4 Steps to a Reliable Budget

We all know we should save more. We all want to save more. Yet, month after month we face the same Groundhog Day scenario: paying all of the bills only to realize that – yet again – there is simply nothing left to save. Sound familiar?

Think about it for a minute. In our Groundhog Day scenario, you are dutifully paying every creditor in your life except for the most important: yourself! It’s time to change the narrative: moving forward, think of saving money as paying yourself. You spend all month working hard. You deserve to keep some of the compensation for that hard work. You on board? Great! To keep you honest, we’re going to set up automatic contributions.

Automatic contributions to savings or investments are a crucial step in building a stable financial foundation. Establishing automatic transfers tied to your paycheck schedule ensures that you will pay yourself for all of your efforts at work and invest in your future. It codifies the “pay yourself first” mentality and aligns your monthly spending with your available discretionary income. For example: if I see extra money sitting in my account, I’m likely to splurge on a fancy meal, or buy a plane ticket to visit my sister. Then the end of the month rolls around, and there is no money left over for saving and investment. On the other hand: if I never see the money in my account, I don’t miss it!

By paying yourself first (saving as money comes in), you will see less money sitting in your account and, accordingly, you will spend less. Over time, you won’t even notice the money being set aside. Your spending habits will have auto-adjusted to your new, post-savings cash flow. (I promise!)

One of the best parts of a “pay yourself first” system is that you don’t have to feel guilty about spending the money in your checking account. Having automatically set aside your monthly savings, you’re free to spend the rest of your money as you wish! Regardless of your balance at the end of the month, you can rest easy knowing your financial foundation is secure.

As a financial advisor, I find a “pay yourself first” savings model to be far more successful than any strict budgeting system. Budgets require line item expense tracking and don’t adapt easily to unexpected expenses. Establishing automatic transfers to “pay yourself first” allows you to maintain a more flexible budgeting system – while still sleeping well at night knowing that your saving objectives have been met.

If you would like to talk about establishing an automatic savings plan or your personal situation please contact me at zach.swaffer@trilogyfs.com.

Created during the Great Depression as a retirement safety net, Social Security now covers an estimated 96% of Americans. These days, a record high of around 167 million people are working and paying into the system that provides benefits for over 63 million people. In fact, the majority of retirees get more than half of their income from Social Security. Security can be complicated to navigate at times, but since it’s so vital to your retirement income plan, it’s important to make wise decisions and create strategies first.

Delay Benefits

Social Security benefits are calculated using complex actuarial equations based on life expectancy and estimated rates of return. Deciding the best time for you to claim your benefits depends upon how you compare to the averages. As of today, a man turning 65 is expected to live until age 84.3 and a woman of 65 until age 86.6.

If based on your health and your family history of longevity, you believe you will live much longer than that, your overall lifetime benefit will be greater if you delay claiming your benefits to increase your benefit amount. If the opposite is true and you see little chance of making it into your mid 80’s, you would receive a greater lifetime benefit by taking it sooner, even though it is a smaller monthly payment.

Several helpful calculators are available on the Social Security Administration website. With the Retirement Estimator at www.socialsecurity.gov/estimator, most people can receive an estimate of their benefit based on their actual earnings record and manipulate the numbers to reflect different strategies. They also have Social Security Benefits Calculators that can be used to calculate future retirement benefits.

Research Investment Opportunities?

While it will differ for everyone, research from Fidelity shows that most people need to replace between 55% and 80% of their pre-retirement, pre-tax income after they stop If you are in a position where you will not be reliant on Social Security to cover your basic needs in retirement, you may be better off claiming early and investing your benefit amount in an effort to earn better rates of return. In this way, although you’d start with a smaller monthly payment, you may end up with more money than if you had waited to receive the Social Security Administration’s increased payment due to the growth from your investments.

Which Coordinate with Your Spouse

If you are married, you have the choice to receive your own benefit or a spousal benefit of50% of your spouse’s benefit. By coordinating properly, married couples can increase their total monthly benefits.

The Society of Actuaries recommends that the lower-earning spouse begins collecting benefits early while the higher-earning spouse waits as long as possible. That way, you can make use of the lower benefit while maximizing the higher benefit. In most situations, it is the husband with the greater benefit and the wife with the lower one. Women also tend to live longer than men. By following this strategy, you not only maximize the husband’s retirement benefit for use while he is alive, but it also maximizes the wife’s survivor benefit when he passes away.

Consider the Effect of Additional Income on YourBenefitsSubmit

Once you reach full retirement age (FRA), having earned income will have no effect on yourSocial Security benefit payments. However, if you begin receiving benefit payments before FRA, your earnings will decrease your payments.

Income Earned the Year You Reach FRA

The income restrictions change in the year in which you reach FRA. That year there is a higher limit; $45,360 for 2018. Once your income exceeds that limit, your Social Security benefit will be reduced by $1 for every $3 you earn. For example, if between January 1 and your birthday you earn $48,360, you have earned $3,000 more than the limit. That $3,000 excess will reduce your Social Security payments by $1,000. As soon as you have your birthday and reach FRA, though, there are no more limits. You can earn as much as you want and it has no effect on your Social Security retirement benefits.

Continuing to work into retirement may be beneficial even if your current benefits are reduced. If your income is within the top 35 years of your earnings, you will increase your aim, which is the average used to calculate your benefit. By continuing to pay into SocialSecurity as a worker, you can increase your retirement benefit even after you have begun collecting it.

Work with an Experienced Professional

A 2015 Voya Retire Ready Study found that those who consult a financial professional are more than twice as likely to have calculated how much income they need to live a rich life in retirement. Working with an experienced professional can help you navigate your SocialSecurity options and optimize your total lifetime benefit. If you have any questions or would like to see how Social Security will impact your retirement plan, I am here to help. Take the first step by reaching out to me for a complimentary consultation by calling (949) 221-8105 x 2128 or emailing michael.loo@trilogyfs.com.