The Hottest Perk of the Pandemic? Financial Wellness Tools

In the midst of the Great Resignation, with employers scrambling for ways to hang on to experienced staff, financial wellness programs might be an attractive addition to the benefits bag.

That was a key finding from PwC’s annual Employee Financial Wellness Survey, which was conducted in January 2021 and released in April. Among those polled, 72 percent of workers who reported facing increased financial setbacks during the pandemic said they would be more attracted to another company that cared more about financial well-being than their current employer. About 57 percent of workers who hadn’t yet faced increased financial stress said the same thing.

Financial stress doesn’t just affect worker retention; it also has an impact on productivity. PwC’s survey showed that 45 percent of workers experiencing financial setbacks have been distracted at work by their money problems. The menu of financial wellness tools employers might elect include educational tools for personal finances, one-on-one financial coaching, and even access to rainy day funds.

It’s a growing business sector, too. HoneyBee, a B2B financial wellness startup, recently closed a round of funding with $5.7 million in equity, TechCrunch reported. The financial technology company grew 225 percent during the pandemic and saw a 175 percent increase in usage for its on-demand financial therapy tools. Origin also recently announced that it raised $56 million in its Series B funding round, which it will use for customer expansion, as it saw increased demand for financial planning services during the pandemic, Business Wire notes.

Although one in five workers waits until they experience a financial setback to seek guidance, when they are offered continual support, employees are more likely to be proactive with their finances. According to the PwC survey, 88 percent of workers who are provided financial wellness services by their employers take advantage of them.

By Rebecca Deczynski, Staff reporter, Inc.@rebecca_decz

Source: The Hottest Perk of the Pandemic? Financial Wellness Tools | Inc.com

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Critics:

Making money is definitely the cornerstone of financial wellness and increasing your income can help you obtain your goals. You do not need to be a millionaire, but it’s important to obtain some level of income stability. Being financially well starts with having a reliable income and knowing at a consistent time, you will expect to be paid a certain amount. Steady and reliable income is one of the cornerstones of financial wellness.

Even if you don’t like budgeting or planning, it’s good to set goals for yourself. You are more likely to stick with it when you have goals to reach and can see progress. By creating a plan, you are visualizing the what, why, and how you will get there. If you don’t already have a household budget, grab your most recent bank statement and look at the total amount of money you have coming into your household each month. Then, factor in fixed, required expenses – things like rent or mortgage payments, utilities, insurance, and more.

f you do not have an emergency fund, now is the time to start building it. The goal of an emergency fund is to have available funds for when you are dealing with unemployment or you have an unforeseen cost. You won’t stress about the money because you have a nice cash reserve that you can access quickly. Finance experts often say that you should have at least three to six months’ worth of expenses in your emergency fund. If you have nothing in savings, putting away just $25, $50, or $100 a month is an amazing start. Ultimately, it’s what you feel comfortable with. You can also consider putting it in a high savings investment such as CIT Bank’s Savings Builder, which helps put your savings to work with very little risk.

Once you get a handle on your finances, you can start to map out life events and large purchases, so you can begin saving! Planning ahead is always helpful, and once you get a handle on your current financial plan, set some goals for what comes next. By building a plan, you have a road map to help guide you through the rest of your story. Putting even a small amount into savings on a consistent basis is one of the best ways to get your savings to grow so you can meet your goals, small or large. Set your own personal savings rule to live by and make a plan on how to achieve it. Prepare for life events and large purchases by planning ahead.

Your credit score is another critical part of your financial health. Things like late payments, too much debt or high balances negatively affect your credit score. Keep watch over your credit report and credit score with a free credit report from places like Credit Karma. A higher credit score tells banks and lenders that you’re a reliable and less risky borrower. 

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How Financially Literate Are You? 3 Things You Should Know About Your Money

Most of us received little guidance or instruction on how to handle money when we were growing up. That’s OK — we can learn now, a little bit at a time. Let’s start with the basics.

How do most of us learn how to use our money wisely and well? When we’re growing up, we’re given special instruction in important subjects — swimming, driving, sex — to arm us with info and keep us from harm.

Yet when it comes to managing our money — an activity that every one of us needs to do, every day — we receive surprisingly little preparation. We’re not taught much about it in school, because education systems leave it to us to learn from our families and friends. However, those people often don’t fill in the gaps because money can be such a loaded or taboo topic.

Natalie Torres-Haddad, who grew up in southern California, saw many people around her struggling with debt and financial instability. She was determined to be the exception, and she purchased her first rental property in her early 20s and earned an MPA in Finance & International Business. In the process, however, she became buried in debt. Only by teaching herself the basics of money — basics that she’d never learned — was she able to steady herself and her finances.

Today she leads workshops and sessions to prevent others from falling into the money pit. (She’s also the author of the self-published Financially Savvy in 20 Minutes ). She’s found that even among the college-educated people she meets, “the majority feel confused and overwhelmed about balancing their income and expenses,” she says. The stats show they’re not alone. A 2015 Ohio State University study reported nearly 70 percent of college graduates in the US say they don’t feel equipped to manage money and deal with their debt.

Not only must we get up to speed on the basics, we also need to start having honest conversations with each other about money, says Torres-Haddad. In the same way we’d tell family and friends that we’re cutting out refined sugar from our diets or practicing yoga to increase our flexibility, we should be open with them about the steps we’re taking to boost our financial health. That way, we can get advice and support. This transparency, she adds, can also make us less susceptible to peer pressure-related spending. How many of us have agreed to a pricey meal or weekend trip because we didn’t want to come clean about our money concerns?

Becoming financially literate does not require a huge time investment. Torres-Haddad believes we can start by dedicating 15 – 20 minutes a day to developing our skills and knowledge by learning new terms and resources. Just like attaining literacy in a foreign language, she says, “it’s an ongoing education.” Here are three things you need to know about your money.

