Tag Archives: Planning

6 Smart Money Moves for College Graduates

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SYB-Logo_Since1904Living expenses add up quickly once you’re out on your own, and many young adults who didn’t plan ahead are delaying major milestones like getting married or buying a home because of their financial situation. The good news is that you can have a bright financial future if you think strategically about money right out of the gate.

We recommend the following financial tips for new college graduates:

  1. Live within your means. Supporting yourself can be expensive, and you can quickly find yourself struggling financially if you don’t take time to create a budget. Calculate the amount of money you’re taking home after taxes, then figure out how much money you can afford to spend each month while contributing to your savings. Be sure to factor in recurring expenses such as student loans, monthly rent, utilities, groceries, transportation expenses and car loans.
  2. Pay bills on time. Missed payments can hurt your credit history for up to seven years and can affect your ability to get loans, the interest rates you pay and your ability to get a job or rent an apartment. Consider setting up automatic payments for regular expenses like student loans, car payments and phone bills. Take advantage of any reminders or notification features. You can also contact creditors and lenders to request a different monthly due date from the one provided by default (e.g., switching from the 1st of the month to the 15th).
  3. Avoid racking up too much debt. Understand the responsibilities and benefits of credit. Shop around for a card that best suits your needs, and spend only what you can afford to pay back. Credit is a great tool, but only if you use it responsibly.
  4. Plan for retirement.  It may seem odd since you’re just beginning your career, but now is the best time to start planning for your retirement. Contribute to retirement accounts like a Roth IRA or your employer’s 401(k), especially if there is a company match. Invest enough to qualify for your company’s full match – it’s free money that adds up to a significant chunk of change over the years. Automatic retirement contributions quickly become part of your financial lifestyle without having to think about it.
  5. Prepare for emergencies. Hardships can happen in a split second. Start an emergency fund and do your best to set aside the equivalent of three to six months’ worth of living expenses. Start saving immediately, no matter how small the amount. Make saving a part of your lifestyle with automatic payroll deductions or automatic transfers from checking to savings. Put your tax refund toward saving instead of an impulse buy.
  6. Get free help from your bank. Many banks offer personalized financial checkups to help you identify and meet your financial goals. You can also take advantage of their free digital banking tools that let you check balances, pay bills, deposit checks, monitor transaction history and track your budget.

Resource information provided by the American Bankers Association

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Six Tips for Wealth & Sanity

wealth sanityUntitled-logoAnd the most important tip of all? Hire a financial advisor.

Investing can be stressful, but it doesn’t have to be. If you have a portfolio that was built for you and use the help of a financial advisor, you shouldn’t be too worried about volatility and financial news.

Here are a few tips to help you invest wisely, and stay sane at the same time.

  1. Cut back on financial (entertainment) media. The financial news is entertaining, but the focus is on short-term trends and hype. Sure, you need to keep up with general economic and business news, but it isn’t wise to trade on every piece of information that you come across. Print media tends to be less sensational than TV programs.
  2. Stop checking your accounts online every day. If you have a properly diversified portfolio, built for you, focusing on daily changes in your account value is likely to tempt you to trade too much. Should you make frequent transactions, hoping to profit from price swings, your trading fees increase. Avoid making emotional decisions and wait for your monthly statement to arrive. As a disciplined investor, you need to tolerate volatility. This gives you more peace of mind, too.
  3. Focus on the bottom line, not individual investments. If one investment is doing well and the other is doing poorly, what should you do? The answer may surprise you. You should probably sell some of the investment that went up and buy more of the poor performer. It seems counterintuitive, but this is “buy low, sell high” in a nutshell. If you focus on the value of your portfolio as a whole, you won’t be tempted to make poor trading decisions, like selling lagging stocks out of fear.
  4. Clean old junk out of your portfolio. Do you have stocks you held for a while, just waiting for them to return to the price you bought them? A good way of knowing whether to hold certain stocks is to ask yourself whether you would buy them today as new positions. Investors often think they need to wait until the stock price comes back before selling. Cut your losses and rid your portfolio of those old underperformers. You will feel like a weight is lifted from your shoulders, and you can use that money on better prospects.
  5. Create a plan and follow the rules. One of the biggest mistakes that investors make is failing to make a disciplined plan. Choose your overall asset allocation, such as a mix of stocks and bonds, and stick to it. Check your portfolio every three months to see if your account has fluctuated away from your original plan (say, 60% stocks, 40% bonds).  If needed, make changes to bring your account back to the proper proportion.  This is called rebalancing, a fantastic risk management tool.
  6. Hire an investment advisor. Seeking the advice of a professional doesn’t mean you are not smart enough or capable enough to figure it out on your own. You’re capable of mowing the lawn, cleaning your house and doing your taxes, too. But you don’t mind paying someone else to do those tasks. There are some cases where you should never do things on your own. You don’t see people filling their own cavities, right? A professional financial advisor can help you devise your plan and offer unbiased advice about your portfolio. Who knows, you may even enjoy letting go of the reins.

