Category Archives: #BrownleeGlobal

Mindset is EVERYTHING!

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“In the fixed mindset, everything is about the outcome. If you fail—or if you’re not the best—it’s all been wasted. The growth mindset allows people to value what they’re doing regardless of the outcome. They’re tackling problems, charting new courses, working on important issues. Maybe they haven’t found the cure for cancer, but the search was deeply meaningful.”  Carol S. Dweck, Mindset: The New Psychology of Success

According to wealth coach Derek Moneyberg, your mindsets and habits determine your success. It is extremely important to align your mindset to reflect your goals and vision. “If you have big goals, your mindsets need to align with that ambition,” Moneyberg said.

Sounds simple, but according to Moneyberg, it is simple, but not easy. Consciously understanding what you need to do versus actually doing it are two very different things.

Moreover, Moneyberg opined that, “mindset is the difference maker. Your mindset is the operating system on which your daily habits run…you need to program your computer’s operating system. Your mindset is no different. You must program it correctly, so you have the relentless discipline to focus and execute for the years it takes to realize your big goals.”

Changing financial mindset is a necessary step to take if you really want to improve your financial position this year. A shift in your mindset will allow you to take control of your life and finances.

Growth Mindset
Source: Money Hacker

 

“You’ve got to win in your mind before you win in your life.” – John Addison

 

“Feed your mind just as you do your body. Feed it with good ideas, wherever they can be found. Always be on the lookout for a good idea; a business idea, a product idea, a service idea, an idea for personal improvement. Every new idea will help to refine your philosophy. Your philosophy will guide your life, and your life will unfold with distinction and pleasure.” – Jim Rohn

 

“It’s a funny thing about life, once you begin to take note of the things you are grateful for, you begin to lose sight of the things that you lack.” – Germany Kent

References:

  1. https://www.usatoday.com/story/sponsor-story/derek-moneyberg/2021/03/25/how-eliminate-5-mindsets-poison-opportunities-peak-success/6985924002/
  2. https://yourpositiveoasis.com/25-mindset-quotes-change-your-thinking/

Retirement Readiness and Cash Flow

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Building wealth is essential to accomplish a variety of goals like retiring in lifestyle you desire.

Retirement Comes First

It can be tempting to put your saving and investing for retirement on the back burner by paying for your child’s college education, helping your adult children with living expenses, or paying for a wedding. But it is incredibly important that you prioritize and put your retirement savings first. While loans are available for things like college education and home improvement, there are no loans or money growing on trees to finance your long-term retirement.

Dipping into your retirement tax deferred accounts can be equally tempting — such as cashing out your 401(k) when you leave a job or tapping it if you’re strapped for funds. You might also think about withdrawing funds as soon as the early withdrawal penalty disappears at age 59½.

Think twice! Even without early withdrawal penalties, federal and state income taxes can eat up a big chunk of what you withdraw, and you will lose all the possible growth of that money over the long term.

When you retire matters

Make sure you, your partner and your adult children are on the same page regarding your retirement timing and your financial planning. Sit down and have a conversation with your family about your changing priorities and goals as you near retirement.

“During Americans early years in retirement, many retirees end up spending as much as or more than they did when they were working,” says Jennipher Lommen, a certified financial planner in Santa Cruz, Calif. And, when and at what age you decide to retire matters greatly. If you retire before age 65, you’ll need to pay more for your health care before you’re eligible for Medicare benefits.

What is your retirement number

When it comes to retirement, it’s what you spend and your cash flow that matters most. Base your retirement needs and number on 100% of your pre-retirement expenses — plus 10%.

A rule of thumb to retirement savings states that you’ll need to save about 20x your gross annual income to retire. In other words, if you earn $50,000 per year, you’ll need $1,000,000 to retire. This is a good rule of thumb, however, it is expenses are what matter.

To come up with your own number for income (or cash flow requirement to cover your expenses) during retirement, you need to figure out how much you’ll actually spend in retirement, which means coming up with a comprehensive retirement budget. Only then can you determine whether your savings, pensions and other sources of retirement income are sufficient to finance the lifestyle you’ve envision.

The wealthy, according to Thomas J. Stanley, author of the best selling book, “The Millionaire Next Door,” have several financial habits in common when it comes to spending, saving, investing and accumulating wealth. One key commonality: They started early saving, investing and building wealth when they were young.

Give some serious thought to how you’ll spend your time—and money—once you stop working. The first few years of retirement are often referred to as the “go-go years”. It’s the period when many retirees are still in relatively good health and eager to do all of the activities they didn’t have time to do when they were working.

Retirees “always spend more on travel and entertainment than they thought or projected that they would,” says Jorie Johnson, a CFP in Brielle, N.J.

Creating a budget and sticking to it positions you for success since it creates a job for your dollars. “A common misconception is that budgeting is only for people who are struggling to make ends meet,” says James Kinney, a CFP in Bridgewater, N.J. “A household will feel wealthier and be better able to achieve its goals if it plans and monitors spending.”

If the word budget turns you off, “think of it as a spending plan,” says Lauren Zangardi Haynes, a CFP in Richmond, Va. “You choose where to allocate your monthly spending in line with what’s important to you.”

Get Organized

It’s not unusual for one partner to take sole responsibility for managing finances. However, when you’re married, planning your retirement needs to be a dual effort. Make sure each person is aware of financial plans and cash flow requirements, since both will be affected by the decisions that have been made.

It’s essential to organize your financial records. Work together with your spouse to gather records for each: bank account, credit card, retirement account, insurance policy, loan, mortgage, or other property (like cars). By the end of this exercise, you should both understand what assets you have and what debts you owe.

Many assets — like retirement plans, banking accounts, investment accounts, and insurance proceeds — let you name a beneficiary who will immediately become the owner of that asset when you pass away. The more assets you can transfer to beneficiaries, the fewer assets you’ll need to send through probate*, and the more effectively you can care for your life partner and family in the event of your or your spouse’s unexpected death.

But for all of this to work, you must make sure that your beneficiary designations are up to date. Assets that transfer directly to a beneficiary when you die are said to “pass outside” or “pass over” your Will.

Update your beneficiary designations:

  1. Go to your bank and ask to set up a POD, or Payable-On-Death, designation for any accounts that are held solely in your name. Joint accounts will automatically pass to the survivor listed on the account.
  2. Check the beneficiary designation for any of your retirement accounts.
  3. Do it today

Your vision for retirement is unique to you and your spouse.  The role of money in retirement is to provide security and freedom. Over half of retirees wish they had budgeted more for unexpected expenses, according to Edward Jones. So, don’t delay and start planning and preparing for retirement today.