1. Know How Much Money You’re Bringing in Every Month vs. How Much You’re Spending

Most of us can rattle off our salaries in our sleep, but could you do the same for your monthly after-tax income and where you’re spending your money every month? If you can’t, that’s normal. But now is the time to learn your actual take-home pay and your actual expenses (and not just ballpark figures or estimates).

For your income, look at your physical or online pay stubs, and start keeping a record of the after-tax amounts. If you’re a salaried employee, that number should be fairly steady; if you’re not, those numbers will vary.

For your monthly expenses, Torres-Haddad suggests writing down — whether it’s in a physical or online notebook — every single daily purchase (coffee, take-out, Uber, online shopping, etc) you make and every single ongoing payment you make through autopay or credit cards (Netflix, gym membership, car insurance, utilities, etc.).

If you’ve never done this before, you may find this uncomfortable — even painful — but it will force you to face up to your spending habits. It will also make these purchases visible. Often, our regular outlays (such as Netflix, Hulu, etc.) can go unnoticed or unquestioned, and our daily spends — especially if we pay by debit card so the funds are instantly drawn from our bank accounts — can go forgotten. Torres-Haddad calls the latter “runaway spending” — “when the little things that you thought cost only a few dollars actually cost much more” in the long run. Take a daily $5 green smoothie. By making them at home, you could save yourself a few hundred dollars in a month.

After you have a fundamental understanding of income and expenses, you can download an app to help you track these categories; see your bank account, credit-card and loan balances; and organize your purchases into buckets so you can identify areas where you might cut back. Two free apps to try are Mint or Charlie, says Torres-Haddad. But, she cautions, apps can be a little “out of sight, out of mind,” meaning if you need extra help to be aware of your spending, stick with the pen-and-pad (or fingers-and-keyboard) method a while longer.

2. Know Your FICO Score and Your Other Credit Scores

While you don’t need to have a good credit score to be financially literate, you must know what it is. ( Note: Most of the information in this section applies to people living in the US.) In the US, FICO was the first company to offer a three-digit credit-risk score for lenders to use when deciding whether or not to approve a loan or line of credit, a credit limit, and an interest rate. There are three other national credit reporting bureaus — Experian, Equifax and Transunion — which also keep track of all your loans (student, auto, personal, etc.) and your balances and histories for all your credit cards (whether issued by banks, stores or businesses).

However, the FICO score is the one most frequently used when you apply for credit cards, mortgages and most types of loans; rent an apartment; or sign up for utilities. FICO scores range from 300 to 850; 670 and up is seen as a good score and 800 and up is excellent. While the FICO score is calculated with a proprietary algorithm, the primary factors that go into it are your repayment history (do you pay your credit-card bills on time? how late are you?), how much debt you’re carrying on cards and loans, how long you’ve successfully held a credit card or loan for; and whether you’ve managed to hold a mix of different kinds of credit.

Most banks and credit cards offer free access to your FICO score on their mobile apps and websites ( here’s a list of the ones that do). If you don’t use one of these companies, you can also find out how to access your score on FICO’s helpful FAQ, including a chart showing where your score falls between “Poor” and “Exceptional.”

Besides checking your FICO score every year, do an annual check of the reports issued by Experian, Equifax and Transunion. This is so you can verify that they’re correct, make sure no one has opened up a line of credit in your name, and see where you might improve. You are entitled to a free copy of a credit report from each bureau once a year. Beware: Many sites will charge you a fee, so use the federally approved and secure Annual Credit Report site.

If it’s your first time checking or you’re about to make a big purchase (such as a car or a home), Torres-Haddad suggests getting all three reports at once. After that, she recommends spacing them out throughout the year. That way, you can quickly catch any errors, fraud, identity theft or any other actions that could hurt your credit history. Mark your calendar so you know when you can request your next free credit report.

3. Know How Much Credit Card Debt You’re Carrying

Knowing how much credit-card debt you’re carrying — and how quickly it’s increasing due to interest — is critical to your financial literacy. Make a list (on paper or on a computer) of each of your credit cards, their current balances, and their current interest rate. Then, put them in order from highest interest rate to lowest.

In general, says Torres-Haddad, this should be how you should prioritize paying them off, paying as much as you can towards the card with the highest interest rate while paying the minimum on the other cards. Called the “ debt-snowball method,” this was popularized by money expert Dave Ramsey.

If you have any cards that offered a 0% APR as a promotion when you signed up, mark down the date on which the promotional rate expires because that’s when you can expect your debt to accumulate at a high interest rate (20% or more). Try to budget your monthly payments so that this card will have little to no balance when that expiration date arrives.

Believe it or not, having a credit card can be a great thing for a person’s FICO and credit scores — if you use it responsibly. Of course, carrying no debt on your cards is best. Otherwise, Torres-Haddad recommends using no more than 30 percent of your available credit limit. So if you have two credit cards with limits of $6K apiece, totalling $12K in available credit, make sure the total balances you’re carrying do not exceed $4K.

If you’ve managed to pay off a credit card, congratulations. But while you may be tempted to close it, Torres-Haddad advises against it. Why? Closing the account will shrink your total amount of available credit and cause your credit score to dip. Instead, delete the card number from any online shopping accounts, cancel any auto-pays billed to it, and freeze the card in ice. It may sound silly but it means that if you want to use it, you’ll be forced to wait for it to defrost — and forced to take a little time to think about your purchase.

When choosing a new credit card, look for ones that offer incentives — such as travel points or cash back — which could help you and your finances. Torres-Haddad recommends going to nerdwallet.com and bankrate.com to compare credit card offers.

Obviously, these three points represent just a small part of financial literacy. That’s why Torres-Haddad urges people to be patient and to learn gradually. Two books she recommends are Napoleon Hill’s Think and Grow Rich!  and Robert T. Kiyosaki’s Rich Dad, Poor Dad. For those who like to get information through listening, she suggests the “Popcorn Finance” and “Her Dinero Matters” podcasts.

