Key Financial Retirement Terms That Can Help You Make Smart Retirement Decisions

What is a Portfolio?

The collection or group of investments all owned by the same individual or organization. All of the financial “stuff” you own. 

What is Mutual Fund?

● A pool of money from many investors that a professional money manager uses to buy the stocks and/or bonds of many different organizations. 

● This helps diversify risk because if a single company experiences financial difficulties it should not impact the fund as drastically since losses by one holding can be offset or balanced by the performance of the other holdings. Mutual funds can vary from very conservative to very aggressive.

What is Compound Interest?

● "Interest on interest," and will make a deposit or loan grow at a faster rate than simple interest, which is interest calculated only on the principal amount.

● Compound interest can significantly boost investment returns over the long term. While a $100,000 deposit that receives 5% simple interest would earn $50,000 in interest over 10 years, compound interest of 5% on $10,000 would amount to $62,889.46 over the same period.

What is Dollar Cost Averaging?

● Investing the same dollar amount every month, regardless of market conditions and fluctuating prices.

● This strategy helps to reduce your risk of loss over time. Also, by investing regular amounts as opposed to a lump sum, your average cost per share could potentially be lower. It is often better to embrace volatility over time, rather than trying to avoid it by investing larger lump sums all at once.

● Dollar Cost averaging is what you’re doing when you contribute money to your 401k or 403 b….so it is an important concept to understand.

What is Asset Allocation

● Deciding how much money to place in different asset classes, or types of investments, at any given time. 

● Your investment choices should be selected from different types of asset classes, such as stocks, bonds and cash. An appropriate asset allocation helps reduce your portfolio’s exposure to volatility when the financial markets are delivering unsteady returns. 

● Selecting the right mix of investments can help you achieve your Future-Funded Ministry goals.

What is Diversification?

● The process of spreading your money among different specific investments. 

● It may also may be thought of as not putting all of your eggs in one basket.

What is Risk?

● The proportionate chance of gain or loss.

● Generally more aggressive (higher risk) investments may deliver higher average returns over time, however, this is offset by a higher potential for loss of principal compared to safer, more conservative investments. 

What is Volatility?

● The up and down price movement of stocks, bonds, and mutual funds. 

● Typically, stocks involve more risk and generally have more up and down price movement than bonds. However, bonds may have a lower overall rate of return than stocks because they do not represent ownership, only debt.

● Depending on market conditions, each type of asset, stocks or bonds, may do better over different periods of time.

What is a Bond?

● A loan to a company or government.

● These bonds represent debt of the issuer. Each bond is set to mature on a certain date, and at that time the organization will pay back the original loan amount to the bondholder plus interest. Mutual funds usually own a large number of different bonds.

What is a stock/stock market?

● As a shareholder, or stockholder, you do not get to personally make decisions about how the company is run, but you get to elect the Board of Directors who make those decisions for you.

● The return you receive from regular payments from the company is called a dividend. The return from the share price moving up or down is called capital gain or loss. 

● As a shareholder, or stockholder, you do not get to personally make decisions about how the company is run, but you get to elect the Board of Directors who make those decisions for you.

The return you receive from regular payments from the company is called a dividend. The return from the share price moving up or down is called capital gain or loss. 

How to Make Sure You're Financially Prepared for Retirement

Unless you plan to work until you drop, you must prepare for retirement.

According to The Balance, the average amount saved for those who are 50 to 55 is $124, 831 (“Average Retirement Savings,” 2018). You don’t need a calculator to realize that $124,000 is not enough.

Here are some steps to take to make sure you are financially ready to retire:

Dare to Downsize

Some homeowners, who have watched the value of their homes decline in recent years, are reluctant to sell until the real estate market rebounds. Even if your home hasn’t returned to its former value, moving to a smaller, less expensive home can save you thousands of dollars a year in taxes, utility costs, and insurance.

These savings can be funneled into retirement savings. You may need some help with this approach but do the financial analysis and make a wise decision.

Consolidate Your Orphaned 403(b) or 401(k) Plans

You’ve probably changed jobs several times and you may still have money in former employers’ retirement plans. Leaving money in a former employer’s plan is not as bad as cashing it out. But as you approach retirement, it is a good idea to consolidate your savings into one IRA.

There is another step you can take prior to retirement, and that is to consolidate your retirement accounts with one vendor. Then, upon retirement, it will be easier to move to an IRA. Or, you may leave the account with that final vendor. You will get a better handle on how much money you have and where it’s invested by consolidating your accounts. You will also have more investment choices and pay lower administrative expenses.