References:

  1. https://www.kiplinger.com/slideshow/retirement/t047-s002-make-sure-you-have-enough-money-in-retirement/index.html
  2. https://www.kiplinger.com/slideshow/saving/t037-s003-money-smart-ways-to-build-your-wealth/index.html
  3. https://www.edwardjones.com/us-en/market-news-insights/retirement/new-retirement

Avoiding Investing Mistakes

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“You have to learn how to value businesses and know the ones that are within your circle of competence and the ones that are outside.” Warren Buffett

Research shows that most active investors underperform the market over the long-term, according to CNBC. In reality, profitable day traders make up a very small proportion of all traders. Only 1.6% of all day traders are profitable in an average year, according to an Haas School of Business University of California, Berkeley, study. This means that’s roughly ninety-nine out of every one-hundred day traders fail and lose money. And, “overconfidence can explain high trading levels and the resulting poor performance of individual investors,” Brad M. Barber and Terrance Odean of the University of California, Berkeley concluded.

These facts makes it clear that the odds are stacked against the ordinary retail trader or investor. Thus, you have to tread carefully if you want to achieve success over the long term.

Building an investment framework

Multitudes of successful investors, including both Berkshire-Hathaway’s billionaires Warren Buffett and Charlie Munger, believe it is essential to avoid high-risk equity investments at all costs. This means avoiding investments and businesses that have a high chance of failure. It also means avoiding any companies that are difficult to understand or fall outside of your circle of competence.

Following a few basic guidelines can help any investor avoid significant losses from struggling and failing companies.

Another piece of investing advice is not to overpay for companies. If you don’t understand the value or how to value a business, then that is a pretty clear indication that it does not fall inside your circle of confidence, and thus, it might be better to avoid the investment. Buffett believes that the market will eventually favor quality stocks that were undervalued (margin of safety) for a certain time.

Finally, investors shouldn’t rush to get rich quick and they should follow an investment plan and rules. Investors who rush to get rich tend to take unnecessary risks such as borrowing money to purchase stocks, buying stocks they don’t understand or allocating capital to opportunities that seem too good to be true. Moreover, research continues to show that investors who stick with a comprehensive long-term investing plan tend to outperform those who collect stocks and constantly jump in and out of the market. All of these actions can lead to significant losses.

The key investment principle of not being in a rush helps ensure you’re not rushing into anything you don’t understand or taking on too much risk. In short, being patient and not rushing into investments is a very low-tech and straightforward way of trying to eliminate mistakes.

By following this advice, an investor may be able to improve their process and outcome.

In the words of arguably the world’s most successful long-term investor, Buffett states, “We expect to hold these securities for a long time. In fact, when we own portions of outstanding businesses with outstanding managements, our favorite holding period is forever.”

References:

  1. https://faculty.haas.berkeley.edu/odean/papers/Day%20Traders/Day%20Trading%20and%20Learning%20110217.pdf
  2. https://www.cnbc.com/2020/11/20/attention-robinhood-power-users-most-day-traders-lose-money.html

Retirement Planning

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Saving is a good first step, but planning and investing are the keys to building wealth and achieving financial security for retirement.

Most of us know we should save money. But when it comes to actually doing it, people tend to fall into two camps: non-planners and planners.

Non-planners typically save when they can, perhaps putting a small amount into a workplace retirement plan, hoping that everything will work out in the long run.

Planners generally know what they’re saving for, how much they need to put away, and how long it will take them to reach their goals.

A financial plan will help you see what it will take to retire the way you want.

Only 28% of Americans have a written financial plan, according to Schwab’s 2019 Modern Wealth Survey.1 Of the rest, almost half said they didn’t have enough money to make a plan worthwhile. Others said it was too complicated, or they didn’t have time to develop a plan.

Five reasons why:

1. A written financial plan increases confidence.

Sixty-three percent of people with a written financial plan say they feel financially stable, while only 28% of those without a plan feel the same level of comfort, according to the 2019 Modern Wealth Survey. Fifty-six percent of planners felt “very confident” they would reach their financial goals, compared with only 17% of non-planners.

2. A financial plan leads to better habits.

Financial planning isn’t just about investing, and in fact it can be misleading to calculate the benefits of each financial decision in dollars and cents. Many sound financial decisions are more easily explained in quality-of-life terms—such as the security that life insurance offers, or the peace of mind that having an emergency fund can provide. There are healthy money habits and there are good investing habits; a written financial plan can lead to both.  (Source: 2019 Schwab Modern Wealth Survey)

3. A financial plan can help even if you don’t have much money saved.

The most common reason cited for not having a plan is “I don’t have enough money.” This is a misconception. Planning even in small steps doesn’t take large sums of money to start.

In fact, financial planning can have a profound impact on lower-income households, by helping people improve their saving and budgeting habits. A written plan helps savers prioritize their goals and provides a way to measure success.

Source: 2019 Schwab Modern Wealth Survey

4. A financial plan can be tailored to help every personality type.

Schwab’s Modern Wealth Quiz can tell you what type of person you are with regard to financial planning, and can provide tips on taking the next steps toward your financial goals based on your personality type. During the recent Modern Wealth Survey, most of those who took the quiz could be characterized as having a “Dreamer” planning personality type. To a Dreamer, life should be lived—not planned. Yet Dreamers may find that a bit of planning can significantly help them achieve the freedom to live the way they want.

What’s your financial personality type? Here are the six types, with the percentage of people surveyed who matched them:

  • Dreamer (43%): Dreamers are the free spirits of our world, who shake their head in confusion at all those who schedule their lives to the last detail.
  • Improviser (18%): Improvisers are typically quite self-sufficient, with a deep desire for independence and doing things their own way.
  • Organizer (11%): Admit it—you love lists. Categorizing and organizing everything from your sock drawer to your personal finances gives you a warm, fuzzy feeling.
  • Architect (10%): A master of both creativity and logic, the Architect is the rare individual who not only imagines the future, but designs solutions to make it happen.
  • Maverick (10%): Unafraid and unapologetic, Mavericks are those rare individuals who would rather reshape their world than try to fit in it.
  • Philosopher (8%): Taken from the Greek word meaning “lover of wisdom,” Philosophers enjoy thinking about and solving problems.

5. A plan helps you create an investment portfolio.

A choice of investments, portfolio or financial products ideally are the result of a plan—they’re not the plan itself. That’s why the first of Schwab’s 7 Investing Principles is “Establish a financial plan based on your goals.” Investment products—like stocks and bonds—are the tools that are used to potentially realize the goal. They’re part of a larger puzzle. A financial plan can also include retirement, insurance, tax, and estate planning, as well as strategies—such as retiring early, or saving more—that are actions, not products. Effective planners use all these tools, with the financial plan as the playbook.