When you can, supplement your research with an in-person workshop, adds Torres-Haddad. “Even going to one financial literacy workshop can have a life-changing effect,” she says. A good time to find free workshops is April, which is Financial Literacy Month in the US. One of the best investments you can make in your life is to educate yourself about money, says Torres-Haddad. “It can really give you a lot of peace of mind.”

By: Erin McReynolds

Source: How Financially Literate Are You? 3 Things You Should Know About Your Money

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IRAs For All? Mandatory Retirement Accounts Part Of $3.5 Trillion Budget Plan

Do Americans need a nudge from their employers—and a handout from Washington—to get them to save for retirement? That’s the premise behind draft retirement language in the the House Ways and Means Committee mark up of the $3.5 trillion budget reconciliation package.

Under the proposal, starting in 2023, employers with five or more employees would have to offer a retirement plan and automatically enroll employees, diverting 6% of their pay to a retirement account. An automatic escalation clause would increase the automatic contribution to 10% of pay by year five. The default plan would be a Roth IRA invested in a target-date fund, a mix of investments based on your expected retirement year.

For employers, it’s a mandate. They would have to offer the plans. Employees would be able to opt out.

“We’re not trying to put an undue burden on the small employer. We’re trying to help the employee who works for a small employer be a lifetime saver,” Ways and Means chairman Richard Neal (D-Mass.) said at the hearings.

The retirement section of the Build Back Better Act is expected to dramatically expand retirement savings. It would create 62 million new retirement savers and would add an additional $7 trillion in retirement savings over a 10-year period, according to the Employee Benefit Research Institute. Nearly all—98%—of these new savers would be folks who earn less than $100,000 per year.

“We know that people are far more likely to save for retirement if they have access to a retirement plan at work (12 times more likely), but there’s a real access problem – small businesses just never quite seem to get around to setting these up,” says Nevin Adams, chief content officer for the American Retirement Association.

To offset administrative costs for employers, the proposal includes a tax credit to employers for setting up the plans. And a tax penalty of up to $900 per employee per year if they don’t comply.

“Main Street now faces an onerous new mandate from Washington and a tax penalty if you don’t comply. Small business owners know this is yet another, or feels like another, war on work,” Rep. Kevin Brady (R-Texas), the top Republican on the Ways and Means Committee said at the hearings.

The small business lobby is crying foul. The National Federation of Independent Business (NFIB) says the tax credits provided to employers for setting up plans are temporary and limited, and that the cost of compliance amounts to a “hidden tax.”

There is evidence that auto-IRAs work for both employers and employees. Rep. Earl Blumenauer of Oregon noted how a similar state-mandated auto-IRA program mandated for all employers in his state has generated $120 million of savings “in our little state” so far. And a Pew survey found that 73% of employers were either satisfied or neutral about the Oregon program.

Hand-in-hand with the auto-IRA provision is a change to the Saver’s Credit. Lower-income Americans, even those who don’t owe taxes, would get a newfangled Saver’s Credit—a government match on their savings—$100 to $500 per person per year from the U.S. Treasury paid into their individual retirement account. The $47 billion cost of the retirement proposal is evenly split between the Saver’s Credit provision and the auto-IRA provision.

This auto-IRA proposal is different from the one that is in pending bipartisan retirement legislation known as SECURE 2.0, which would not mandate that employers offer these accounts but rather make them voluntary. SECURE 2.0 contains other important provisions, such as allowing employers to provide matching money to retirement accounts when workers pay off student loan debt.

Representative Neal said that SECURE 2.0 is “getting over the goal line this year” too. Some of the revenue raisers for the Build Back Better Act under discussion relate to retirement, and Representative Neal said that they could be released this weekend.

Follow me on Twitter or LinkedIn.

I cover personal finance, with a focus on retirement planning, trusts and estates strategies, and taxwise charitable giving. I’ve written for Forbes since 1997. Follow me on Twitter: @ashleaebeling and contact me by email: ashleaebeling — at — gmail — dot — com

Source: IRAs For All? Mandatory Retirement Accounts Part Of $3.5 Trillion Budget Plan

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Can You Beat Inflation With A Monthly Annuity?

A century ago, money from Andrew Carnegie created Teachers Insurance & Annuity Association to pay pensions to schoolteachers, professors and other people who work at nonprofit organizations. In the early days, these pensions were backed by bond portfolios and paid fixed monthly sums. Then, in 1952, TIAA invented the variable annuity.

Payouts from this novel product were tied to the return on a collection of stocks called the College Retirement Equities Fund. Don’t put all your money in this risky thing, a retiring prof would be told, but put in some in order to keep up with the rising cost of living. Your payouts from Cref will be unpredictable but still very likely, over time, to greatly outpace payouts from a fixed annuity. That’s because stocks, over time, outpace bonds.

With the variable annuity, TIAA married the high returns on equities with the classic annuity benefit of longevity pooling. Longevity pooling means that people who die young collect less over their lifetimes than their colleagues who live long. Pooling is a bet worth making because it allows you do live well off a pot of savings without taking a risk that you will exhaust those savings. Pooling is how all monthly pensions work. It’s how Social Security works.

Cref was a hit. It now has $279 billion under management.

Is it a good buy? It looks that way to me. The graph displays the monthly payouts for a 67-year-old female who invested $100,000 25 years ago in the main stock account, which is akin to a global index fund with a 30% foreign allocation. She rode a roller-coaster, with payments cut in half during the crash of 2007-2009, but if she’s still breathing at 92 she’s now getting $2,146 a month, better than triple her $610 starting pension.

For the index fund, the combined fee (for salesmen, annuity administrators and portfolio managers) comes to 0.24% a year. In the world of annuities that counts as a bargain. Variable annuities sold by stockbrokers can cost eight times as much.

