As the year comes to a close, and you’re busy rushing around to get those final presents for the ones you love, here are a few quick, last-minute strategies for cutting your tax bill on April 15.

1. "Take a small example, take a tip from me. Take all your money, give it all to charity."

Unlike the Sublime song, What I Got, I’m not advocating giving all your money to charity at year-end. But, if you itemize your deductions, charitable contributions are one of the areas you can boost at year-end that may have an big impact come tax time. A caveat of this planning tool is that the Trump Tax Cuts of 2017 (in effect for the 2018 Tax Year) made big changes to the Standard Deduction and will reduce the number of Americans who will qualify to Itemize their Deductions. However, you may want to look into “Bunching” to take full advantage of the tax law changes.

What changes brought about by the Trump Tax Cuts of 2017 will impact most people?

The Trump Tax Cuts of 2017 not only increased the Standard Deduction, but also made some significant changes to Schedule A (Itemized Deductions).

They eliminated Miscellaneous 2% Deductions (think unreimbursed employee business expenses, investment management or tax preparation fees, and union dues), put a $10,000 cap on state, local, real estate and property tax deductions, limited the mortgage balance allowed to take the mortgage interest deduction and limited the deductibility of home equity loans or lines of credit unless that money was used to improve your home.

What is "Bunching"?

"Bunching" is a term to describe either pulling ahead deductions to the current year or pushing out your deductions into later years.

With the changes to Schedule A, most Americans will not qualify to Itemize given the new, higher Standard Deduction. That doesn’t mean that they can't make some adjustments to qualify every once in a while.

That’s where "Bunching" comes in.

Maybe you’re a charitably-inclined Married Filing Jointly couple. You usually give $10,000 or so each year to charities. You’ve got mortgage interest of $5,000, and state, local and property taxes totaling $8,000 each year. Those 3 pieces of Schedule A only total $23,000, so you’ll take the $24,000 Standard Deduction.

What if I told you that instead of donating $10,000 in 2018, you pull $5,000 of what you’d normally donate in 2019 into 2018? Well, your Itemized Deductions now amount to $28,000 and you’re able to itemize. In 2019, you’ll just donate the remaining $5,000 to charities and claim the $24,000 Standard Deduction. In 2020, you’ll donate a bit more again to boost your Itemized Deduction amount and so on.

Donor Advised Funds

I know what you’re saying. I really don’t want the charities to receive a big donation from me in 2018 and then get less from me in 2019. Well, there’s an account that you can utilize to take a charitable deduction and still retain control over where that money ultimately goes along with discretion over the timing of those distributions.

It’s called a Donor Advised Fund. A Donor Advised Fund allows you to donate appreciated securities (or cash), take a full deduction on your gift, and then have the ability to make “gift recommendations” to your favorite charities over time. Many also allow you to invest the account and possibly grow it for higher future gift recommendations. Since the tax deduction is taken when the securities or cash are gifted to the Donor Advised Fund, you won’t get an additional charitable deduction when a gift recommendation is fulfilled to your favorite charities. Some examples of DAFs are Fidelity Charitable, Schwab Charitable, and Vanguard Charitable. There’s typically a minimum initial gift (most are $5,000 or more) required to establish the account and then you can make subsequent gifts of any amount.

2. Sell your losers

The markets have been choppy this fall and some investments that you hold in taxable accounts may have unrealized losses. If you have a taxable investment account, look through your account. It may be tax advantageous to sell some of your positions that are in a loss and capture the tax benefit. This is referred to as Tax Loss Harvesting and is a great strategy to utilize, just make sure you are very aware of the Wash-Sale Rules.

Capital losses are able to offset any capital gains (or capital gains distributions) you incur as well as offset up to $3,000 of ordinary income. Any losses over and above your capital gains and the $3,000 of ordinary income can be carried forward for use in future years. 

3. Open and contribute to an IRA

Luckily, you can open and contribute to an IRA up until the tax filing deadline (without extensions). For the 2019 tax year, the deadline is April 15, 2020.

As you may, or may not know, the “I” in IRA stands for “Individual”, meaning, each spouse can open and maintain a separate account. There are no “joint” IRAs.