Working with a professional financial planner can help. Research has shown that households that work with a professional financial planner were more likely to make better financial decisions than those without a planner, taking into account portfolio risk levels, savings habits, life insurance coverage, revolving credit card balances and emergency savings.2

Bottom line

A financial plan is the foundation on which to build, understand and achieve your goals. Having a written plan which takes a holistic look at your needs, can increase confidence and result in more constructive financial behavior and more favorable financial results.

Financial planning relegated down into five easy steps:

  1. Identify your goals. Think broadly about your goals and determine how you’ll be able to financially achieve them.
  2. Collect all of your financial data. It’s very important to determine how much is coming in, and how much is going out.
  3. Develop an immediate and long-term plan. Make a budget and stick to it.
  4. Put your plan into effect. It’s very important not to stray from it. You need to set realistic goals for yourself so that you’ll be able to stick to them.
  5. Monitor and update your financial goals to adjust to your life.

Saving for retirement is one of the most important financial goals.

References:

  1. Source: Schwab Modern Wealth Survey. The online survey was conducted by Logica Research from February 8 to February 14, 2019, among a national sample of Americans ages 21 to 75 and an augment sample of 200 older Generation Z-ers ages 18-22 for generational comparisons. The national sample was balanced to be demographically representative. The margin of error for the national sample is three percentage points. Quotas were set to balance the national sample on key demographic variables.
  2. https://www.schwab.com/resource-center/insights/content/does-financial-planning-help

9 Ways to Keep Your Brain Healthy

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“We’re seeing evidence that lifestyle changes can significantly improve brain health and even reverse brain disease.”  Dr. Sanjay Gupta, M.D.,CNN’s Medical Correspondent and a practicing neurosurgeon at the Emory University School of Medicine

We thought of the heart that way, and some other organs, but the brain was always this black box.”  In his fourth book, Keep Sharp: Build a Better Brain at Any Age, due out early next year. It’s an evidence-based exploration of the latest science on brain health and what tactics are working for Dr. Gupta himself.  Your lifestyle and habits influence your brain health more than genetics, says Dr. Gupta

Tips and strategies—basically, what to do with your body, your meals, and your mental energy—for keeping your brain sharp. Here’s how to make it happen:

1) Think of inactivity as a disease

“Every time I’m about to sit, I ask myself: Do I need to sit right now?” Dr. Gupta says. If you can stand or walk during meetings, phone calls, and other activities, do it. Think of inactivity as the disease rather than working out as the cure, he says.  A team of medical researchers at Harvard Medical School in Boston analyzed global data on deaths in 2008 and came up with an alarming result: 5.3 million deaths were attributable to physical inactivity, compared to 5 million smoking-related deaths.

2) Always be prepared to workout and train

Exercise boosts blood flow to your brain, tamps down inflammation, and promotes the growth of new brain cells. You need at least 150 minutes a week.

3) Walk, talk, gripe

Take a brisk walk with a friend and talk about your problems. It’s a brain trifecta: moving, socializing, and releasing stress. “Doing those three things ends up measurably detoxifying your brain,” Dr. Gupta says.

4) Fuel yourself right for better focus

To protect your brain, you need to control your blood sugar. Sugar in excess can be toxic, causing neurons to die and possibly triggering cognitive decline. Dr. Gupta experienced this firsthand when he cut added sugar from his diet for a 60 Minutes story and saw his “cognitive day” (how long you can be productive) increase.

Use the Global Council on Brain Health’s framework to prioritize what to eat. Here’s what’s on the A-list, and the B- and C-lists, too:

A-list foods: Consume these regularly

  • Fresh vegetables, especially leafy greens
  • Whole berries
  • Fish and other seafood (but not fried!)
  • Healthy fats, such as extra-virgin olive oil, avocados, whole eggs
  • Nuts and seeds

B-list foods: Include these foods in your life

  • Beans and other legumes
  • Whole fruits (in addition to berries)
  • Low-sugar, low-fat dairy, such as plain yogurt and cottage cheese
  • Poultry
  • Whole grains

5) Eat real foods, not individual nutrients or supplements

Real food contains a multitude of components that help beneficial ingredients (such as omega-3 fatty acids) travel through your body or even help unlock receptors so those beneficial ingredients can do their jobs. Doctors call this the “entourage effect,” and it’s why real food, like fish, is better than supplements, like fish-oil capsules, for brain health.

6) Drink instead of eat

“We often mistake thirst for hunger,” says Dr. Gupta. “Even moderate amounts of dehydration can sap your energy and your brain rhythm.” After all, your brain is primarily made of water, and just 2 percent dehydration has a measurable impact on memory, processing speed, and analytical thinking. Dr. Gupta carries a 60-ounce water bottle with him and aims to finish it each day.

7) Make time for your friends

Research shows that individuals with large social networks are better protected against the cognitive declines related to Alzheimer’s than those with smaller networks.  Prioritize social activities and things like that: It’s important to spend time with people, since it engages all parts of the brain—and find purpose by spending time with people, understanding their lives and letting them in on your life.

8) Try the bubble method

Dr. Gupta practices analytical meditation, a technique he learned from the Dalai Lama himself. With your eyes closed, think about a problem you are trying to solve and separate it from everything else by placing it in a large, clear bubble. This helps you isolate the problem from your emotions and solve it logically, he says.

9) For lasting brain health, maintain ikigai

Ikigai is a Japanese word meaning “your reason for being”. There’s power in forging a sense of purpose, says Dr. Gupta. In researching his new book, he typically found that actions preceded thought. “It was just an activity, something that you were interested in, and through that you find purpose, whether it’s volunteering, coaching, music, writing, art.” He says he gains meaning from helping people, whether sharing medical information or treating patients, as well as from his family and friends.

References:

  1. https://www.menshealth.com/health/a35120035/keep-brain-healthy-sanjay-gupta/
  2. https://www.supermoney.com/health-is-wealth

Saving for the Future

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“Don’t just save money, save for your future and with purpose.” America Saves

Many Americans spend more than they save, and nearly one in five people are saving less than 5 percent of their income according to a Bankrate’s 2015 Financial Security Index survey.

Saving money isn’t the easiest thing to do, especially if you’re one of the many of Americans living paycheck to paycheck. Yet, saving for the future remains a vitally important endeavor — not just to enable you to make large discretionary purchases such as a big screen television or a luxury vacation, but for emergencies, living a life of dignity in retirement, or buying a home.

Many Americans have more month left than money

And, unfortunately, many Americans aren’t where they should be financially. A 2019 Charles Schwab Modern Wealth survey found that about 59 percent of American adults are living paycheck to paycheck.

