Seven Tips For Financial Wellness In 2021

Seven Tips For Financial Wellness In 2021

Common New Year’s resolutions are to lose weight or become more active. Perhaps 2021 is the year to shift focus. Here are seven tips to help you become more financially fit.

  • Create a budget. It’s easy to get into financial trouble if you spend more than you earn. By watching your budget more carefully, you might be surprised by how much you spend in certain areas of your life. Many banks and credit unions offer budgeting tools directly on their websites.
  • Get a free credit report. You can obtain a free copy of your credit report from each of the three major credit reporting agencies every 12 months. Reviewing your reports regularly can help ensure the data in your report is accurate and allows you to contact creditors to dispute any errors.
  • Pay down debt. Start chipping away at your debts through a series of regular payments. Begin with bills that have the highest interest rates. Research whether it makes sense to consolidate debts at a more reasonable interest rate.
  • Review your investments. With recent changes in Washington, D.C. and market volatility, reviewing your investments is more important than ever. Protect yourself against risks by diversifying across different classes of investments. If you have not developed an asset allocation plan, do so. If you have, adjust your portfolio to ensure it is still meeting your objectives.
  • Plan ahead for retirement. Take advantage of tax-favored retirement plans such as a 401(k) at work. Both the contributions and earnings are tax-deferred and can compound over time. The 401(k) limit for 2021 is $19,500 ($26,000 if you’re age 50 or over). Also consider contributing to an IRA, which has a contribution limit of $6,000 ($7,000 if you’re age 50 or older).
  • Check your insurance coverage. Things can change over time, so don’t assume the coverage you acquired years ago still provides adequate protection for your family or business. Take a look at your policies to determine if adjustments are needed.
  • Save for emergencies. And finally, would you be financially prepared if your business failed or you lost your job? The COVID-19 pandemic has reminded us the importance of establishing an emergency fund that can last for several months if you lost your salary or business revenue dramatically declines.

Acting on all these tips may seem a bit overwhelming. By focusing on a few now, before you know it, your financial wellness will improve over time.

Ideas For Better Savings Rates

Ideas For Better Savings Rates

Before the housing bubble burst in 2008, you could find high yield savings accounts that were paying rates over 5.0 percent. Today? These same banks are paying less than .10 percent.

So where are you supposed to put your money? Is there anywhere else you can put your hard-earned cash and generate a modest return? Here are several suggestions.

  • Social Lending. Consider a social lending site like LendingClub, a peer-to-peer loan network that allows you to invest in other people’s loans. Typical rates that you can earn range between seven and 20 percent. There is a required initial deposit of at least $1,000.

    Risks: Social lending is not for the faint of heart. You are acting as a bank and have to be prepared to take loan losses…just like a bank.
  • Brokerage Accounts. Brokerage accounts often have a number of options to earn ongoing interest higher than most banks. It includes investing in dividend-bearing stocks, bonds, and other CDs. Many of these options will provide higher savings yields than banks, but you need to know the risks of your options before you invest.

    Risks: Each product offered within your brokerage account will have its own risks. For instance, dividend stock returns are not guaranteed and underlying shares can lose value. So never invest in something you don’t understand. The good news is many investment savings alternatives are insured by the FDIC and SIPC.
  • High Yield Savings Accounts. High yield accounts don’t have very high interest rates. But an account earning .4% to .7% is better than nothing. For a balance of $30,000, this yields about $200 annually. These types of accounts can be found at both online and brick-and-mortar banks and typically pay a better rate than traditional savings and checking accounts.

    Risks: Only choose well-respected, well-managed institutions when selecting an online account. And as always, be especially careful to take security precautions when moving funds online. Also double check to ensure your funds are FDIC insured.

The low rate environment is being influenced by the vast spending of the federal government. So until the fed moves rates up, you are going to need to stay vigilant to try to keep your hard-earned savings rates above the rate of inflation.

 

Retirement Savings Tips for Small Business Owners

Retirement Savings Tips for Small Business Owners

As an owner of a small business, you’ve proven that you’re a self-starter by operating a successful private enterprise. Of equal importance is applying your skills towards saving for your future. Here are some of the most popular tax-advantaged retirement vehicles for small business owners in 2020 and some tips on saving for retirement.

Options if you’re not currently enrolled in a plan

For small business owners not currently enrolled in a retirement plan, here are three of the most popular retirement account options:

  • Simplified Employee Pension (SEP) IRA Account. Contribute as much as 25% of your business’s net profit up to $57,000 for 2020.
  • 401(k) Plan. Contribute up to $57,000 of your salary and/or your business’s net profit.
  • Savings Incentive Match Plan for Employees (SIMPLE) IRA Account. You can put all your business’s net profit in the plan, up to $13,500 plus an additional $3,000 if you’re 50 or older.

Which plan should you choose? SEP and SIMPLE IRAs are ideal for either sole proprietors or really small businesses (no more than one or two dozen employees). Due to higher administrative costs, 401(k) plans are usually more suited for larger small businesses (more than one or two dozen employees).

Tips to maximize your retirement contributions

For small business owners who are currently enrolled in a retirement plan, here are some suggestions for maximizing your annual contributions into your retirement accounts:

Pay yourself first. Instead of funding your retirement account with whatever is left over after paying your monthly bills, decide at the beginning of each month how much you want to set aside to fund your retirement. Make funding your retirement each month as important as your other bills. Then assume that you pay your retirement bill first. If you run out of money before paying all your bills, decide if there are any expenses that can be pared back for subsequent months so you can meet your monthly retirement savings goal.

List your retirement contributions on your income statement. It is easy to forget about retirement planning when running the day-to-day operations of your business. To keep retirement contributions top-of-mind, record these as a separate line item on your business’s income statement.