It helps that TIAA is a nonprofit and its annuity pools are run on a mutual basis—meaning, pensioners share in the gains and losses that arise from unexpected mortality. Thus, if too few emeritus professors take up skydiving, there will be more than the expected number of mouths to feed and the growth in payouts will be less than hoped for. Conversely, a pandemic boosts payouts.

Now, a mutual form of organization is no guarantee of either efficiency or wisdom, but in this context it means that the insurance company does not have to pad its prices in order to cover the risk that retirees will live too long.

Nor does the nonprofit status mean an advisor won’t be tempted to steer a pensioner into products considerably more costly than an index fund (read this New York Times story). But if you stick to the cheap portfolio options you’ve got a good deal. Proviso: You should be in excellent health if you’re buying any kind of annuity.

Alas, not everyone can get in the door at Cref. You can acquire a TIAA annuity only if you or a fairly close relative works or worked in the nonprofit world—such as for a government agency, hospital, school or college.

What variable annuity is there for retirees in the corporate sector? Nothing that I would recommend. The insurance industry has responded to TIAA’s invention with a slew of convoluted and costly products that make price comparisons next to impossible.

You will probably see some kind of “mortality” charge in the prospectus (that padding I was talking about); you will probably not be able to discern what kind of worse damage is built into the formula that connects your payout to the return on the stock market; your salesman will probably be buying a new sports car right after you sign.

If you are not eligible for TIAA, and if an advisor mentions variable annuities, flee. Find a better solution at Do-It-Yourself Income For Life.

Follow me on Twitter.

How To Follow The 50-30-20 Budgeting Strategy

This story is part of CNBC Make It’s One-Minute Money Hacks series, which provides easy, straightforward tips and tricks to help you understand your finances and take control of your money.

Managing your finances and setting a monthly budget can be challenging. But if you’re overwhelmed with where to start, the 50-30-20 strategy can simplify the process. The plan divides your income into three broad categories: necessities, wants, and savings and investments. Here’s a closer look at each.

50% of your paycheck should go toward things you need

This category includes all of your essential costs, such as rent, mortgage payments, food, utilities, health insurance, debt payments and car payments. If your necessary expenses take up more than half of your income, you may need to cut costs or dip into your wants fund.

20% of your paycheck should go toward savings and investments

This category includes liquid savings, like an emergency fund; retirement savings, such as a 401(k) or Roth IRA; and any other investments, such as a brokerage account. Experts typically recommend aiming to have enough cash in your emergency fund to cover between three and six months worth of living expenses.

Some also suggest building up your emergency savings first, then concentrating on long-term investments. And if you have access to a 401(k) account through your employer, it can be a great way to save a portion of your income pre-tax.

30% of your paycheck should go toward things you want

This final category includes anything that isn’t considered an essential cost, such as travel, subscriptions, dining out, shopping and fun. This category can also include luxury upgrades: If you purchase a nicer car instead of a less expensive one, for example, that dips into your wants category.

There isn’t a one-size-fits-all approach to money management, but the 50-30-20 plan can be a good place to start if you’re new to budgeting and are wondering how to divide up your income.

Nadine El-Bawab

By: Nadine El-Bawab / @nadineelbawab

Source: How to follow the 50-30-20 budgeting strategy

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Critics:

While that may not be realistic, there are some simple things you can do right now to improve your money situation. Try these five steps for successfully managing your personal finances. Another bonus? If you stick to these five tips, your financial problems may start to diminish, and you can start reaping the rewards of lower debt, saving for the future, and a solid credit score.

Take some time to write specific, long-term financial goals. You may want to take a month-long trip to Europe, buy an investment property, or retire early. All of these goals will affect how you plan your finances. For example, your goal to retire early is dependent on how well you save your money now. Other goals, including home ownership, starting a family, moving, or changing careers, will all be affected by how you manage your finances.

Once you have written down your financial goals, prioritize them. This organizational process ensures that you are paying the most attention to the ones that are of the highest importance to you. You can also list them in the order you want to achieve them, but a long-term goal like saving for retirement requires you to work towards it while also working on your other goals.

Below are some tips on how to get clear on your financial goals:

  • Set long-term goals like getting out of debt, buying a home, or retiring early. These goals are separate from your short-term goals such as saving for a nice date night.
  • Set short-term goals, like following a budget, decreasing your spending, paying down, or not using your credit cards.
  • Prioritize your goals to help you create a financial plan.

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How the New Child Tax Credit Is Helping Parent Entrepreneurs

Eligible parents are slated to receive their monthly child tax credit payments starting Thursday. How you use the money could affect your business or help you start one.

The American Rescue Plan Act of 2021 expanded the tax credit score to $3,600 per baby underneath the age of six and to $3,000 for these aged six to 17. It is in impact only for 2021, although Biden has advocated making it making it everlasting.

Half of the funds might be despatched to folks in installments via December. For instance, a mum or dad with one baby underneath six would obtain $300 per 30 days. Dad and mom can declare the remainder upon submitting taxes for 2021–unless they choose out to allow them to obtain all the cash once they file.

Madilynn A. Beck, founder and CEO of Palm Springs, California-based Fountful–an app that gives “life-style providers” like manicures or DJ appearances on demand–is contemplating that strategy. Beck says that if she meets her enterprise targets this 12 months, Fountful might generate sufficient income to considerably enhance her tax burden come subsequent April. “I am protecting my head above water now,” she says. “What occurs if I’m absolutely underwater then and do not have a life vest?”

The kid tax credit score will have an effect on individuals at a “wide selection” of earnings ranges, says Daniel Milan, managing accomplice at Cornerstone Monetary Providers primarily based in Southfield, Michigan. For aspiring entrepreneurs, it’d offset childcare prices for just a few months whereas they work on getting a enterprise off the bottom. For others, the cash might simply assist alleviate day by day monetary stress.