If you’re having a hard enough time paying the bills and making rent payments without racking up debt, saving for the future is probably the last thing on your mind. Only 38% of people have an emergency fund, according to Charles Schwab, and one in five Americans don’t have a dime saved for retirement, according to a survey from Northwestern Mutual.

Building a “cash cushion” is an important step towards financial freedom. A cash cushion, or emergency fund, is essential if you want enough cash on hand to cover three to six months’ essential expenses.

A well-rounded savings strategy should focus on both short-term and long-term goals, says personal financial expert, Carrie Schwab-Pomerantz CFP®. And, if you can make moves to save extra dollars, they should be used in two ways: to pay off debt (credit cards and student loans) and to save.

The first step is to set a clear savings goal. Having this savings goal will help you when it comes to setting aside a specific amount every month or year in order to reach that milestone. Whatever your goal, the amount you set aside to get started does not have to be large. To jump-start your savings, consider automating your accounts to transfer the budgeted amount to your savings each month.

“Save and invest too little, and you might not be able to retire. Save and invest too much, and you may decide to retire early.” Vanguard Investments

Once you’ve set your savings goals, it’s time to start saving. Here are seven tips for saving:

  1. Make savings a priority. Each time you’re paid, put a portion of it toward savings. Saving money is a good habit no matter how much or how little you put away each month.
  2. Pay yourself first. Think of saving as paying yourself. In other words, before you spend your first dollar on monthly expenses, first you should set aside 10% to 15% of income for your savings.
  3. Automate your savings. Most financial institutions allow you to automatically transfer funds online or via mobile apps from checking to savings accounts.
  4. An emergency fund is a must. You will need an emergency fund somewhere in the ballpark of three to six months of your income. According to America Saves, and their motto ‘Start Small. Think Big’, they recommend starting with an emergency fund savings goal of just $500. 
  5. Find money to save. Keep track of everything you spend for a week – you’ll be surprised where the money goes. Adjust your spending habits a little and suddenly, you’re saving. And, don’t simply spend less. Save with a purpose, such as college expenses, retirement, or for emergencies.
  6. Keep the change. Some supermarkets have machines that count your coins and give you cash in exchange for a small fee. Gather up your spare change, pour it into the kiosk and see how much your coins add up to. Instead of spending it right away, consider diverting your newfound funds to savings.
  7. Cancel extra costs. Check to see if you have any old subscriptions that you’re not using anymore – whether it’s to a gym, magazine, or streaming service that you no longer use. Many services that you may no longer want could cost you hundreds of dollars per year.

Compound Interest

Interest can build your wealth for you. For example, if you deposit $100 in a savings account that offers 6 percent interest, by the end of the year your savings will have grown to $106. Compound interest can enhance these savings even more by earning interest on interest. With compound interest, the $106 you have after the first year would earn 6 percent again the next year: $6.36, or a 36-cent increase. Add that to the total, and you would have $112.36. If you leave your money in a 6 percent interest account for 40 years, you’ll have $1,028, over ten times the original amount.

The Rule of 72

Want to double your money? Use the “Rule of 72” mathematical formula to find out how long it will take to grow your money. First, divide 72 by your account’s fixed annual interest rate. For example, if your rate is 6 percent, divide 72 by 6. At that rate, it will take 12 years to double your savings. When you think about your financial goals, the Rule of 72 can make a positive impact on your savings over time by helping you make informed decisions.

Micro-saving

There’s a way to effortlessly save money, and turn tiny amounts into big savings.

Micro-saving is the process of regularly saving small amounts of money over time, and it’s something you can do nearly every day. You don’t have to earn a huge income to grow your savings, and better yet, it’s never too late to start.

There are many ways to micro-save — some simpler than others like “rounding up” and saving cashback rewards. These methods requires you to consistently transfer any redeemed cashback rewards from credit cards to a savings account — instead of opting for a gift card.

Perhaps the easiest micro-saving method of them all is via electronic automation. Several apps, like Digit and Acorns, make it foolproof to save spare change, but they charge fees.

Key Point

Starting small and starting now can make savings add up faster than you’d think.

The easiest way to save is to save automatically! Contact your employer to set up a direct deposit into savings each pay period or ask your bank to set up an automatic transfer from your checkings to your savings.

References:

  1. https://www.bustle.com/life/3-women-share-how-theyre-saving-for-their-big-life-goals
  2. https://money.cnn.com/2015/03/30/pf/income-saving-habits/
  3. https://content.schwab.com/web/retail/public/about-schwab/Charles-Schwab-2019-Modern-Wealth-Survey-findings-0519-9JBP.pdf
  4. https://news.northwesternmutual.com/2018-05-08-1-In-3-Americans-Have-Less-Than-5-000-In-Retirement-Savings
  5. https://www.practicalmoneyskills.com/learn/saving/growing_your_money
  6. https://communities.usaa.com/t5/Your-Future/The-Magic-of-Micro-Saving/ba-p/201610

Financial Planning 12 Step Process

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A financial plan creates a roadmap for your money and helps you achieve your financial goals.

The purpose of financial planning is to help you achieve short- and long-term financial goals like creating an emergency fund and achieving financial freedom, respectively. A financial plan is a customized roadmap to maximize your existing financial resources and ensures that adequate insurance and legal documents are in place to protect you and your family in case of a crisis. For example, you collect financial information and create short- and long-term priorities and goals in order to choose the most suitable investment solutions for those goals.

Although financial planning generally targets higher-net-worth clients, options also are available for economically vulnerable families. For example, the Foundation for Financial Planning connects over 15,000 volunteer planners with underserved clients to help struggling families take control of their financial lives free of charge.

Research has shown that a strong correlation exist between financial planning and wealth aggregation. People who plan their financial futures are more likely to accumulate wealth and invest in stocks or other high-return financial assets.

When you start financial planning, you usually begin with your life or financial priorities, goals or the problems you are trying to solve. Financial planning allows you to take a deep look at your financial wellbeing. It’s a bit like getting a comprehensive physical for your finances.

You will review some financial vital signs—key indicators of your financial health—and then take a careful look at key planning areas to make sure some common mistakes don’t trip you up.

Structure is the key to growth. Without a solid foundation — and a road map for the future — it’s easy to spin your wheels and float through life without making any headway. Good planning allows you to prioritize your time and measure the progress you’ve made.

That’s especially true for your finances. A financial plan is a document that helps you get a snapshot of your current financial position, helps you get a sense of where you are heading, and helps you track your monetary goals to measure your progress towards financial freedom. A good financial plan allows you to grow and improve your standing to focus on achieving your goals. As long as your plan is solid, your money can do the work for you.

