]

Thursday, 01 June 2017 18:48

The Importance of Financial Literacy

Written by

Too few Americans understand personal finance fundamentals.

If only money came with instructions. If it did, the route toward wealth would be clear and direct. Unfortunately, many people have inadequate financial knowledge, and for them, the path is more obscure.

Are most people clueless about financial matters? That depends on what gauge you want to use to measure financial knowledge. The U.S. ranked fourteenth in Standard & Poor’s 2015 Global Financial Literacy Study, with just 57% of the country’s population estimated as financially literate.1

Obviously, the other 43% of Americans have some degree of financial understanding – but it is mixed with a degree of incomprehension. Witness some examples:

*A recent LendU survey found that nearly half of college students carrying student loans thought those debts would eventually be forgiven if left unpaid.
*This year, Fidelity Investments asked Americans the following question in a multiple-choice quiz: “If you were able to set aside $50 each month for retirement, how much could that end up becoming 25 years from now, including interest, if it grew at the historical stock market average?” The correct answer was $40,000, but just 16% of respondents got it right. Another 27% guessed $15,000 (i.e., 50 x 12 x 25, as if interest was not a factor).
*Only 42% of those quizzed by Fidelity knew that withdrawing 4-5% a year from retirement savings is commonly recommended. Fifteen percent of those older than 55 thought they would be “safe” withdrawing 10-12% per year.
*The S&P 500 has returned positively in 30 of the last 35 years. Just 8% of those answering Fidelity’s quiz guessed this.2,3

Apart from these examples, consider another one at the macro level. According to the latest National Financial Capability Study from FINRA (the Financial Industry Regulatory Authority), only about a third of Americans younger than 40 understand the basic financial concepts of compounding, inflation, and risk diversification.1

Statistics aside, think about how a lack of financial acumen hurts people’s chances to build or protect wealth. How about the employee who skips retirement plan enrollment at work, mistakenly thinking that a tax-advantaged retirement account is the same as a bank account? Or the small business owner puzzled by cash flow and profit-and-loss statements? Or the young borrower who fails to grasp the long-run consequences of only making interest payments on a credit card or loan?

Financial professionals continually educate themselves. They stay on top of economic, tax law, and market developments. Investors should as well. Ten or twenty years from now, you may find yourself in an entirely different place financially – who knows? The economy, the Wall Street climate, and even the investment opportunities before you could all differ from what you see today. If your financial knowledge is ten or twenty years out of date, you risk being at a disadvantage.

Financial literacy is not about prevention, but instead about empowerment. The more you understand about personal finance, the more potential you give yourself to make smart money decisions.

 

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 - marketwatch.com/story/should-colleges-require-a-financial-literacy-class-2017-04-03/ [4/3/17]
2 - investopedia.com/news/3-ways-improve-financial-literacy/ [4/21/17]
3 - marketwatch.com/story/most-americans-failed-this-eight-question-retirement-quiz-2017-03-23 [3/23/17]

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