Hopefully, taking a step back from your investing life gives you greater peace of mind and lets you focus more on other things like your career and family.

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The End of the 4 Percent Rule?

retirement plan1Untitled-logoThe “4 percent rule” was a retirement spending approach that became mainstream in the 1990s. The rule suggested that a retiree with an average portfolio distributed between stocks and bonds (approximately 60-40) should withdraw 4 percent of his or her retirement funds each year (adjusting each year for inflation). If the retiree could stay limited to that 4 percent, he or she would be able to fund retirement for at least 30 years.

The simplicity of the 4 percent rule made it a hugely popular with investors. The method made planning easy and was projected to leave the vast majority of retirees with surpluses late in life. Many quickly adopted the method and the approach became a staple of retirement budgeting.

Modern Problems

Recently, the 4 percent rule has begun to fall out of favor with financial planners and investors. The rule, which was designed in the bull market of the mid-90s, relies heavily on regular, high returns from stocks. However, since that time, low economic growth and a major slump [in] the market has made equities look much less attractive. Few retirees will want to take on the risk of holding over half their portfolio in potentially volatile stocks.

The market is simply not what it was once thought to be. Retirees who are trying to reduce the risk of significant loss are less willing to put faith in perpetual stock growth. In addition to smaller gains, the average lifespan is on the rise and people are living longer in retirement. Strategies have become more conservative to deal with these concerns, and individuals planning for retirement must consider changes to saving and investing.

Ideal Rates in Retirement

The changes in the market do not indicate that the 4 percent rule can never work for retirees, just that it causes problematic exposures. The 4 percent rule works when yearly withdrawals are matched by yearly growth. Even if a portfolio averages 4 percent real growth, it could still underperform a target goal because it suffered severe losses early on.

So is there a better rule to follow? A 3 percent rule, perhaps? Unfortunately, there are no fixed guidelines when it comes to retirement income planning. A retiree must adjust his or her plans regularly to match both changing needs and market performance. The 4 percent rule might be a great place for investors to get a rough estimate when planning, but they should always be prepared to adjust their annual withdrawals lower if necessary.

What Can Investors Do to Make Retirement Work?

Since investors cannot control market performance and the rate of return, they often try to increase allowable withdrawals by increasing total portfolio value. By starting with more money in their retirement plan, a smaller rate of withdrawal will still be worth a solid dollar amount.

To sustain larger dollar withdrawals, retirees must either invest more money or delay retirement by a couple of years. Though neither option may seem pleasant, retirement planning is full of these give-and-take situations; an investor must find a way to make retirement income sustainable.

As another option, some retirees might look to an annuity to lock in an income. Annuities do not provide the flexibility or adjustable withdrawals of direct portfolio management, but they are guaranteed to pay out for the rest of the retirees’ lives—always providing them with some level of income.

Changing Rates

There may be many reasons to change withdrawal rates during retirement, but retirees must always keep one eye on the market and the other on the future. A profitable year might entice higher withdrawals, but a retiree could benefit far more if the extra earnings were reinvested for later expenses. On the other hand, if withdrawals are greatly restricted early on, people might miss their opportunity to travel and enjoy active life in retirement.

There are no simple answers when it comes to the chaos of the market and the unknown developments of the future. Investors should prepare themselves for changes and be ready to adjust their portfolios as things come into focus. No matter what hap- pens, it is important to plan with trusted financial advice. If you have concerns about your retirement strategy or want to better understand your financial options, contact Stock Yards Bank & Trust Company with all your questions.