A financial plan is a comprehensive roadmap of your current finances, your financial goals and the strategies you’ve established to achieve those goals. It is an ongoing process to help you make sensible decisions about money, and it starts with helping you articulate the things that are important to you. These can sometimes be aspirations or material things, but often they are about you achieving financial freedom and peace of mind.

Good financial planning should include details about your cash flow, net worth, debt, investments, insurance and any other elements of your financial life.

Financial planning is about three key things:

  • Determining where you stand financially,
  • Articulating your personal financial goals, and
  • Creating a comprehensive plan to reach those goals.
  • It’s that easy!

Creating a roadmap for your financial future is for everyone. Before you make any investing decision, sit down and take an honest look at your entire financial situation — especially if you’ve never made a financial plan before.

The first step to successful investing is figuring out your goals and risk tolerance – either on your own or with the help of a financial professional.

There is no guarantee that you’ll make money from your investments. But if you get the facts about saving and investing and follow through with an intelligent plan, you should be able to gain financial security over the years and enjoy the benefits of managing your money.

12 Steps to a DIY Financial Plan

It’s not the just the race car that wins the race; it also the driver. An individual must get one’s financial mindset correct before they can succeed and win the race. You are the root of your success. It requires:

  • Right vehicle at the right time
  • Right (general and specific) knowledge, skills and experience
  • Right you…the mindset, character and habit

Never give up…correct and continue.

Effectively, the first step to financial planning and the most important aspect of your financial life, beyond your level of income, budget and investment strategy, begins with your financial mindset and behavior. Without the right mindset around your financial well-being, no amount of planning or execution can improve your current financial situation. Whether you’re having financial difficulty, just setting goals or only mapping out a plan, getting yourself mindset right is your first crucial step.

Knowing your impulsive vices and creating a plan to reduce them in a healthy way while still rewarding yourself occasionally is a crucial part of a positive financial mindset. While you can’t control certain things like when the market takes a downward turn, you can control your mindset, behavior and the strategies you trust to make the best decisions for your future. It’s especially important to stay the course and maintain your focus on the positive outcomes of your goals in the beginning of your financial journey.

Remember that financial freedom is achieved through your own mindset and your commitment to accountability with your progress and goals.

“The first step is to know exactly what your problem, goal or desire is. If you’re not clear about this, then write it down, and then rewrite it until the words express precisely what you are after.” W. Clement Stone

1. Write down your goals—In order to find success, you first have to define what that looks like for you. Many great achievements begin as far-off goals, that seem impossible until it’s done. Though you may not absolutely need a goal to succeed, research still shows that those who set goals are 10 times more successful than those without goals. By setting SMART financial goals (specific, measurable, achievable, relevant, and time-bound), you can put your money to work towards your future. Think about what you ultimately want to do with your money — do you want to pay off loans? What about buying a rental property? Or are you aiming to retire before 50? So that’s the first thing you should ask yourself. What are your short-term needs? What do you want to accomplish in the next 5 to 10 years? What are you saving for long term? It’s easy to talk about goals in general, but get really specific and write them down. Which goals are most important to you? Identifying and prioritizing your values and goals will act as a motivator as you dig into your financial details. Setting concrete goals may keep you motivated and accountable, so you spend less money and stick to your budget. Reminding yourself of your monetary goals may help you make smarter short-term decisions about spending and help to invest in your long-term goals. When you understand how your goal relates to what you truly value, you can use these values to strengthen your motivation. Standford Psychologist Kelly McGonigal recommends these questions to get connected with your ideal self:

  • What do you want to experience more of in your life, and what could you do to invite that/create that?
  • How do you want to be in the most important relationships or roles in your life? What would that look like, in practice?
  • What do you want to offer the world? Where can you begin?
  • How do you want to grow in the next year?
  • Where would you like to be in ten years?

Writing your goals out means you’ll be anywhere from 1.2 to 1.4 times more likely to fulfill them. Experts theorize this is because writing your goals down helps you to choose more specific goals, imagine and anticipate hurdles, and helps cement them in your mind.

2. Create a net worth statement—To create a successful plan, you first need to understand where you’re starting so you can candidly address any weak points and create specific goals. First, make a list of all your assets—things like bank and investment accounts, real estate and valuable personal property. Now make a list of all your debts: mortgage, credit cards, student loans—everything. Subtract your liabilities from your assets and you have your net worth. Your ratio of assets to liabilities may change over time — especially if you pay off debt and put money into savings accounts. Generally, a positive net worth (your assets being greater than your liabilities) is a monetary health signal. If you’re in the plus, great. If you’re in the minus, that’s not at all uncommon for those just starting out, but it does point out that you have some work to do. But whatever it is, you can use this number as a benchmark against which you can measure your progress.

3. Review your cash flow—Cash flow simply means money in (your income) and money out (your expenses). How much money do you earn each month? Be sure to include all sources of income. Now look at what you spend each month, including any expenses that may only come up once or twice a year. Do you consistently overspend? How much are you saving? Do you often have extra cash you could direct toward your goals?

4. Zero in on your budget—Your cash-flow analysis will let you know what you’re spending. Zeroing in on your budget will let you know how you’re spending. Write down your essential expenses such as mortgage, insurance, food, transportation, utilities and loan payments. Don’t forget irregular and periodic big-ticket items such as vehicle repair or replacement costs, out of pocket health care costs and real estate taxes. Then write down nonessentials—restaurants, entertainment, even clothes. Does your income easily cover all of this? Are savings a part of your monthly budget? Examining your expenses and spending helps you plan and budget when you’re building an emergency fund. It will also help you determine if what you’re spending money on aligns with your values and what is most important to you.  An excellent method of budgeting is the 50/30/20 rule. To use this rule, you divide your after-tax income into three categories:

  • Essentials (50 percent)
  • Wants (30 percent)
  • Savings (20 percent)

The 50/30/20 rule is a great and simple way to achieve your financial goals. With this rule, you can incorporate your goals into your budget to stay on track for monetary success.

5. Create an Emergency Fund–Did you know that four in 10 adults wouldn’t be able to cover an unexpected $400 expense, according to U.S. Federal Reserve? With so many people living paycheck to paycheck without any savings, unexpected expenses might seriously throw off someone’s life if they aren’t prepared for the emergency. It’s important to save money during the good times to account for the bad ones. This rings especially true these days, where so many people are facing unexpected monetary challenges. Keep 12 months of essential expenses as Emergency Fund or a rainy day fund.  If you or your family members have a medical history, you may add 5%-10% extra for medical emergencies (taking cognizance of the health insurance cover) to the amount calculated using the above formula. An Emergency Fund is a must for any household. Park the amount set aside for contingencies in a separate saving bank account, term deposit, and/or a Liquid Fund.