If you’re a married couple making less than $103,000 ($64,000 if single) in 2019, each spouse could make a fully deductible contribution to a Traditional IRA of $6,000 (plus $1,000 “catch-up” if over age 50). Not only are you saving money toward your eventual retirement, but you’re also receiving a tax deduction for the amount of your contribution for the current year. Growth on your money within a Traditional IRA is tax-deferred. When you pull money out, all will be taxed as ordinary income.

Another option would be to open and fund a Roth IRA. If you’re a married couple making less than $189,000 ($120,000 if single) in 2019, each spouse can make a full contribution of $6,000 (plus $1,000 “catch-up” if over age 50) to a Roth IRA.

A Roth IRA differs from a Traditional IRA in that you do not get an upfront tax deduction for the amount in which you contribute. However, any growth on the account in the future is tax-free. This type of account is especially great for those who believe their tax rate now is lower than what they expect it to be in retirement. If nothing changes between now and 2025 when the individual aspects of the Trump Tax Cuts expire, tax rates will be higher going forward.

4. Check your Flexible Spending Accounts  

This tip isn’t going to help you reduce your taxes for this year, but it may help you from losing out on some of your savings from this year.

Healthcare Flexible Spending Accounts (HFSAs) are designed to be a way to stash money away for healthcare expenses during the year. The downside is the requirement of these accounts to be fully dispersed by the end of the year or you forfeit that money. The infamous “use it or lose it” provision.

Check your balance in your HFSA and if you still have money remaining, stock up on qualifying items prior to year end. Here’s a pretty good list from ADP of what does and does not qualify for HFSA reimbursement. Some employers allow a portion of the HFSA account to roll into the next year. Check with your employer for more details.

Focusing on a few of these tips prior to year-end may just put you in a better position come tax time.

About Chessie Advisors

Erik O. Klumpp, CFP® EA, believes that teachers, engineers, and young professionals should have access to objective, fee only financial planning and investment management to help them create and realize their American Dream. For more information on the services offered through Chessie Advisors, check out our website, contact Erik, or schedule an introductory call.

Detroit - On October 31, 2018 General Motors announced that it is offering 18,000 salaried employees (those of it's 50,000 salaried employees with 12 or more years experience) a Voluntary Buyout (Voluntary Separation Program) with a deadline of November 19, 2018. Those who take the Buyout and are accepted will begin receiving severance on January 1, 2019.

Companies are always looking for ways to trim costs, free up resources, and position themselves for the future. Occasionally, manufacturing, utility or older tech companies are in a position to offer a buyout of their employees. In recent years these types of separation programs have been offered by Consumers Energy, Chrysler (FCA) and most recently General Motors.

For older employees, it’s a way to accept a cash payment to leave the company and possibly retire. For younger employees, they may still receive a cash payment, but would have the opportunity to find other employment, possibly something they have a better interest in, or at a company where they see better opportunity.

In this post, I’ll cover some of the main things to consider when offered a buyout.

Older Employees

Can I retire?

As an older employee nearing retirement, a company buyout (or Voluntary Separation Program, as it is often called) may be a way to juice your bank accounts if you were planning to retire anyway. Each VSP or buyout is structured a bit differently, but many offer cash payments based on the number of years you’ve worked for that employer. Sometimes these cash severance payments are better than what you’d be offered if your company simply fired you, but that’s something to check in the Company Handbook.

As an example, you may receive one week’s pay for every year of service you have with the company, with a cap on the number of years allowed in this calculation. If you’ve worked for a company 30 years, you would be potentially eligible for 30 weeks of pay, assuming they don’t cap the years.

What you’ll want to figure out is, “if I take the VSP, am I in a position to retire?” You’ll want to look at your investment accounts, any pension you may be eligible for, Social Security you may be eligible to receive, your budget and projected budget and any additional goals you have for your retirement years. It’s entirely possible that you could be retired as long as, if not longer, than you have been working. This is decision is not simply, “okay, my pension and Social Security cover my current expenses, I’m good.” There are many other factors to consider.

Inflation is the big one. It is considered a “silent tax”. It decreases the purchasing power of your money and requires you to spend more over time on the same goods and services. Sure, you may get a cost of living (COLA) adjustment in your Social Security benefits, but that doesn’t always keep up with changes in the price of everyday goods and services you purchase. In fact, as recently as 2016, there was no COLA adjustment on Social Security and in 2017 that COLA adjustment was a measly 0.3%.

