Financial Planning Tips for Women

The American Savings Education Council (ASEC) recently held a program about special considerations that women face in achieving financial security in later life. A key point was that the decisions women make early in their lives greatly affect their standard of living later. One speaker advised “Make a positive difference in your financial life because you will be the one that is stuck with it.” Below are six tips shared by several of the ASEC program speakers:

• Figure Out How Much Retirement Will Cost- Use a simple planning tool such as the ASEC Ballpark Estimate calculator to figure out how much money you will need and how much you need to save annually to reach this goal. The Ballpark Estimate is available as both a downloadable worksheet and an online calculator.
• Examine Social Security Options- Review your projected Social Security benefit by setting up an online account at https://www.ssa.gov/myaccount/. Carefully review benefit amounts available at ages 62, full retirement age, and 70 and weigh this data against personal factors (e.g., health status and financial need).
• Avoid Giving Too Much Money to Adult Children- Set a cap on interfamily transfers to avoid diverting potential retirement savings for the living expenses of adult children (e.g., loan payments and cell phone bills).
• Avoid Quitting a Job for Care-Giving- Keep income and grow future retirement savings by staying on the job. To balance work and family, explore options such as flexible work hours, telework, and adult day care.
• Save Early and Often- Establish an emergency savings account. At the same time, start funding an employer-sponsored retirement plan and/or an individual retirement account (IRA). Both savings goals (an emergency fund and retirement savings) are very important, Try to multi-task them to maximize compound interest.
• Learn the Rules- Study the rules of the systems that you plan to rely on for income in later life (e.g., Social Security, Medicare, a pension, and tax-deferred employer savings plan).
   

For additional information about women and personal finance, download the free Cooperative Extension workbook Moneytalk: A Financial Guide for Women.

What to Do When an Emergency Fund Runs Out

Furloughs of U.S. workers during the 2007-2009 Great Recession and, most recently, during the federal government shutdown of 2018-2019 have highlighted the financial stress that many families face when their household income is cut off. Ideally, an emergency fund should be available to tide families over, but less than half of U.S. households have the recommended three to six months of expenses saved. Only 29% of households have 6+ months expenses set aside while 23% have no emergency savings, 22% have fewer than 3 months expenses, and 18% have 3 to 5 months expenses saved.

It’s fair to say that many household emergency funds won’t last very long. Then what? Ideally, people who have lost income have already cut back on discretionary spending and are living on less. Then what? Further spending cuts may be needed.

Then what? What happens next when a family’s emergency fund is completely gone?


Below are some other steps to consider to pay for living costs, depending on the specifics of the situation.

• Develop a Side Hustle- Seek ways to earn freelance income during a period of no income or reduced income from an employer. Inventory your skill set and think about ways to convert your skills into an income stream.
   
• Enlist the Aid of a Spouse- Determine if it would pay (considering child care and transportation costs) for an at-home spouse to enter the labor force and earn an income.
   
• Borrow Money, If Necessary- During widespread income disruptions, such as a recession or government shutdown, some financial institutions may offer low-interest loan concessions. Other low-interest places to consider borrowing from are cash value life insurance policies, tax-deferred retirement savings plans, and/or close family members.
   
• Take Advantage of Public Assistance Programs- Call 211 or visit www.211.org to find out about human services programs in your community and if you qualify. Examples include SNAP, energy assistance, and food pantries.

12 Steps to Review Your 2018 Income Tax Withholding

About one in 5 taxpayers are predicted to have insufficient tax withholding for 2018 for income earned from an employer and/or self-employment. This could result in a nasty tax bill by the April tax filing deadline or, worse yet, under-withholding penalties. Fortunately, there is still time to take action to address this situation. Follow the steps below to review your 2018 income tax withholding and make estimates for 2019.

Write down your 2018 federal income tax withholding as listed on your final 2018 paycheck.

Add any estimated quarterly tax payments made for Q1, Q2, and Q3 of 2018.

Add together the total of tax payments to date from Step 1 and Step 2.

Complete an AAII 2018 Tax Forecasting Worksheet with actual or best estimate numbers (using 2017 figures as a reference point): https://www.aaii.com/files/pdf/TaxGuide2018/worksheet.pdf .

Compare the Total Tax figure on the AAII worksheet with your 2018 withholding and Q1-Q3 estimates.

If you are projected to owe money, make sure that you have paid (through employer tax withholding and/or timely quarterly estimated tax payments) either:

a) At least 90% of what you are projected to owe for 2018 or

b) 100% (110% with a prior year adjusted gross income above $150,000) of your prior tax year’s (2017) tax liability.

These two guidelines are known as the “safe harbor rules” to avoid having to pay an under-withholding penalty. The latter is generally the easiest to calculate because the prior year’s tax number is a known number vs. early income estimates for 2018 income taxes.

If you don’t meet either of the safe harbor rules and will owe more than $1,000 in 2018 because your 2018 income tax withholding was insufficient, download IRS Form 1040-ES at https://www.irs.gov/pub/irs-pdf/f1040es.pdf.

Calculate the difference between your withholding to date (Step 3) and the amount that should be withheld as per safe harbor b (see Step 6, above).

Review the 1040-ES form and print out Payment Voucher 4 for fourth quarter estimated taxes due January 15, 2019.

Return Payment Voucher 4 with the amount that needs to be paid as per Step 8. Make sure that your payment is postmarked by January 15, 2019 or it will be considered late and you may be charged a penalty.

Adjust 2019 tax withholding according to the data described above. For example, if your income tax withholding was $2,600 short in 2018 and you receive 26 bi-weekly paychecks, have $100 more withheld from each 2019 paycheck.

Double-check your 2019 income tax withholding estimates using the online IRS Withholding Calculator: https://www.irs.gov/individuals/irs-withholding-calculator.