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This article was written by Advicent Solutions, an entity unrelated to Stock Yards Bank & Trust Company. The information contained in this article is not intend- ed to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties. Stock Yards Bank & Trust Company does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2013 Advicent Solutions. All rights reserved

Your Rollover Options

ira rollover 3Untitled-logoLeaving your job can be hectic, whether you’re retired, laid off or moving to a new company.  It may not cross your mind to take care of your previous employer-sponsored retirement plan, but this is an important box to check during your transition.


You have four options when it comes to your retirement assets: leave them with your former employer, roll them over into your new employer’s retirement plan, roll them over into an IRA or cash out. As with most financial decisions, there are pros and cons to each choice, and your specific circumstances may make one choice more appealing than the others.

Leave assets in your former employer’s plan

You can choose to leave your investments where they are when you leave your job, though you will not be eligible to continue making contributions. This is the default option if you choose to do nothing. However, if simplifying your retirement savings is your goal, this is probably not the route for you. If you leave your investments behind at each company, you’ll have various accounts to keep track of throughout your career and distributions to take from each during retirement. Keeping in touch withCapture roll.JPG former employers can be difficult. Your old plan may also have high fees, limited flexibility or poor allocation options when compared with an IRA or your new employer’s plan. If your retirement account has less than $5,000, your former employer has the option of cashing you out of the plan, incurring taxes and penalties. Avoid getting cashed out by rolling the money over when you leave the company.

There are some advantages to leaving your money with your former employer. For instance, some large companies have access to lower-cost institutional funds that your new employer might not offer. In this case, it would be cheaper for you to stay with the old plan than to roll over into a new plan or IRA. Additionally, if you’re 55 or older when you leave your job, you may be eligible for penalty-free withdrawals (though income tax would still apply), so keeping your investment in your former plan could give you access to money sooner.

Rollover into new employer’s plan

A rollover is moving assets from one account to another while avoiding taxes and penalties. You can move your assets from your old employer’s plan to your new employer’s plan seamlessly without losing any money. Choosing this option is advantageous because your assets will continue to grow in a tax-advantaged account, and you won’t have to start over at each new company. You can rollover assets from a Roth 401(k) to a traditional 401(k) and vice versa, as long as both plans allow for it. If your new company has a better selection of investments or lower prices than your previous employer, it makes more sense to do a rollover. This way, you can also avoid having to keep track of old accounts with former employers.

Rollover into an IRA

In general, an IRA will offer you the most versatility and flexibility, so if you’re unhappy with either your former or current employer’s plans, an IRA may be a better bet. An IRA can also be more convenient, because you won’t have to worry about rolling it over again if you leave your job in the future. One feature unique to IRAs is the ability to take penalty-free distributions early (before the age of 59 ½) in order to pay for your first home or qualified higher education expenses. You’ll still pay income tax on the distributions, but you’ll avoid the fees that you’d accrue if you cashed out of an employer plan. An IRA can also be a great vehicle for your heirs, who have the option of stretching out required minimum distributions with a traditional IRA, or avoiding them altogether with a Roth IRA.

There are two types of rollovers, whether you’re rolling your money into a new employer plan or an IRA. A direct rollover is from plan to plan. No taxes are withheld, no penalties are owed and no money crosses your hands. For an indirect rollover, your previous plan administrator writes a check to you, withholding 20 percent for taxes. You’ll have 60 days to transfer it to your new plan or IRA. If you exceed 60 days, you won’t get the 20 percent in taxes back when you file a return, and you’ll owe an additional 10 percent penalty for early withdrawals. A direct rollover is a simpler, safer route, but you’ll have to make sure you have an IRA or new employer plan established first.

Cash out

This is the option least likely to be recommended to you, but it can be useful in certain circumstances. It’s important to know that cashing out a retirement plan incurs a 20 percent tax and a 10 percent penalty for early withdrawal, so you won’t actually get the amount listed in your account. If you’re truly strapped for cash, or if you’re over age 55 when you leave your employer (thus avoiding the early withdrawal penalty), you may want to consider cashing out. However, cashing out is generally not advisable. In addition to the taxes and penalties, your money will lose its tax-advantaged growth, and you may be damaging your future financial security. Cashing out in order to reinvest in a new employer plan or IRA is a costly mistake many workers make each year.