Since you’re dealing with possibly the next 30+ years of your life, I suggest reaching out to a fee-only independent financial advisor to guide you in developing a retirement plan. They will not only help you determine if you’re able to retire, but can help you devise a plan for creating income during your retirement years.

Taking a buyout and retiring may be the most important decision you will ever make in your life. You may not want to make that decision alone.

Not ready to retire?

If you’re an older employee and not yet ready to retire, should you take the buyout?

That’s an important question.

If you are planning on looking for other employment are you going to be able to find a job paying something similar to your current salary?

How hard will it be to find a job since you likely have decades of experience?

Experience and age are not always a good thing for potential employers and can be a double-edged sword. The cost reductions that your company is looking to reduce in a VSP is really targeting you...older employees making really good money. They’re looking to shave headcount and costs without having to fire anyone...yet. A prospective employer likely won’t be willing to pay what you’ve been making and so even though you may not be retiring, a good hard look at your financial situation may still be in order.

If the Voluntary Separation Program or buyout is not successful in meeting the company’s attrition goals, older, highly paid employees could be targets for a round of Involuntary Separations (aka layoffs). Planning is key in case you’re faced with that situation.

Younger Employees

For younger employees not at or near retirement age, a buyout could be the ticket out you’ve been looking for. Maybe you’ve been bored at work, but the money has been too good to seek other employment. A Voluntary Separation Program may allow you to leave with a nice severance to pursue other opportunities.

Maybe you can find a job in a similar field or a job in a new industry altogether. Maybe this buyout is the kick you need to start your own business. One that you’ve been dreaming about for years. A VSP can be a liberating new opportunity.

Considerations

Can I retire?

What are my employment prospects?

What are my health insurance options after I leave employment?

What impact will a company buyout or voluntary separation program have on my overall financial plan and goals?

Is my position a potential layoff target within the next 12 months?

These are just some of the many questions to ask as you’re evaluating your situation.

Next Steps

Regardless of what you decide to do, now may be a good time to take a financial litmus test. You can run a basic Chessie Retirement QuickCheck™ by clicking here.

If you’re ready to go more in-depth into your long-term financial picture and consult a professional about your retirement prospects a great way to start is by checking out the National Association of Personal Financial Advisors (or NAPFA) or the XY Planning Network to find a competent, Fee-Only advisor in your area. Members of this organization are fiduciaries 100% of the time and always working in your best interest, not just when it’s convenient for them or just when they’re dealing with your retirement plans. They also don’t earn a commission or other income from third-parties for recommending or selling products to you.

About Chessie Advisors, LLC

Erik O. Klumpp, CFP® EA is founder of Chessie Advisors, LLC and Chessie Tax, LLC. He believes that teachers, engineers, and young professionals should have access to objective, fee only financial planning and investment management to help them create and realize their American Dream. For more information on the services offered through Chessie Advisors, check out our website, contact Erik, or schedule an introductory call.

This is the time of year when the temperatures turn brisk, leaves begin changing colors and fall, the smell of apple pie fills your kitchen, college football draws you in every Saturday, and you get notice from your employer that Open Enrollment must be completed in the next few weeks.

Like tax season, this typically is a stressful time for employees trying to understand what they have currently, what benefits are changing, and what they may need in the year ahead. We put together a list of benefits to keep in mind while you're flipping through your benefits book or website over the coming weeks to help you conquer Open Enrollment.

1.  Take Advantage of Flexible Spending Accounts

The Big Brother to the ever-popular Health Savings Account (HSA), still packs a lot of punch for those who qualify. This benefit comes in two flavors: Healthcare Flexible Spending Accounts and Dependent Care Flexible Spending Accounts. They both work in similar ways, you contribute to these accounts pre-tax out of your paycheck and the money gets set aside in an account that you can use (or be reimbursed) when you incur healthcare or dependent care expenses.

Healthcare Flexible Spending Accounts

Healthcare Flexible Spending Accounts (HFSA) are only available to those employees not covered under a High Deductible Healthcare plan coupled with an HSA (Health Savings Account). The annual contribution limit to this type of plan is $2,650 for 2018 (contribution limit has not yet been released for 2019). The real benefit of an HFSA is that your entire yearly contribution into the HFSA is available January 1.