That is the case for Ruby Taylor, CEO and founding father of Baltimore-based Monetary Pleasure Faculty, which supplies monetary literacy training and produces a card sport that teaches the topic to younger individuals. In April 2021, she and her spouse’s monetary scenario modified consequently of the pandemic however they nonetheless needed to cowl issues like a brand new roof and fence for his or her home.

Their financial savings account dwindled, and Taylor’s nervousness spiked, leading to her occurring blood stress and nervousness treatment. The additional $500 the mom of two expects to obtain means the couple can construct up their security web once more, taking the stress off each of them. “When she’s not pressured, I am not pressured,” Taylor says. It “will assist the enterprise not directly, as a result of I may be extra productive.”

Guardian entrepreneurs face the extra problem of staying current with spouses and kids, says James Oliver Jr., founder and CEO of ParentPreneur Basis, an Atlanta-based nonprofit that helps Black mum or dad founders financially and with an internet neighborhood (of which Beck and Taylor are each members).

 Month-to-month funds “may very well be the distinction of sending the youngsters to summer season camp, shopping for further groceries, taking a bit trip, or taking the youngsters to the amusement park as soon as a month to assist the household bond,” he says.

Source: How the New Child Tax Credit Is Helping Parent Entrepreneurs | Inc.com

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Critics:

The Internal Revenue Service today launched two new online tools designed to help families manage and monitor the advance monthly payments of Child Tax Credits under the American Rescue Plan. These two new tools are in addition to the Non-filer Sign-up Tool, announced last week, which helps families not normally required to file an income tax return to quickly register for the Child Tax Credit. The new Child Tax Credit Eligibility Assistant allows families to answer a series of questions to quickly determine whether they qualify for the advance credit.

The Child Tax Credit Update Portal allows families to verify their eligibility for the payments and if they choose to, unenroll, or opt out from receiving the monthly payments so they can receive a lump sum when they file their tax return next year. This secure, password-protected tool is available to any eligible family with internet access and a smart phone or computer. Future versions of the tool planned in the summer and fall will allow people to view their payment history, adjust bank account information or mailing addresses and other features. A Spanish version is also planned.

Why You May Be Overly Optimistic About Your Social Security Benefits

Frank and Joan Shortland

As humans, we tend to be overoptimistic on everything from our driving ability to investment prowess. It’s perennial problem when it comes to money and retirement management.

A recent study found that people routinely over-estimate their Social Security benefits. Two researchers from the University of Michigan found that “Americans face the challenges of retirement with varying degrees of preparation. Evidence indicates that that many individuals may not be making the best possible choices with respect to their Social Security and retirement savings.”

Why do people expect more than what they actually receive in benefits? Here’s what the researchers found:

  • Most retirees find that the amount of Social Security retirement benefits they receive is lower than what they had expected before claiming.
  • Not appropriately adjusting for early or delayed claiming could contribute to expectation biases about retirement benefits. In particular, this would be most relevant for those with lower levels of education.
  • Current workers recognize that they do not have a good idea of what their future retirement benefits will be. Forty-nine percent of our survey respondents declare having no knowledge about their benefit amount.
  • The average expectation bias for monthly retirement benefits in our sample is $307, which equals 27% of the average forecasted benefit for this sample (in current dollars).
  • Men display lower expectation bias and are less likely to overestimate their retirement benefits.

How to avoid these misconceptions? You need to estimate benefits based on the age you intend to claim them and your earnings record. A good place to start is Social Security’s benefits estimator tool.

Since people are living longer and are generally healthier in older age, the Social Security Administration raised the full retirement age to 67 for people born in 1960 or later, up from 65. You can apply for benefits as early at 62, although your benefit would be reduced by 30%. On the other hand, if you can wait until age 70, you will get 124% of the monthly benefit because you delayed getting benefits for 36 months.

Consider how each scenario might impact your retirement planning. Preparing for different outcomes now is the best way to help protect your savings – and peace of mind – down the line.

Planning today can make a big difference in your retirement lifestyle tomorrow. Once you leave the workforce, the years that follow can be all that you want them to be—if you pave the way with a comprehensive financial plan that includes your Social Security income.

Your plan should be based on what you know today and flexible enough to adapt to any changes—like unforeseen personal circumstances or developments that come out of Washington.

Social Security can be a valuable tool to help bridge any gap you may have between your expected sources of income and your expenses.

POINTS TO KNOW

  • Social Security has features for retirees that other retirement savings plans don’t have.
  • When creating your retirement plan, be sure to include your Social Security benefits as an income source.
  • It’s important to have a retirement budget: Itemize your income sources and expected expenses.

Follow me on Twitter or LinkedIn. Check out my website or some of my other work here.

 

Source: Why You May Be Overly Optimistic About Your Social Security Benefits

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Citations: 

 1, 5, 7, 8 AARP: “How is Social Security funded?” February 11, 2021 https://www.aarp.org/retirement/social-security/questions-answers/how-is-social-security-funded/

2 SSA: “Your Retirement Benefit: How It’s Figured” by Social Security Agency, January 2021 https://www.ssa.gov/pubs/EN-05-10070.pdf

3 SocialSecurity.gov: “My Account” information collected from www.socialsecurity.gov/myaccount

4 AARP: “How much longer will Social Security be around?” September 22, 2020 https://www.aarp.org/retirement/social-security/questions-answers/how-much-longer-will-social-security-be-around/

6 Statista: “Number of retired workers receiving Social Security in the United States from 2010 to 2020” by Statista Research Department, January 19, 2021 https://www.statista.com/statistics/194295/number-of-us-retired-workers-who-receive-social-security/

9 SSA: “Retirement Benefits: Retirement Age Calculator” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/ageincrease.html