Review your tax situation at least twice a year. Tax planning is now more important than ever with the uncertainty caused by the recent pandemic. So review your tax situation at least twice every 12 months to see how to maximize each year’s retirement contributions.

As always, should you have any questions or concerns regarding your tax situation please feel free to call.

Social Security Benefits Increase in 2021

Social Security Benefits Increase in 2021

Estimated average Social Security retirement benefits starting January 2021

  • All retired workers in 2020 $1,523/mo
  • All retired workers in 2021 $1,543/mo

Did you know? You can increase your Social Security retirement benefits by 5-8% when you delay applying until you’re age 70.

1.6% cost of living adjustment for Social Security retirement benefits and SSI payments begins with the December 2020 benefits (payable in January 2021).

The 2021 maximum Social Security retirement benefits a worker retiring at full retirement age is $3,148/mo.

Did you know…

97% of U.S. citizens over age 60 either receive Social Security or will receive it in the future.

1 in 4 seniors expect Social Security to be their primary source of income.

Social Security pays benefits to more than 70 million people including retirees, children and surviving spouses.

2021 Social Security and Medicare tax rates

If you work for someone else…

  • your employer pays 7.65%
  • you pay 7.65%

If you’re self-employed…

  • you pay 15.3%

Note: The above tax rates are a combination of 6.2% for Social Security and 1.45% for Medicare. There is also 0.9% Medicare wages surtax for those with wages above $200,000 single ($250,000 joint filers) that is not reflected in these figures.

  Maximum amount you can pay in Social Security taxes
2020: $8,537.402021: $8,853.60

165+ million people work and pay Social Security taxes.

Social Security has provided financial protection for Americans since 1935.

  Maximum earnings amount Social Security will tax at 6.2%
2020: $137,7002021: $142,800

How does Social Security work?

  • When you work, you pay taxes into Social Security.
  • The Social Security Administration used your tax money to pay benefits to people right now.
  • Any unused money goes to the Social Security trust funds.
  • Later on when you retire, you receive benefits.

Social Security payments explained

SS Social Security retirement benefits are for people who have “paid into” the Social Security system through taxable income.

SSD or SSDI Social Security Disability (SSD or SSDI) benefits are for people who have disabilities but have “paid into” the Social Security system through taxable income.

SSI Supplemental Security Income (SSI) benefits are for adults and children who have disabilities, plus limited income and resources.

  Maximum SSI payments20202021
Individual$783/mo$794/mo
Couple$1,175/mo$1,191/mo

Here’s how to qualify for your retirement benefits

When you work and pay Social Security taxes, you earn “credits” toward Social Security benefits. The number of credits you need to get retirement benefits depends on when you were born.

If you were born in 1929 or later, you need 40 credits (10 years of work) to receive Social Security retirement benefits.

The earnings needed for a credit in 2021 is $1,470.

4 credits maximum per year.

Did you know you can check your benefits status before you retire?

You can check online by creating a my Social Security account on the SSA website. If you don’t have an account, you’ll be mailed a paper Social Security statement 3 months before your 61st birthday.

It shows your year-by-year earnings, and estimates of retirement, survivors and disability benefits you and your family may be able to receive now and in the future.

If it doesn’t show earnings from a state or local government employer, contact them. The work may not have been covered either by a Section 218 agreement or by federal law.

Sources: SSA.gov

2020 Retirement Plan Limits

2020 Retirement Plan Limits

As part of your 2020 planning, now is the time to review funding your retirement accounts.

By establishing your contribution goals at the beginning of each year, the financial impact of saving for your future should be more manageable. Here are annual contribution limits:

Retirement Plans 2019 2020 Change Age 50 or older
catch up
IRA: Traditional $6,000 $6,000 none add: $1,000
IRA: Roth $6,000 $6,000 none add: $1,000
IRA: SIMPLE $13,000 $13,500 +$500 add: $3,000
401(k), 403(b), 457 plans $19,000 $19,500 +$500 add: $6,500

Take action

If you have not already done so, please consider:

  • Reviewing and adjusting your periodic contributions to your retirement savings accounts to take full advantage of the tax advantaged limits
  • Setting up new accounts for a spouse or dependent(s)
  • Using this time to review the status of your retirement plan
  • Reviewing contributions to other tax-advantaged plans including flexible spending accounts and health savings accounts
There’s Still Time to Fund Your IRA

There’s Still Time to Fund Your IRA

There is still time to make a contribution to a traditional IRA or Roth IRA for the 2019 tax year. The annual contribution limit is $6,000 or $7,000 if you are age 50 or over.

Prior to making a contribution, if you (or your spouse) are an active participant in an employer’s qualified retirement plan (a 401(k), for example), you will need to make sure your modified adjusted gross income (MAGI) does not exceed certain thresholds. There are also income limits to qualify to make Roth IRA contributions.

Maximum 2019 IRA Contribution amounts: $6,000 or $7,000 (with age 50+ catch-up provision)

2019 IRA Income (MAGI) Limits

Traditional IRA
allowed contribution range
Roth IRA
allowed contribution range
Filing Status Full
Contribution
Phaseout
Complete
Full
Contribution
Phaseout
Complete
Single $64,000 $74,000 $122,000 $137,000
Married $103,000
(both participating)$193,000
(nonparticipating spouse)
$123,000
(both participating)$203,000
(nonparticipating spouse)
$193,000 $203,000

Note: Married traditional IRA limits depend on whether either you, your spouse or both of you participate in a qualified employer-provided retirement plan. If married filing separate and either spouse participates in an employer’s qualified plan, the income phaseout to contribute is $0-10,000.

If your income is too high to take advantage of these IRAs you can always make a non-deductible contribution to an IRA. While the contributions are not tax-deferred, the earnings are not taxed until they are withdrawn.