Let’s say you are paid twice a month and have elected to contribute $50 per pay into the HFSA. Let’s also assume that on January 20th, you have a medical procedure where you incur $1,200 worth of costs out-of-pocket. With an HSA, you would have to wait until there is enough money in the account to be reimbursed (the end of the year, unless you had money carryover from the previous year). This is not the case with the HFSA, you could be reimbursed for the full $1,200 incurred on January 20th even though you would have only contributed a mere $50 into the account at that point.

What’s the catch? The catch is that any money not spent in the HFSA is forfeited by March 15 of the following year. The IRS does allow employers to adopt a provision allowing for a carryover of $500 to the following year, but I have not come across this provision being used.

Starting in 2020 (delayed from its original start date of 2018), the Affordable Care Act (ACA) begins imposing a 40% excise tax on healthcare premiums exceeding certain thresholds, with HFSA contributions being included in the premium calculation. If the excise tax remains in place, it’s likely that we will see less and less companies offering these plans over the coming years. Use them while you can!

Dependent Care Flexible Spending Accounts

Dependent Care Flexible Spending Accounts (DCFSA) are similar to their HFSA cousins. Money is contributed pre-tax to an account where the employee can be reimbursed for dependent care expenses they incur over the course of a year.

The DCFSA differs from the HFSA in that your entire balance you’re set to contribute over the course of the year is NOT available on January 1. You’re only able to be reimbursed for the amount you have already contributed to the DCFSA.

Also, you aren’t able to use the DCFSA for babysitters or family members who you pay to watch your children but who don’t claim that income on their income tax return. In order to get reimbursement, you must provide the provider’s name and Employer Tax Identification Number or Social Security number.

The DCFSA is ideal for high income-earning couples as the deduction and tax savings of using this type of account will likely exceed the benefits you would receive from the Child and Dependent Care Expense Deduction allowed on your federal income tax return. The annual contribution limit to this type of plan is $5,000 for 2018 (contribution limit has not yet been released for 2019).

2.  Choose the Best Health Insurance for Your Situation

The granddaddy of Open Enrollment is Health Insurance. The landscape has changed tremendously over the past few years. Company-provided health insurance continues to be one of the most important, and most costly employee benefit. It behooves you to spend time seriously weighing your options. Many companies have been phasing out traditional health insurance plans, like PPOs or HMOs, in favor of less costly, high deductible health insurance plans (HDHP).

HDHPs can be combined with a Health Savings Account (HSA) to allow you, what we like to call, a “Roth IRA on steroids” where you can contribute pre-tax money from your paycheck into the account and use it to pay for qualifying health care expenses without paying taxes. You get the best of both worlds! In addition, unlike Flexible Spending Accounts, HSAs can roll over from year to year, so it’s like an IRA for health care expenses.

So, do you elect a HDHP or stick with the traditional health insurance plan like a PPO or HMO? Terms like coinsurance, copays and deductibles all play into this decision. How often do you visit the doctor? Do you go just for routine check-ups or do you have some ongoing health issues? What do each of these plans cover? What is the maximum amount that I may have to pay out-of-pocket? Do these plans cover specialty services like physical therapy or chiropractic care?

After you’ve determined what these plans cover, and have looked at possible upcoming medical procedures over the course of the next year (like the birth of a child), it’s time to sit down and look at both the premiums you would pay as well as out-of-pocket costs. If your employer contributes to an HSA on your behalf, then that should be factored in as well as a benefit to the HDHP.

If your employer still offers the traditional health care plans, it may make sense to pay a bit more every pay for the additional coverage and lower deductibles. Or maybe you would rather just pay a bit more knowing that there’s greater coverage with the traditional plan should you have a medical emergency. These plans will continue to be phased out as a looming excise tax of 40% on premiums over a predetermined threshold for the Affordable Care Act begins in 2022.

3.  Consider a Pre-paid Legal Benefit (Even for Just a Year)

Many larger employers offer pre-paid legal services as an option for employees during Open Enrollment. These plans typically charge $15-$40/mo for access to legal services and may provide a nice benefit if you’re looking to have wills drafted or other simple legal matters. In some cases revocable trusts are covered, which can easily run $800-$2,000 on their own.