10 SSA: “Retirement Benefits: Starting Your Retirement Benefits Early” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/agereduction.html

11 SSA: “Retirement Benefits: How Delayed Retirement Affects Your Social Security Benefits” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/1960-delay.html

12 IRS.gov: “Are Social Security Benefits Taxable?” February 13, 2017 https://www.irs.gov/newsroom/are-social-security-benefits-taxable

13, 14 SSA: “Retirement Benefits: Income Taxes And Your Social Security Benefit” by Social Security Agency https://www.ssa.gov/benefits/retirement/planner/taxes.html 

15 Investopedia: “Do Earnings from a Roth IRA Count Toward Income?” By Denise Appleby, April 8, 2021 https://www.investopedia.com/ask/answers/05/iraearningsmagi.asp

Return to Office: Employees Are Quitting Instead of Giving Up Work From Home

A six-minute meeting drove Portia Twidt to quit her job. She’d taken the position as a research compliance specialist in February, enticed by promises of remote work. Then came the prodding to go into the office. Meeting invites piled up.

The final straw came a few weeks ago: the request for an in-person gathering, scheduled for all of 360 seconds. Twidt got dressed, dropped her two kids at daycare, drove to the office, had the brief chat and decided she was done.

“I had just had it,” said Twidt, 33, who lives in Marietta, Georgia.

With the coronavirus pandemic receding for every vaccine that reaches an arm, the push by some employers to get people back into offices is clashing with workers who’ve embraced remote work as the new normal.

While companies from Google to Ford Motor Co. and Citigroup Inc. have promised greater flexibility, many chief executives have publicly extolled the importance of being in offices. Some have lamented the perils of remote work, saying it diminishes collaboration and company culture. JPMorgan Chase & Co.’s Jamie Dimon said at a recent conference that it doesn’t work “for those who want to hustle.”

But legions of employees aren’t so sure. If anything, the past year has proved that lots of work can be done from anywhere, sans lengthy commutes on crowded trains or highways. Some people have moved. Others have lingering worries about the virus and vaccine-hesitant colleagues.

And for Twidt, there’s also the notion that some bosses, particularly those of a generation less familiar to remote work, are eager to regain tight control of their minions.

“They feel like we’re not working if they can’t see us,” she said. “It’s a boomer power-play.”

It’s still early to say how the post-pandemic work environment will look. Only about 28% of U.S. office workers are back at their buildings, according to an index of 10 metro areas compiled by security company Kastle Systems. Many employers are still being lenient with policies as the virus lingers, vaccinations continue to roll out and childcare situations remain erratic.

But as office returns accelerate, some employees may want different options. A May survey of 1,000 U.S. adults showed that 39% would consider quitting if their employers weren’t flexible about remote work. The generational difference is clear: Among millennials and Gen Z, that figure was 49%, according to the poll by Morning Consult on behalf of Bloomberg News.

“High-five to them,” said Sara Sutton, the CEO of FlexJobs, a job-service platform focused on flexible employment. “Remote work and hybrid are here to stay.”

The lack of commutes and cost savings are the top benefits of remote work, according to a FlexJobs survey of 2,100 people released in April. More than a third of the respondents said they save at least $5,000 per year by working remotely.

Jimme Hendrix, a 30-year-old software developer in the Netherlands, quit his job in December as the web-application company he worked for was gearing up to bring employees back to the office in February.

“During Covid I really started to see how much I enjoyed working from home,” Hendrix said.

Now he does freelance work and helps his girlfriend grow her art business. He used to spend two hours each day commuting; now the couple is considering selling their car and instead relying on bikes.

One of the main benefits, he says, is more control over his own time: “I can just do whatever I want around the house, like a quick chore didn’t have to wait until like 8 p.m. anymore, or I can go for a quick walk.”

Of course, not everyone has the flexibility to choose. For the millions of frontline workers who stock the shelves of grocery stores, care for patients in hospitals and nursing homes, or drop off packages at people’s doors, there are scant alternative options to showing up in person.

But among those who can, many are weighing their alternatives, said Anthony Klotz, an associate professor of management at Texas A&M University, who’s researched why people quit jobs. Bosses taking a hard stance should beware, particularly given labor shortages in the economy, he said.

“If you’re a company that thinks everything’s going back to normal, you may be right but it’s pretty risky to hope that’s the case,” he said.

At least some atop the corporate ladder seem to be paying attention. In a Jan. 12 PwC survey of 133 executives, fewer than one in five said they want to go back to pre-pandemic routines. But only 13% were prepared to let go of the office for good.

Alison Green, founder of workplace-advice website Ask a Manager, said she’s been contacted by many people with qualms about going back, citing concerns about unvaccinated colleagues and Covid precautions. Some have said they’re looking for jobs at companies they feel take the virus seriously, or will let them work from anywhere.

Some things are indeed lost with remote work, Green said, like opportunities for collaboration or learning for junior employees. But, she added: “I think we need to have a more nuanced discussion than: hustlers only do well in the office.”

For Sarah-Marie Martin, who lived in Manhattan and worked as a partner at Goldman Sachs Group Inc. when the pandemic struck, the months at home gave her time to redraw the blueprint of her life.

“When you have this existential experience, you have time to step back and think,” Martin said. “In my previous life, I didn’t have time to get super deep and philosophical.”

The mother of five moved her family to the New Jersey shore. And once the push to get back to offices picked up, the idea of commuting hardly seemed alluring. This spring, Martin accepted a fully remote position as chief financial officer of Yumi, a Los Angeles-based maker of baby food.

Gene Garland, 24, unknowingly opened the floodgates to people’s frustrations about office returns. After his employer, an IT company, in April told people they needed to start coming in, two of his close colleagues handed in their resignation letters. Garland, who lives in Hampton, Virginia, tapped out a tweet:

Hundreds of people responded, with many outlining plans, or at least hopes, to leave their own jobs. Garland says he himself has no plans to quit, but empathizes with those who do.