Don’t forget, if you have ministerial status, you need to leave the money in your 403(b)(9) account to take advantage of the Housing Allowance Distribution.

Consider Long-Term Care Insurance

A well-funded retirement savings plan could be decimated in a matter of months if you end up in a nursing home or require round-the-clock home health care. Medicare doesn’t cover the cost of long-term care and Medicaid isn’t available until you’ve spent down most of your savings.

Long-term care insurance could prevent this from happening, but make sure it fits your budget before making such a purchase. The costs are often high. If you do not take out long-termcare insurance, set aside or allocate 3-5 years of the monthly cost of assisted care living expenses in your area of the country.

Weigh Your Social Security Options

You are eligible to file for social security benefits when you turn 62, but if you do, your monthly check will be reduced significantly for the rest of your life. You may have little choice if you are out of work or in poor health and need the money to pay expenses. But if you have the wherewithal to work a few more years or have other sources of income, delaying checks until age 66, or your full benefit age, will increase your monthly amount by 33% or more.

Earn Supplemental Income

You can also supplement your earnings by working and/or consulting part time in your area of expertise. In retirement, you can get paid for doing your favorite hobby. Think of how you can use your knowledge and skills to earn additional income. At 97 years of age, Billy Graham received royalties on the book he wrote many years back.

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Looking for faith-based IRA options? The FaithBased IRA from Envoy Financial could be the perfect solution for you!

How to Wisely Plan for Your Children's College Education

How to Plan for Children’s College Education

We all know that there is a big difference in the cost of education depending on where you send your children to college. Much of the decision on where to go, and therefore the expense, is dependent upon a realistic matching of your child/children to interests, capacity, and innate capability.

Also, there is the very real possibility your child is not wired to either enjoy or benefit from a 4-year college degree. Matching applicable education with the appropriate expense only makes sense. Our culture and sometimes our pride get in the way of making good decisions.

There are new apprenticeship programs popping up, particularly in high-tech manufacturing areas. In another career direction, great education leading to a teaching degree can be found across the spectrum of colleges with the associated range of tuition. Regardless of the cost, the same time-and-money crunch applies to college savings that applies to retirement savings.

Also, the amount of student loan debt in our country is appalling. We need to be better stewards of our resources in this arena. So often we let a false pride get in our way when we say we want “only the best for our kids.” Perhaps we need examine what is best from a stewardship of time, money, and outcome. 

Start Early

Compare the difference between starting a college fund when your child is a toddler versus waiting until he or she is 13.

Starting earlier, you would have to save $345 a month to cover 75% of the cost of a public college education, according to Savingforcollege.com. Because you waited—you delayed saving for five years—you’ll have to save $646 a month. That’s almost twice as much!

Rather than regret the past, recalibrate the present. If you are on track for retirement but short of the needed education savings amount, you can always redirect 1% or 2% of your gross income from one pot, retirement, to the other for a few years. Recognize that this can result in you working a year or two longer before retirement or boost the savings for retirement after you’re done paying the college bills.

Loans

Or consider borrowing—judiciously of course. Parent PLUS loans, sponsored by the federal government, carry a fixed 7.9% rate. PLUS loans let you borrow up to the cost of tuition minus any financial aid. However, remember that borrowing on behalf of your student can jeopardize your own financial security in retirement. If the gap is a chasm, not a crevice, find a less expensive school.

Another way to get cash for college is to borrow against the equity in your home. With a home-equity loan, you pay a fixed rate (recent average: 6.4%). If you decide to go that route, borrow the entire amount upfront if the interest rate is low and fixed. With a line of credit, you pay a variable rate (recent average: 5.1%) and then borrow as needed. With both, you can generally deduct the interest on amounts borrowed up to $100,000, no matter how you use the money.

Determine the Amount You Are Willing to Spend

Other smart alternatives include making a fixed amount of money available to your child (children) for college. For example, an amount that will cover four years at a local college or only one year at an out of state school. For most, a college degree is what is important not the school’s name written on the diploma. 

Talk honestly with your kids. Let your kids know what you are prepared to contribute for college expenses before they make up a college wish list. Be clear that if the net price after financial aid doesn’t end up at your number, it has to go off the list. Without this conversation, you’ll be hard-pressed to say “no” when the acceptance letter from an expensive university comes. Make sure only clear, straight, truth is in play when it comes to making these hard choices about “higher” education for your children. It is hard, but necessary, to isolate the issues when there are multiple personalities and emotions in the decision-making room.

Discuss Options With Family Members

Often grandparents are financially able and want to contribute to the costs of college. Speak frankly with them a year or so before college selection process starts. Transparency and clear communication will yield the best for you, them and  the grandchild.