6. Focus on debt management—Debt can derail you, but not all debt is bad. Some debt, like a mortgage, can work in your favor provided that you’re not overextended. It’s high-interest consumer debt like credit cards that you want to avoid. Don’t go overboard when taking out a home loan. It can be frustrating to allocate your hard-earned money towards savings and paying off debt, but prioritizing these payments can set you up for success in the long run. But, as a rule of thumb, the value of the house should not exceed 2 or 3 times your family’s annual income when buying on a home loan and the price of your car should not exceed 50% of annual income. Try to follow the 28/36 guideline suggesting no more than 28 percent of pre-tax income goes toward home debt, no more than 36 percent toward all debt. This is called the debt-to-income ratio. If you stick to this ratio, it will be easier to service your loans/debt. Borrow only as much as you can comfortably repay. If you have multiple loans, it is advisable to consolidate all loans into a single loan, that has the lowest interest rate and repay it regularly.

“Before you pay the government, before you pay taxes, before you pay your bills, before you pay anyone, the first person that gets paid is you.” David Bach

7. Get your retirement savings on track—Whatever your age, retirement planning is an essential financial goal and retirement saving needs to be part of your financial plan. Although retirement may feel a world away, planning for it now is the difference between a prosperous retirement income and just scraping by. The earlier you start, the less you’ll likely have to save each year. You might be surprised by just how much you’ll need—especially when you factor in healthcare costs. To build a retirement nest egg, aim to create at least 20 times your Gross Total Income at the time of your retirement. This is necessary to keep up with inflation. But if you begin saving early, you may be surprised to find that even a little bit over time can make a big difference thanks to the power of compounding interest. Do not ignore ‘Rule of 72’ – As per this rule, the number 72 is divided by the annual rate of return on investment to determine the time it may take to double the money invested. There are several types of retirement savings, the most common being an IRA, a Roth IRA, and a 401(k):

  • IRA: An IRA is an individual retirement account that you personally open and fund with no tie to an employer. The money you put into this type of retirement account is tax-deductible. It’s important to note that this is tax-deferred, meaning you will be taxed at the time of withdrawal.
  • Roth IRA: A Roth IRA is also an individual retirement account opened and funded by you. However, with a Roth IRA, you are taxed on the money you put in now — meaning that you won’t be taxed at the time of withdrawal.
  • 401(k): A 401(k) is a retirement account offered by a company to its employees. Depending on your employer, with a 401(k), you can choose to make pre-tax or post-tax (Roth 401(k)) contributions. Calculate how much you will need and contribute to a 401(k) or other employer-sponsored plan (at least enough to capture an employer match) or an IRA.

Ideally, you should save 15% to 30% from your net take-home pay each month, before you pay for your expenses. This money should be invested in assets such as stocks, bonds and real estate to fulfil your envisioned financial goals. If you cannot save 15% to 30%, save what you can and gradually try and increase your savings rate as your earnings increase. Whatever you do, don’t put it off.

After retiring, follow the ‘80% of the income rule’. As per this rule, from your investments and/or any other income-generating activity, you need to generate at least 80% of the income you had while working. This will ensure that you can take care of your post-retirement expenses and maintain a comfortable standard of living. So make sure to invest in productive assets.

8. Check in with your portfolio—If you’re an investor, when was the last time you took a close look at your portfolio? If you’re not an investor, To start investing, you should first figure out the initial amount you want to deposit. No matter if you invest $50 or $5,000, putting your money into investments now is a great way to plan for financial success later on. Market ups and downs can have a real effect on the relative percentage of stocks and bonds you own—even when you do nothing. And even an up market can throw your portfolio out of alignment with your feelings about risk. Don’t be complacent. Review and rebalance on at least an annual basis. As a rule of thumb, your equity allocation should be 100 minus your current age – Many factors determine asset allocation, such as age, income, risk profile, nature and time horizon for your goals, etc. But you could broadly follow the formula: 100 minus your current age as the ratio to invest in equity, with the rest going to debt. And, never invest in assets you do not understand well.

  • Good health is your greatest need. Without good health, you can’t enjoy anything else in life.

9. Make sure you have the right insurance—As your wealth grows over time, you should start thinking about ways to protect it in case of an emergency. Although insurance may not be as exciting as investing, it’s just as important. Insuring your assets is more of a defensive financial move than an offensive one. Having adequate insurance is an important part of protecting your finances. We all need health insurance, and most of us also need car and homeowner’s or renter’s insurance. While you’re working, disability insurance helps protect your future earnings and ability to save. You might also want a supplemental umbrella policy based on your occupation and net worth. Finally, you should consider life insurance, especially if you have dependents. Have 10 to 15 times of annual income as life insurance – If you are the bread earner of your family, you should have a tem life insurance coverage of around 10 to 15 times your annual income and outstanding liabilities. No compromise should be made in this regard. Review your policies to make sure you have the right type and amount of coverage. Here are some of the most important ones to get when planning for your financial future.

  • Life insurance: Life insurance goes hand in hand with estate planning to provide your beneficiaries with the necessary funds after your passing.
  • Homeowners insurance: As a homeowner, it’s crucial to protect your home against disasters or crime. Many people’s homes are the most valuable asset they own, so it makes sense to pay a premium to ensure it is protected.
  • Health insurance: Health insurance is protection for your most important asset: Your health and life. Health insurance covers your medical expenses for you to get the care you need.
  • Auto insurance: Auto insurance protects you from costs incurred due to theft or damage to your car.
  • Disability insurance: Disability insurance is a reimbursement of lost income due to an injury or illness that prevented you from working.

10. Know your income tax situation—Taxes can be a drag, but understanding how they work can make all the difference for your long-term financial goals. While taxes are a given, you might be able to reduce the burden by being efficient with your tax planning. Tax legislation tend to change a number of deductions, credits and tax rates. Don’t be caught by surprise when you file your last year’s taxes. To make sure you’re prepared for the tax season, review your withholding, estimated taxes and any tax credits you may have qualified for in the past. The IRS has provided tips and information at https://www.irs.gov/tax-reform. Taking advantage of tax sheltered accounts like IRAs and 401(k)s can help you save money on taxes. You may also want to check in with your tax accountant for specific tax advice.

11. Create or update your estate plan—Thinking about estate planning is important to outline what happens to your assets when you’re gone. To create an estate plan, you should list your assets, write your will, and determine who will have access to the information. At the minimum, have a will—especially to name a guardian for minor children. Also check that beneficiaries on your retirement accounts and insurance policies are up-to-date. Complete an advance healthcare directive and assign powers of attorney for both finances and healthcare. Medical directive forms are sometimes available online or from your doctor or hospital. Working with an estate planning attorney is recommended to help you plan for complex situations and if you need more help.