“Working inside of a building really does restrict time a lot more than you think,” he said. “A lot of people are afraid of the cycle where you work and work and work — and then you die.”

Twidt, the compliance specialist in Georgia, had already lined up a new job by the time she handed in her resignation letter: a role at a Washington-based company.

The recruiter that approached her, Twidt said, asked what it would take to get her on board. She replied that she would prefer something 100% remote. Some employees have enjoyed working from home so much that they’d rather quit their jobs than go back to the office full time, a new survey found.

Out of 1,000 US adults polled in May, 39% said they’d consider quitting if their bosses weren’t flexible about them working from home. The Morning Consult survey was first reported by Bloomberg. The survey showed that 49% of the respondents who said they’d consider quitting were millennials and Gen Z — i.e., adults born after 1980.

Many global companies are embracing a hybrid work model as staff start to return to offices post-pandemic. Finance giants, who were known for having a strict work culture, are now adopting more flexible work models. Some have decided to redesign the workplace for more collaboration, and keep solo tasks for remote working. Others plan to cut back on office space entirely.

But some firms, such as JPMorgan, are not won over by the idea of remote work and want to see the majority of their workforce in the office. Jamie Dimon, the company’s CEO, said on May 4 that remote work “does not work for young people” and “those who want to hustle.” Chris Biggs, a partner at the consultancy firm Theta Global Advisors, told Insider that employers need to be “tuned into people’s mental health” as staff return to the office.

“You could do a lot of damage to those who don’t want to go into the office,” he said, adding that employers shouldn’t force people to come into the office.

— With assistance by Sridhar Natarajan

By: and

Source: Return to Office: Employees Are Quitting Instead of Giving Up Work From Home – Bloomberg

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Critics:

Refusal of work is behavior in which a person refuses regular employment. As actual behavior, with or without a political or philosophical program, it has been practiced by various subcultures and individuals. Radical political positions have openly advocated refusal of work. From within Marxism it has been advocated by Paul Lafargue and the Italian workerist/autonomists (e.g. Antonio Negri, Mario Tronti), the French ultra-left (e.g. Échanges et Mouvement); and within anarchism (especially Bob Black and the post-left anarchy tendency).

In employment law, constructive dismissal, also called constructive discharge or constructive termination, occurs when an employee resigns as a result of the employer creating a hostile work environment. Since the resignation was not truly voluntary, it is, in effect, a termination. For example, when an employer places extraordinary and unreasonable work demands on an employee to obtain their resignation, this can constitute a constructive dismissal.

The exact legal consequences differ between different countries, but generally a constructive dismissal leads to the employee’s obligations ending and the employee acquiring the right to make claims against the employer. The employee may resign over a single serious incident or over a pattern of incidents. Generally, a party seeking relief must have resigned soon after one of the constructive acts.

Notes

If You’re In Your 50s or 60s, Consider These Moves To Avoid Higher Taxes In Retirement

If you are working with an eye toward retirement or even semi-retirement, you are probably (hopefully) saving more than you could in the past in your retirement accounts. You may have paid off the mortgage and paid for college and other heavy expenses of raising children. That all sounds like you are on your way, except for one big problem I call the “ticking tax time bomb.”

I’m referring to the tax debt building up in your individual retirement account, 401(k) or other retirement savings plans. And, as I wrote in my newest book, “The New Retirement Savings Time Bomb,” it can quickly deplete the very savings you were relying on for your retirement years. But there are a few ways you can avoid this problem.

While you may be watching your savings balances grow from your continuing contributions and the rising stock market, a good chunk of that growth will go to Uncle Sam. That’s because most, if not all, of those retirement savings are tax-deferred, not tax-free.

The funds in most IRAs are pretax funds, meaning they have not yet been taxed. But they will be, when you reach in to spend them in retirement. That’s when you quickly realize how much of your savings you get to keep and how much will go to the government.

The amount going to the Internal Revenue Service will be based on what future tax rates are. And given our national debt and deficit levels, those tax rates could skyrocket, leaving you with less than you had planned on, just when you’ll need the money most.

So, that’s the dire warning. But you can change this potential outcome with proper planning and making changes in the way you save for retirement going forward.

You can begin by taking steps to pay down that tax debt at today’s low tax rates and begin building your retirement savings in tax-free vehicles like Roth IRAs or even permanent life insurance which can include cash value that builds and can be withdrawn tax-free in retirement.

In addition, if you are still working, you can change the way you are saving in your retirement plans. If you have a 401(k) at work, you could make contributions in a Roth 401(k) if the plan offers that. A Roth 401(k) lets your retirement savings grow 100% tax-free for the rest of your life and even pass to your beneficiaries tax-free too.

Learn more: All about the Roth IRA

What the News Means for You and Your Money

Understand how today’s business practices, market dynamics, tax policies and more impact you with real-time news and analysis from MarketWatch.

For 2021, you can contribute up to $26,000 (the standard $19,500 contribution limit plus a $6,500 catch-up contribution for people 50 and older). With some Roth 401(k) workplace plans, you might be able to put in even more.

Then, see if you can convert some of your existing 401(k) funds either to your Roth 401(k) or to a Roth IRA. Once you do this, you will owe taxes on the amount you convert. The conversion is permanent, so make sure you only convert what you can afford to pay tax on.

Also read: We have $1.6 million but most is locked in our 401(k) plans — how can we retire early without paying so much in taxes?

Don’t let the upfront tax bill deter you from moving your retirement funds from accounts that are forever taxed to accounts that are never taxed.

Similarly, you can convert your existing IRAs to Roth IRAs, lowering the tax debt on those funds as well. The point is to not be shortsighted and avoid doing this because you don’t want to pay the taxes now. That tax will have to be paid at some point, and likely at much higher future tax rates and on a larger account balance.