With these plans, the devil is in the details and knowing what you’re buying before you enroll can save you a lot of headaches or higher costs later. Find out what your plan DOES NOT cover BEFORE enrolling. This may end up being a benefit that you enroll in specifically for a service you know you’ll need in the coming year.

4.  Add Life Insurance Coverage (Without a Medical Exam)

It’s common for employers to offer a base amount of life insurance for employees, usually 1-2X the employee’s salary. In many cases, employees can also elect to purchase additional life insurance without having to undergo a medical screening.

This is a great way for those with health issues preventing them from adding coverage outside of their employer, such as those diagnosed with cancer or some other life-threatening illness.

If you’re younger the costs to elect this additional coverage may be slightly higher than what you can get on the outside, but it’s convenient.

With the increasing trend of no longer having a single employer during one’s entire career, it makes sense to not only take advantage of life insurance through your employer, but also add some coverage on the outside, like a term policy.

5.  Bonus Tip: Retirement Savings Check-up

Since you’ve gathered all of your information and are in your planning “mindset”, you might as well pull out your 401(k), 403(b), or 457(b) statements and revisit what you’re doing from a retirement standpoint.

It’s not an employee benefit you elect during open enrollment, but it’s typically the benefit that employees tend to neglect the most. They make their contribution election, choose the funds (or have them automatically chosen for them), but never really circle-back to evaluate how they are doing. Also, make sure that you’re at least taking advantage of your employer match. Open enrollment is a great time for an annual review of these important accounts.

In addition to the tips above, there are a number of other benefits available to you through Open Enrollment that you can, and in some cases, should take advantage of. You may find that they can help you build and secure your family's financial future. If you’re unclear how these benefits fit into your financial life, consider contacting a fee-only financial advisor to help you sort through your options.

About Chessie Advisors

Erik O. Klumpp, CFP®, EA, founder of Chessie Advisors, LLC and Chessie Tax, LLC, believes that teachers, engineers, and young professionals should have access to objective, fee-only financial planning and investment management to help them create and realize their American Dream. For more information on the services offered through Chessie Advisors, check out our website, contact Erik, or schedule an introductory call.

Imagine a savings account that allows you to save pre-tax money (like a Traditional IRA, 401(k), or 403(b) plan), allows that money to grow tax-deferred (like all types of IRAs, 401(k)s, and 403(b) plans), and then allows that money to be withdrawn tax-free (like a Roth IRA).

It’s a tax savings trifecta!

It’s a Roth IRA on steroids, but in a legal way (not in an A-Rod sort of way).

This type of account would seemingly only exist in a fairytale, right there alongside that mythical investment that could get you 20% returns without ever losing money, and a Yeti, otherwise known as the Abominable Snowman.

I can’t say that I know how to locate a Yeti, unless you’re talking about those white high-priced performance coolers found at your local sporting goods store, and that mythical investment with no downside remains elusive, but today I’m going to introduce you to that magical account that many people are still unaware exists.

So, what is this incredible savings vehicle?

It’s called a Health Savings Account or HSA.

These accounts are nothing new, they were signed into law in 2003 and became available in 2004. However, until the past few years, these accounts really hadn’t gained widespread traction due to the requirement that they be accompanied by a High Deductible Healthcare Plan (HDHP). This is probably the biggest downside to this type of account. For 2019, High Deductible Healthcare Plans are defined as those with deductibles exceeding $1,350 for individuals and $2,700 for families (these limits rise to $1,400 for individuals and $2,800 for families for 2020).

With changes to the health insurance industry ushered in by the Affordable Care Act of 2010, the landscape for employer sponsored health insurance (where about ½ of Americans get their coverage) has shifted toward HDHPs for their employees. Many companies have eliminated HMO and PPO plans for their employees in favor of the lower cost HDHPs. This trend is likely to continue with excise taxes on high-end health care plans coming in 2022.

So, what is a Health Savings Account, and how does it benefit me?

An HSA is an account designed to contribute and grow money that can be used to pay healthcare expenses.

For 2019, the HSA allows a maximum contribution from all sources up to $7,000 for a family ($3,500 for an individual - increases to $3,550 for 2020, family limit for 2020 increases to $7,100) with an additional $1,000 allowable catch-up contribution for those over the age of 55. Some employers even help fund the HSA on behalf of an employee, kicking in $1,000 or more, which also goes toward the maximum contribution limits.