12. Review Your Plans Regularly–Figuring out how to create a financial plan isn’t a one-time thing. Your goals (and your financial standing) aren’t stagnant, so your plan shouldn’t be either. It’s essential to reevaluate your plan periodically and adjust your goals to continue setting yourself up for success. As you progress in your career, you may want to take a more aggressive approach to your retirement plan or insurance. For example, a young 20-something in their first few years of work likely has less money to put into their retirement and savings accounts than a person in their mid-30s who has an established career. Staying updated with your financial plan also ensures that you hold yourself accountable to your goals. Over time, it may become easy to skip one payment here or there, but having concrete metrics might give you the push you need for achieving a future of financial literacy. After you figure out how to create a monetary plan, it’s good practice to review it around once a year.

Additionally, take into account factors such as the following:

  • The number of years left before you retire
  • Your life expectancy (an estimate, based on your family’s medical history)
  • Your current basic monthly expenditure
  • Your existing assets and liabilities
  • Contingency reserve, if any
  • Your risk appetite
  • Whether you have adequate health insurance
  • Whether you have provided for other life goals
  • Inflation growth rate

A financial plan isn’t a static document to sit on — it’s a tool to manage your money, track your progress, and one you should adjust as your life evolves. It’s helpful to reevaluate your financial plan after major life milestones, like getting m arried, starting a new job or retiring, having a child or losing a loved one.

Financial planning is a great strategy for everyone — whether you’re a budding millionaire or still in college, creating a plan now can help you get ahead in the long run, especially if you want to make a roadmap to a successful future.

For additional financial planning resources to create your own financial plan, go to the MoneySense complete financial plan kit.

References:

  1. https://www.pewtrusts.org/en/research-and-analysis/articles/2017/04/06/can-economically-vulnerable-americans-benefit-from-financial-capability-services
  2. https://www.forbes.com/sites/forbesfinancecouncil/2020/05/26/your-mindset-is-everything-when-it-comes-to-your-finances/?sh=22f5cb394818
  3. https://www.schwab.com/resource-center/insights/content/10-steps-to-diy-financial-plan
  4. https://www.principal.com/individuals/build-your-knowledge/build-your-own-financial-plan-step-step-Guide
  5. https://mint.intuit.com/blog/planning/how-to-make-a-financial-plan/
  6. https://www.federalreserve.gov/publications/files/2017-report-economic-well-being-us-households-201805.pdf
  7. https://news.stanford.edu/news/2015/january/resolutions-succeed-mcgonigal-010615.html
  8. https://www.investec.com/content/dam/united-kingdom/downloads-and-documents/wealth-investment/for-myself/brochures/financial-planning-explained-investec-wealth-investment.pdf
  9. https://www.sec.gov/investor/pubs/tenthingstoconsider.html
  10. https://www.nerdwallet.com/article/investing/what-is-a-financial-plan
  11. https://www.axisbank.com/progress-with-us/money-matters/save-invest/10-rules-of-thumb-for-financial-planning-and-wellbeing
  12. https://twocents.lifehacker.com/10-good-financial-rules-of-thumb-1668183707

 

6 habits of successful investors | Fidelity Viewpoints

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Planning, consistency, and sound fundamentals can improve results.

Fidelity Viewpoints – 03/17/2021

For most people, achieving success as an investor means reaching their financial goals, like owning a home, paying for college, or having the retirement you want.

What separates the most successful investors from the rest? Here are the 6 habits of successful investors that we’ve witnessed over the years—and how to make them work for you.

1. Start with a plan

At Fidelity, we believe creating a financial plan can provide the foundation for investment success. The financial planning process can help you take stock of your situation, define your goals and figure out practical steps to get there.

Financial planning doesn’t have to be fancy or expensive. You can do it with the help of a financial professional or an online tool like those in Fidelity’s Planning & Guidance Center. Either way, making a plan based on sound financial planning principles is an important step.

A plan is one service that financial professionals frequently offer their clients.

There is some evidence that families who work with financial professionals are better prepared to meet long-term financial goals. Fidelity’s Retirement Savings Assessment looked at thousands of American families to see how ready they are for retirement and found that a family who worked with an advisor had a median Retirement ScoreSM of 89, higher than the score of 81 for families who did not seek the help of an advisor.1 Of course, that higher score associated with an advisor could be due to other services that the advisor offered or differences in the families who sought out professional guidance.

2. Be a supersaver

While it’s easy to get caught up in the ups and downs of the market, it’s also important to think about how much of your income you are putting away for the future. Saving early and often can be a powerful force when it comes to making progress toward long-term financial goals.

As a general rule of thumb, Fidelity suggests putting away at least 15% of your income for retirement, including any employer match. Of course, that number is just a starting point, for some people it will be lower and for some people it will be higher. But regardless, there is evidence that saving more and starting earlier help people reach long-term goals. Fidelity’s Retirement Savings Assessment looked at dedicated savers, individuals who were putting away more than 10% of their income, and found that they had Retirement Score of 99.

On the other hand, the median score for a person saving less than 10% was 68. Dedicated savers of all ages had higher median scores but the differences were particularly large for younger savers who had more time to put away money during their careers.2

3. Diversify

Fidelity believes one key foundation of successful investing is diversification (owning a variety of stocks, bonds and other assets), which can help control risk.

Having an appropriate investment mix, giving you a portfolio that delivers growth potential with a level of risk that makes sense for your situation, may make it easier to stick with your plan through the ups and downs of the market.

Diversification cannot guarantee gains, or that you won’t experience a loss, but it does aim to provide a reasonable trade-off between risk and reward. You can not only diversify among stocks, bonds, and cash, but also within those categories. Consider diversifying your stock exposure across regions, sectors, investment styles (value, blend, and growth), and size (small-, mid-, and large-cap stocks). For bonds, consider diversifying across different credit qualities, maturities, and issuers.

Fidelity’s Retirement Savings Assessment shows that investors whose asset mix is on track seem better prepared for retirement. People who were on track had a median score of 87, while people whose investment mix was off track had a score of just 77.3

4. Stick with your plan, despite volatility

When the value of your investments falls, it’s only human to want to run for shelter. But the best investors don’t. Instead, they maintain an allocation to stocks they can live with in good markets and bad.

The financial crisis of late 2008 and early 2009 when stocks dropped nearly 50% might have seemed a good time to run for safety in cash. But a Fidelity study of 1.5 million workplace savers found that those who stayed invested in the stock market during that time were far better off than those who headed for the sidelines.4

From June of 2008 through the end of 2017, those who stayed invested saw their account balances—which reflected the impact of their investment choices and contributions—grow 147%. That’s twice the average 74% return for those who fled stocks during the fourth quarter of 2008 or first quarter of 2009. While most investors did not make any changes during the market downturn, those who did made a fateful decision with a lasting impact. More than 25% of those who sold out of stocks never got back into the market and missed the gains that followed.4

If you get anxious when the stock market drops, remember that’s a normal response to volatility. It’s important to stick with your long-term investment mix and to have enough growth potential to achieve your goals. If you can’t tolerate the ups and downs of your portfolio, consider a less volatile mix of investments that you can stick with.