It’s best to get this process going now, maybe even with a plan to convert your 401(k) or IRA funds to Roth accounts over several years, converting small amounts each year to manage the tax bill.

If you have been contributing to a traditional IRA, stop making those contributions and instead start contributing to a Roth IRA. Anyone 50 or over can put in up to $7,000 a year ($6,000 plus a $1,000 catch-up contribution) and you can do so for a spouse even if that spouse is not working.

If one of you has enough earnings from a job or self-employment (and you don’t exceed the Roth IRA contribution income limits), each of you can contribute $7,000, totaling $14,000 in Roth IRA contributions each year. That will not only add up quickly, it will add up all in your favor because now you are accumulating retirement savings tax-free.

Related: Should you convert your IRA to a Roth if Biden’s infrastructure plan passes?

Once the funds are in a Roth IRA or other tax-free vehicles (like life insurance), those funds compound tax-free for you.

The secret is to pay taxes now. It’s so simple, but also so counterintuitive that most people don’t take advantage of this and end up paying heavy taxes in retirement that could have all been avoided.

Ed Slott is a Certified Public Accountant, an individual retirement account (IRA) distribution expert and author of “The New Retirement Savings Tax Bomb.” He is president and founder of Ed Slott and Company, providing advice and analysis about IRAs.

This article is reprinted by permission from NextAvenue.org, © 2021 Twin Cities Public Television, Inc. All rights reserved.

Source: If you’re in your 50s or 60s, consider these moves to avoid higher taxes in retirement – MarketWatch

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5 Pieces of Money Advice No One Ever Wants to Hear From Me

You know how adults always told you to “eat your veggies” and greens when you were a kid? Well, that nagging advice doesn’t necessarily stop in adulthood. As a financial planner, I’m constantly giving people good advice they don’t want.

I know no one wants to hear this kind of money advice. But those who do listen — and more importantly, implement these ideas — tend to have better control over their cash flow, higher savings rates, and more financial power.

You might not like it, but much like eating broccoli and kale, taking it in is often for your own good.

1. Don’t buy so much house

Buying a home is rarely a data-driven decision. It’s an emotional one, and for good reason. For many people, homeownership represents stability, security, and even status.

These are not unimportant things, but too many people use their emotions as excuses to throw financial reality out the window when it comes to house hunting.

Set a budget and stick to it. We often recommend keeping your total annual housing costs to no more than 20% of your gross annual household income.

This helps ensure you retain flexibility in other areas of your cash flow so that you can own your home and keep pursuing other important goals or have money available for your other priorities.

2. And don’t assume your house is a good investment

I often caution people against thinking of their home as an investment. Again, that doesn’t mean buying is a bad idea or your house isn’t worth as much as you think it is. But an investment should provide a return.

A single-family home that serves as your primary residence (and does not provide rental income) may be an excellent utility. It is not, however, what I would consider a good investment.

Home values do tend to rise over time, but the cost of ownership, maintenance, and upkeep often erode most of the “gains” you might see when just looking at the transaction of buying and then selling your home on paper.

A reasonable, real return on single-family homes runs about 2%. That’s not nothing, but it’s also not something you can assume will fund your full retirement, either (especially when you have to live somewhere, retired or not, and most people put the equity from a home sale into their next purchase).

3. Save more than you think you need to

It’s really important to me that I help my clients strike a balance between enjoying their lives in the present while also building assets and future financial security. This would be much easier to do if we had a crystal ball and could accurately predict what life would be like in 10, 20, even 30 years.

We’d know your budget. We’d know what kinds of emergencies you’d have to deal with, and prepare accordingly. And we’d understand what your life would look like (including how long it would be).

With that clarity, it would be possible to say, “you need $X. Save just that and feel free to spend the rest.” That is, obviously, not how life works.

The solution? Save more than you think you need to, because then you give yourself a margin of safety. By saving more than you necessarily must save to “be OK,” you can better:

  • Handle emergencies
  • Take advantage of opportunities when they come up (either to spend on an unexpected trip, for example, or to use money on an investment you feel passionate about)
  • Incorporate new goals into your planning over time

Saving more that you think you need today also buys you more choice and freedom in the future. The usual guideline I give to clients to help them achieve this is to save 25% of annual gross income.

4. Have a backup plan

It might sound like a doom-and-gloom approach to finances, but I preach about always having a backup plan — or those margins of safety, or wiggle room, or contingencies.

No one wants to imagine a worst-case scenario, but if something actually went sideways in your financial life, you’ll be glad you had multiple levels of safety net built into your overall plan.

You can do this in a number of ways, including some we’ve already talked about, like saving more than you think you need to save.

Other ways of building in backups is by maintaining an emergency fund, using conservative assumptions around income, and overestimating your expenses when you do any kind of long-term financial projection, and not counting on any kind of windfall (from bonuses and commissions to inheritances) to make your plan work.

5. Stop trying to time the market

It is so tempting to think we can successfully time the market. Why? Because drops and spikes in the stock market look stupidly obvious with hindsight.

It’s very easy to look back at something like 2008 (or maybe even the spring of 2020 at this point) and feel like you know when the best times to buy and sell would have been… because they already happened. 

Guessing what comes next without the benefit of knowing how things played out is not the same thing. Data shows us that even professionals fail to time the market repeatedly. You may get lucky once, but repeating that performance over and over again for the next few decades is virtually impossible.

Build a strategic investing plan — and then stick to it, regardless of current events.

It’s probably not as fun and may not be as sexy as bragging about your stock picks on Robinhood, but it works a whole lot better in the long run.

By:

Eric Roberge, CFP, is the founder of Beyond Your Hammock. He helps professionals in their 30s do more with their money.

Source: 5 Pieces of Money Advice No One Ever Wants to Hear From Me

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