You also have the ability to make a once-in-a-lifetime rollover from an IRA to help fund your HSA. However, that rollover is limited to the maximum contribution for the HSA that year minus any contributions made by you or your employer.

Any money withdrawn from the HSA for medical expenses, at any time, is tax-free. Otherwise there is tax on distributions not used for medical expenses and an additional 20% penalty. Once you’re age 65, the 20% penalty is waived and when you take withdrawals for non-medical expenses, you simply owe tax on the money, like you would on a distribution from a Traditional IRA, 401(k) or 403(b).

I’ve got a Healthcare Flexible Spending Account, how is an HSA different?

HSAs differ from a Healthcare Flexible Spending Account in two primary ways:

1. If you leave your employer, you can keep your HSA. You own it. It doesn’t just get forfeited like the Healthcare FSA.
2. Money within the HSA not used throughout the year carries over to the next year, allowing you to fund and grow the HSA for current or future medical expenses.

How can I get a Health Savings Account?

Typically the Health Savings Account is elected during Open Enrollment (read our post 4 Ways to Conquer Open Enrollment) along with choosing a corresponding HDHP. You also elect the level of contributions you would like to have come out of your paycheck throughout the following year to fund the HSA. In some cases, you may have the ability to raise or lower your contributions into the HSA during the year. Check with your employer or HSA provider for information on this.

What are the real benefits of a Health Savings Account?

Well, the real benefit of the HSA is the tax-deferred growth and tax-free withdrawals. You have the ability to contribute every year to the account, but by using it sparingly, it will have the most long-term growth potential. Think of it as another one of your retirement accounts, but one with triple tax savings. Healthcare expenses aren’t going away in the future, they’re only likely to increase.

If you’re great at keeping records, you could save your medical expense receipts, let your money grow for a number of years, and then withdraw for the expenses you’ve already incurred at some point in the future. HSA reimbursements are not like Healthcare FSA reimbursements in that you have to be reimbursed the year you incur an expense.

Can I invest within this account?

Unlike a Healthcare FSA, a Health Savings Account isn’t just an account that holds your contributions, you have the ability to invest in mutual funds or other investments. In some cases, HSA providers require you to have more than $1,000 before you’re able to invest the money into various investments (typically mutual funds).

As with any investment, you’ll want to keep any expenses you know you’ll need within the next few years invested very conservatively or in cash. With any excess, put together a long-term portfolio based on your tolerance for risk.

When choosing investments for an HSA, you should follow similar strategies that you follow in choosing investments for your retirement portfolio. Look for lower cost investments and at a minimum, re-assess your portfolio on an annual basis.

When you’re faced with Open Enrollment, make it a point to at least check out the available High Deductible Healthcare Plan options and consider the Health Savings Account. It may be worth the look.

About Chessie Advisors

Erik O. Klumpp, CFP®, EA, founder of Chessie Advisors, LLC and Chessie Tax, LLC, believes that teachers, engineers, and young professionals should have access to objective, fee-only financial planning and investment management to help them create and realize their American Dream. For more information on the services offered through Chessie Advisors, check out our website, contact Erik, or schedule an introductory call

Earlier this month, I was blessed to again be able to participate in the Indianapolis Mini Marathon, the kick-off event for the Indianapolis 500 festivities in the month of May and the largest half marathon in the country. It's the 11th time in the last 12 years I've been able to run the race.

Somewhere between mile six and mile ten I begin thinking about how similar getting ready for the half marathon race is in comparison to planning for retirement, or lack thereof.

I'll be honest, this year didn't train as much as I should have. I was always coming up with excuses like “it's too cold”, “there’s not enough time to train”, etc., etc., etc. It's funny, but those same types of excuses prevent many people from sitting down and creating a plan for their own retirement.

The good thing for me is that I have experience running the course having done so eleven previous times. I knew the turns, the small hills. I knew where water and Gatorade stops were since I’d been through it many times before.

For most people entering retirement, they don’t have those same experiences to rely upon, without creating a plan. They simply haven't retired before. This is their one and only shot. If things don't work out, it's very likely they may have to go back to work, possibly at an age not conducive to earning much income.