5. Consider low-fee investment products that offer good value

Savvy investors know they can’t control the market, but they can control costs. A study by independent research company Morningstar® found that, while by no means guaranteed, funds with lower expense ratios have historically had a higher probability of outperforming other funds in their category—in terms of relative total return, and future risk-adjusted return ratings. (Read details of the studyOpens in a new window.)

Fidelity has also found that trading commissions and execution vary greatly among brokers, and the cost of trading affects your returns. Learn more about using price improvement for trading savings.

6. Focus on generating after-tax returns

Another habit that may help investors succeed is keeping an eye on taxes and account types.

Accounts that offer tax benefits, like 401(k)s, IRAs, and certain annuities have the potential to help generate higher after-tax returns. This is what investors call “account location”—the amount of money you put into different types of accounts should be based on each account’s respective tax treatment. A related concept is called “asset location”—the practice of putting different types of investments in various types accounts, based on the tax efficiency of the investment and the tax treatment of the type of account.

While taxes alone should never drive your investment decisions, you may want to consider putting your least tax-efficient investments (for example, taxable bonds whose interest payments are taxed at relatively high ordinary income tax rates) in tax-deferred accounts like 401(k)s and IRAs. Meanwhile, more tax-efficient investments (for example, low-turnover funds, like index funds or ETFs, and municipal bonds, where interest is typically free from federal income tax) are usually more suitable for taxable accounts.

The bottom line

Investing can be complex, but some of the most important habits of successful investors are pretty simple. If you build a smart plan and stick with it, save enough, make reasonable investment choices, and be aware of taxes, you will have adopted some of the key traits that may lead to success.

Source:   https://www.fidelity.com/viewpoints/investing-ideas/six-habits-successful-investors?ccsource=email_weekly

References:

  1. 6 habits of successful investors, Fidelity Viewpoints, 3/17/2021 

Form 1099-B to Report Proceeds from Stock Transactions

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If you sell stocks, bonds, derivatives or other securities through a broker, you can expect to receive one or more copies of Form 1099-B. This form is used to report gains or losses from transactions like selling stocks in the preceding calendar year.

Information on the 1099-B

In most cases, a 1099-B form provides information about securities or property involved in a transaction handled by a broker.

This includes:

  • A brief description of the item sold, such as “100 shares of XYZ Co”
  • The date you bought or acquired it
  • The date you sold it
  • How much it cost you to acquire it
  • How much you received for it when you sold it
  • Whether your broker withheld any federal tax

How Form 1099-B is used

The 1099-B helps you deal with capital gains taxes. Usually, when you sell something for more than it cost you to acquire it, the profit is a capital gain, and it may be taxable. On the other hand, if you sell something for less than you paid for it, then you may have a capital loss, which you might be able to use to reduce your taxable capital gains or other income.

  • You pay capital gains taxes with your income tax return, using Schedule D.
  • The data from Form 1099-B helps you fill out Schedule D and Form 8949 if needed.

Short-term and long-term gains

Box 2 of the form tells whether the gain or loss involved is short-term or long-term.

Generally,

  • If you owned an asset, such as stock, for a year or less before selling it, any gain or loss from a sale is short-term.
  • If you owned it for more than a year, you would normally have a long-term gain.
  • The distinction is extremely important, since tax rates on long-term gains are generally significantly lower than those on short-term gains.

What is a capital gain?

A capital gain is what the tax law calls the profit you receive when you sell a capital asset, which is property such as stocks, bonds, mutual fund shares and real estate. This does not include your primary residence. Special rules apply to those sales.

There is a difference between a short-term and long-term capital gain. The tax law divides capital gains into two different classes determined by the calendar.

  1. Short-term gains come from the sale of property owned one year or less and are taxed at your maximum tax rate, as high as 37% in 2020.
  2. Long-term gains come from the sale of property held more than one year and are taxed at either 0%, 15%, or 20% for 2020.

References:

  1. https://turbotax.intuit.com/tax-tips/investments-and-taxes/what-is-form-1099-b-proceeds-from-broker-transactions/L071oPWkE
  2. https://turbotax.intuit.com/tax-tips/investments-and-taxes/capital-gains-and-losses/L7GF1ouP8

Increased Social Security Benefits for Military Veterans

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media defense.gov 2015

Many military veterans might not know this, but there are additional social security benefits for those who have served active duty, according to the VFW website.

This is an extra Social Security Administration (SSA) benefit for those with active duty status between January 1957 to December 31, 2001 with plans for retirement (and for those already retired).

A military veteran (during the before mentioned dates) qualifies for a higher social security payment because of their military service. Veterans can qualify up to $1,200 per year of earnings credit credited at time of application, which can make a substantial difference in social security monthly payments upon retirement. To apply, you must bring your DD 214 to the Social Security Office and you must ask for this benefit to receive it.

Unfortunately this program from January 2002 forward, the Defense Appropriations Act stopped the special extra earnings that have been credited to military service personnel.

This is something to put in your files when you apply for Social Security down the road. It is NOT just for retirees, but for anyone who has served on active duty during the qualifying dates.

Again, this benefit is not automatic. You must ask for it.

Claiming Social Security Benefits

You can retire as early as age 62. But if you do, your Social Security benefits will be permanently reduced.  If you decide to apply for benefits before your full retirement age, you can work and still get some Social Security benefits. There are limits on how much you can earn without losing some or all of your retirement benefits. These limits change each year. When you apply for benefits, SSA will tell you what the limits are at that time and whether work will affect your monthly benefits. In 2021, that limit increased to $18,960. Once your income exceeds that point, you’ll have $1 in Social Security withheld for every $2 you earn.

When you reach your full retirement age, SSA will not withhold your Social Security benefits, no matter how much you earn. If some of your retirement benefits were withheld due to your earnings, SSA will recalculate your benefit amount to give you credit for the months we reduced or withheld benefits due to your excess earnings.

You can receive both Social Security benefits and military retirement. Generally, there is no reduction of Social Security benefits because of your military retirement benefits. You’ll get your Social Security benefit based on your earnings and age you choose to start receiving benefits

For more information go to Social Security Administration website here: https://www.ssa.gov/planners/retire/military.html

References:

  1. https://www.ssa.gov/pubs/EN-05-10017.pdf