Now that you know your options, you can make an informed decision about your retirement assets. Leaving your job for any reason can be stressful, but jeopardizing your retirement security would be even worse.

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This article was written byAdvicent Solutions, an entity unrelated to Stock Yards Bank & Trust Company.  The information contained in this article is not intended to be tax, investment, or legal advice, and it may not be relied on for the purpose of avoiding any tax penalties.  Stock Yards Bank & Trust Company does not provide tax or legal advice. You are encouraged to consult with your tax advisor or attorney regarding specific tax issues. © 2013 Advicent Solutions. All rights reserved.

 

Playing by the IRA Rules

ira rulesUntitled-logoIndividual Retirement Accounts (IRAs) offer favorable tax-deferral benefits to individuals who are saving for retirement. But with those benefits, there are certain rules about when distributions may be taken to avoid penalty taxes. Contributions to a traditional IRA, depending on your income and participation in employer-sponsored plans, may entitle you to certain current income tax deductions. Further, because your funds are not taxed until distributions begin, your savings have the potential for tax-deferred growth.

Generally, IRAs are designed to work as long-term savings vehicles, but you may be able to withdraw funds early and without penalty, provided your situation qualifies as an exception.

The Age 59½ Rule

The age 59½ rule provides that, if you take distributions from your traditional IRA before you reach the age of 59½, you may be subject to a 10% Federal penalty tax in addition to regular income tax. However, you may not have to pay the penalty tax if your early distribution meets certain requirements.

Exceptions

You may be eligible for penalty-free qualified distributions, if one of the following exceptions applies:

  1. You are taking distributions as the beneficiary of a deceased IRA owner. Generally, if you inherit an IRA, you are required to take required minimum distributions (RMDs) over a period no longer than your life expectancy. For non-spousal beneficiaries, RMDs must begin in the year following the year in which the IRA owner died.  Spousal beneficiaries may have additional time to begin taking RMDs, depending on certain factors, including whether they opt to treat an inherited IRA as their own. This penalty tax exception does not apply to spousal beneficiaries who opt to treat the account as their own IRA.
  2. You are paying for certain first-time home buyer expenses, generally referred to as qualified acquisition costs, such as buying, building, or renovating a first home. Distributions, which may not exceed $10,000, may be used to cover qualified costs for you, your spouse, your children, or your grandchildren.
  3. You, your spouse, or dependents have un-reimbursed medical expenses that total more than 10% of your adjusted gross income (AGI) (7.5% if you are age 65 or older, but only through 2016). If a medical expense for you, your spouse, or a dependent qualifies as an itemized deduction on your income tax return, it will generally qualify for this penalty tax
  4. The distributions are part of a series of substantially equal periodic payments (SEPPs) made at least annually that meet certain additional requirements. The Internal Revenue Service (IRS) currently recognizes three methods for calculating SEPPS: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method.
  5. Once SEPPs begin, they must be made for five years or until you reach age 59½, whichever is later.
  6. You qualify with certain physical and/or mental conditions as being disabled, determined by a physician and if the disability can be expected to result in death or continue for an indefinite duration.
  7. You are paying medical insurance premiums due to unemployment. If you lost your job, and received unemployment compensation for 12 consecutive weeks, you may take distributions from your IRA account, penalty tax-free, during the year in which you received unemployment compensation, or in the following year, but no later than 60 days after you have been re-employed.
  8. You are paying for higher education expenses, such as tuition, fees, and books at an eligible educational institution (generally all accredited postsecondary institutions). The distributions may not exceed your qualified education expenses, or those of your spouse, your children, or your grandchildren.
  9. The distribution is attributable to an IRS levy of the IRA.
  10. Reservists qualify while serving on active duty for at least 180 days.

IRAs are strictly regulated to ensure that they are used as vehicles for retirement savings. Therefore, they generally work best as long-term savings vehicles. However, if you do need income from your IRA before you reach age 59½, it is important to know if your situation excuses you from the penalty tax levied on early distributions before making a withdrawal. Playing by the rules may save you money and help preserve your savings for retirement. Be sure to consult your tax advisor to determine whether your individual situation will qualify as an exception.