Every time I run a half marathon my goal is to finish in under two hours. Nothing crazy. I’m not a world class runner, but I’d say I’m slightly above average. In the 13 half marathon races I’ve completed (including 11 Indianapolis Mini Marathons) I’ve achieved that sub-two hour goal 10 times. This past weekend was not one of those. I attribute this year's finish 100% to the lack of training. Sure, I completed the race, but just missed the time that I wanted to achieve by 18 seconds.

Training, Planning, and Preparation

Training, planning, and preparation help condition your body and factor into how will you run on race day. Without planning there is no Plan B (there’s only Plan A, “try to finish the race” and hope everything else falls into place). At times, Plan A becomes 100% pushing your body to the limit and trying to keep your head in the game mentally. If the weather doesn’t cooperate or your muscles are tight or you don’t get enough fluids, your goal time might be out of reach. If you haven't trained properly (or at all) you likely don't have Plan B fall back on and still meet your goal. You need to be all-out from start to finish and hope there are no surprises.

Retirement planning is a little different, there’s much more at stake. Instead of two hours, it's more like 20, 30 or 40 years! Retiring without planning is almost like running a full 26.2 mile marathon without training or conditioning your body. You'll probably do fine for the first 5 miles, but somewhere between miles 6 and 10, you're asking yourself "why?", and you're not even half way through the race.

In an unplanned retirement, you’ll probably do fine for a few years, but at some point, unforeseen costs or inflation will hinder your level of comfort. You don't always have the ability to forecast the future. Retiring two years early can have a significant impact on your financial quality of life. What if there is a shock to the markets and your portfolio is down 30 to 40% (like what happened to those that retired just before the Financial Crisis)? Can you still make it?

Sometimes you don't ability to save more or retire later. But putting off savings now can have a pretty big impact 10, 15 or 20 years down the road.

The majority of Americans who contribute to their 401(k)s or employer plan don't really worry too much about it. They contribute and don't look at it, which can sometimes be a good thing. They just plug away at their jobs hoping to retire when that magical age arrives. For some it’s 62 and 1 month, the age at which you can begin taking reduced Social Security benefits. For others, it may be 65 or 70. Unfortunately, not planning for retirement can have a detrimental effect on the ability to survive financially in retirement.

What steps can you take to prepare?

No matter what age you are, 32 or 57, it’s never too early, or too late to prepare for your retirement. Here are three things you can do now:

Annual Check-up (at a minimum): An annual check-up with a doctor can help you spot diseases or conditions that may or not be visible and also keep you healthy in a preventative manner. The same is true for a financial advisor. An annual check-up can help you set-up a financial plan and then revisit it every year as your life and financial situation changes. The guidance you get from an annual check-up can help you avoid mistakes, make course corrections, or validate what you’ve already been doing.

Save for Retirement: The earlier you save for retirement, the less you need to save each year to meet your long-term goals. The chart below shows the power of compound interest. It illustrates the annual contribution needed starting at various ages in order to have $1,000,000 in your portfolio at age 60 while earning a 6% growth rate (compounded annually):

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Minimize Lifestyle Creep: As you earn more and more income, the goods and services you used to consider “wants” often turn into "needs". That’s not to say you shouldn’t ever spend more on nicer things, or you should live like a broke college kids forever, but to build wealth, you need keep "lifestyle creep" in check. When you get a raise, increase your savings first. If there’s money left over to “upgrade your lifestyle”, do it with the future in mind. Ask yourself, “is this cost sustainable?”

So what’s the best way to get started?

You can find a wealth of information online regarding various types of saving accounts and ways to reduce your expenses. If you’re looking for an advisor to help review your situation and provide an annual check-up or ongoing financial planning guidance, check out the XY Planning Network or NAPFA (the National Association of Personal Financial Advisors). Both organizations are made up of fee only Certified Financial Planners™. Fee only advisors are paid directly by their clients (no commissions or fees for recommending products.) Members of XYPN and NAPFA  have also signed a fiduciary oath to always work in the best interests’ of their clients.

About Chessie Advisors

Erik O. Klumpp, CFP®, EA, founder of Chessie Advisors, LLC and Chessie Tax, LLC, believes that teachers, engineers, and young professionals should have access to objective, fee-only financial planning and investment management to help them create and realize their American Dream. For more information on the services offered through Chessie Advisors, check out our website, contact Erik, or schedule an introductory call