A few closing thoughts:

¨     Remember, the calculation described above is just designed to avoid having to pay the penalty for underpaying your taxes. When a complete tax return is prepared for the April 2019 tax filing deadline, it is possible that you could owe more money once you have exact figures for dividends, capital gains, and other “unpredictable” income sources.

¨     The federal underpayment penalty is calculated and assessed by the IRS quarterly. The first quarter 2019 interest rate will increase to 6%. If taxpayers don’t meet the safe harbor figures described above, interest is charged on the unpaid balance of taxes due for each payment period until they are paid or until the April tax filing date, whichever is earlier.

Twenty Key Personal Finance Events of 2018

As 2018 winds down, it is useful to review research, events, and trends that took place and predictions for the future. I recently presented a webinar for the eXtension Military Families Learning Network titled 2018 Personal Finance Year in Review. Below are 20 highlights:

• Support to Adult Children- A 2018 study found that four of five parents provide some type of support to adult children, twice as much money as they save for retirement.
• Retirement Confidence- The 2018 Retirement Confidence Survey found that 64% of workers reported that they or a spouse had saved money for retirement; 45% had less than $25,000 saved.
• The Power of Working Longer- 2018 research found working 3-4 years more increases sustainable retirement income by 24%-33%; for older workers age 50+, it is more powerful than saving more.
• Retirement Income Illustrations- A 2018 study found that 48% of retirement plan participants increased their contributions after seeing their estimated monthly income (55% for millennials).
• Financial Health- According to the inaugural U.S. Financial Health Pulse study by the Center for Financial Services Innovation, only 28% of Americans are financially healthy.
• Household Borrowing- Total U.S. consumer debt reached $13.3 trillion in mid-2018 and is higher than before the 2008 financial crisis.
• Financial Fragility- The 2018 Federal Reserve SHED study found that 3 in 10 adults have volatile family incomes and 4 in 10 could not cover an unexpected $400 expense without borrowing money.
• Low Birth Rate- The lowest U.S. birth rate ever was reported in 2018, with financial implications for baby boom generation “wannabe” grandparents and home sellers.
• Low Unbanked Levels- 2018 saw a record low number of Americans without a bank account; 6.5% of U.S. households were unbanked vs. 8.2% in 2011. About 19% of households are underbanked.
• Surge in Personal Loans- Personal loans surged as the fastest-growing U.S. consumer-lending category. Over a third (36%) of these loans were originated via financial technology companies.
• A Rise in Sports Betting- A May 2018 Supreme Court decision allowed sports betting and it has surged in states that allow it.
• All Time High Car Payments- The average monthly loan payment for a new car hit an all-time high of $523, the average loan amount was $31,453 and the average loan length was 5 years, 9 months.
• Older Adult Bankruptcies- The rate at which Americans 65+ are filing for bankruptcy has more than tripled since 1991. Filing rates are rising for older Americans and falling for younger people.
• Rampant Identity Theft- A record 16.7 million Americans were identity theft fraud victims in 2017. For the first time ever, Social Security numbers were compromised more than credit card numbers.
• Low Unemployment- An unemployment rate of 3.8% in May 2018 was the lowest since 1966 and a sign of a strong economy and a tight labor market. In November 2018, it was 3.7%.
• Social Security Tipping Point- Program costs exceeded income in 2018 for the first time since 1982, forcing Social Security to dip into its nearly $3 trillion trust fund.
• Post-TCJA Tax Planning- 2018 is the first year that Americans will file taxes following passage of the Tax Cuts and Jobs Act. There are concerns that some people will have inadequate tax withholding.
• Rise in State Savings Plans- Almost a dozen states took steps to establish state-sponsored savings plans for workers in small businesses with Roth IRAs funded by employees via payroll deductions.
• New Medicare Cards- New Medicare cards with unique identifying numbers, instead of Social Security numbers, started to be mailed out in April 2018 in an effort to combat identity theft.
• Anniversary Milestones- 2018 marked the 25^th anniversary of exchange-traded funds (ETFs), the 20^th anniversary of Roth IRAs, and the 10^th anniversary of the 2008 financial crisis and bitcoins. It was also the 40^th anniversary of the establishment of 401(k) retirement savings plans.

Financial Tips for Newlyweds: Part 2

This post continues last week’s discussion of financial action steps for newlyweds. Below are five tips to consider:

• Learn About Each Other’s Finances- Exchange tax returns with your spouse from the past 3 to 5 years prior to marriage. This will increase understanding of each other’s finances and assist in future tax planning. Other good sources of information about the financial habits and history of a spouse-to-be are their checkbook register and bank and/or brokerage firm statements.
• Consider the Timing of the Wedding- Remember that marital status on December 31 determines tax filing status for the entire year. Consider postponing the wedding a few months into the next calendar year if it will save a significant amount on income taxes.

• Determine Your Tax Filing Status- Consider the married filing separate filing status option if one spouse has high deductions for, say, medical expenses that would be limited by filing jointly. Generally speaking, however, married couples save the most on income taxes by filing a joint tax return.

• Review Employee Benefit Plans- Compare the costs and benefits of each spouse’s employee health insurance. Sometimes it is cheaper for each spouse to retain their individual employer-provided benefits, at least until family coverage is needed for a newborn child. In other situations, one spouse’s benefit plan is superior to the other and it makes sense to consolidate coverage and name the spouse with inadequate benefits as a covered dependent. Ask your respective human resources departments for assistance, if needed.
• Invest Holistically- Start thinking of each spouse’s employee retirement plans in the context of a couple’s combined investment portfolio. In other words, instead of duplicating each other’s investment selections, consider investing in different types of securities to diversify investments and reduce the risk of loss. For example, if one spouse owns all domestic stock funds, the other might purchase a global securities fund.