Please visit https://syb.com/wealth-management-and-trust/how-we-serve-our-clients/ira-retirement-rollovers/.  for more information.

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Next Gen Family Wealth and the Softer Side of Planning

Untitled-logo trustNeil ByrneWhat do you want to pass on to future generations?  As the old saying about money goes, “You can’t take it with you.”  Money is important though, undoubtedly.  Of course, so are family, friends, and our social, cultural and intellectual pursuits.  Recent research from Purdue University has even found that money can increase people’s emotional well-being, as well as their overall satisfaction with life – to a point.  According to the researchers, money alone can actually lower a person’s well-being if it is not handled properly.  The research goes on to conclude that “[m]oney is only a part of what really makes us happy. . . .”

So, what else makes us happy?  Well, that depends on what makes you and your family unique.  What’s your family’s story?  Do your children and grandchildren know it?

Traditional financial advisors are good at tackling the technical challenges, such as the legal and financial planning that families must address.  A modern estate plan, however, is not all there is to consider when creating a legacy.  After all, most family interactions are not technical discussions about taxes or investment returns – they are far more interesting than that!

When is the last time you discussed the importance of community involvement, professional development, or shared family goals and expectations?  What non-monetary goals are important for your loved ones to achieve in their lives?  What values should their lives reflect?  Philanthropy?  Entrepreneurship?  The arts?

We frequently have clients who express their concerns about how loved ones would manage an inheritance, and those concerns are well-founded.  Often, however, clients have not told the story of how she or he earned those resources.  The story behind the assets is interesting, and extremely important to the choices that are made by succeeding generations.  If assets become part of the “family legacy” instead of just money in an account, there is a higher likelihood that they will be used wisely.  The story also becomes part of who the family members are, not just what is in their bank accounts.

Telling the family story does not mean telling younger generations every last detail about your finances.  Instead, it means dedicating time and attention to preparing family members for a future inheritance in a meaningful way, and doing that more than once.  It also means sharing with younger generations the intellectual, social, human and spiritual responsibilities they will take on as future family leaders – and as beneficiaries.

Mark Twain has been quoted as saying, “The difference between the right word and the almost right word is the difference between lightning and the lightning bug.”  A singular focus on technical details without discussion about the larger family legacy can be detrimental to a family and a family’s wealth.

We are inviting you to consider some of the less obvious, but incredibly important discussions and plans you may need to have with your family.  Please contact your advisor to talk more about your family’s legacy, or me at neil.byrne@syb.com or (502) 625-2459.


See:  https://www.futurity.org/money-can-buy-happiness-1685132/ “Money can buy happiness.  Here’s how much it takes,” February 21, 2018.

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INVESTMENT INSIGHTS

by Joan Schade

Stock Yards Bank Wealth Management & Trust


We all like to plan and dream about how we’ll spend our retirement years. What does your plan look like? Will you travel, play golf, garden, or visit with friends and family? Maybe you’re planning to move, or perhaps you’d simply like to spend some time relaxing and enjoying some well-earned rest. Sometimes, however, unplanned events arise that leave us stunned and thinking, “What just happened?” Fortunately, if we have the right type of insurance in place it can make dealing with the unexpected a whole lot easier.

When you start to plan for your retirement years it is always a good idea to review the insurance you already have in place. Consider if your needs or objectives have changed since you made the original purchase. For example, was your term policy to insure that your children’s education would be covered or that your house would be paid off should something happen to the main bread winner? If your children are grown and there are only a few payments left on the mortgage, your current policy may not be the right type of protection needed at this stage in your life.

Purchasing insurance to provide some income for a surviving spouse is common, but you may also want to look at a long-term care policy. Without the right kind of insurance, you could be forced to use all of your hard-earned savings, including your retirement savings to pay for care. The cost of such needs continues to grow by leaps and bounds. Long Term Care Insurance policy options have grown as well in the last decade. As opposed to the “use it or lose it” options in years past, many policies now offer a wide array of hybrid products that will allow you and/or your spouse to use what you need and pass any remaining dollars on to your beneficiaries tax-free.

Insuring for the right purpose today could protect the quality of your retirement years. Wouldn’t we all like our retirement dreams to come true?

For more information about Investment Plans, please contact our Wealth Management and Trust Department.