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9 Things Financial Advisors Want You to Know About Having Kids

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

9 Things Financial Advisors Want You to Know About Having Kids

When it comes to having kids, wouldn’t it be nice if all first-time parents could have their own personal financial advisor to help guide them through the intricacies of financially preparing for their little bundle of joy?

While it might not be possible for each set of parents to have their own personal advisor, it is possible to gather some general information — and we can help. We checked in with multiple finance experts and asked: “What’s the most important thing you would want first-time parents to know about finances when it comes to having kids?”

Here’s what they had to say.

Tip No. 1: “Add term life insurance before getting pregnant.”

Source: Sophia Bera, CFP®, founder of Gen Y Planning

The reasoning: Believe it or not, once you’re pregnant it could be harder to qualify for a preferred rate because they do a weight/height calculation that will factor into the amount you pay, says Bera. To that end, if you haven’t been able to get a policy before conceiving, signing up for a plan within the first few months of your pregnancy should be totally fine, too.

Tip No. 2: “Figure out a plan for paying your medical bills.”

Source: Ed Snyder, CFP®, ChFC, Oaktree Financial Advisors, Inc.

The reasoning: Even if you do have health insurance, chances are some of the tests and procedures you can opt for (like genetic testing, for example), may not be covered by your plan. At the very least, you should assume you’ll probably meet your out-of-pocket deductible. Luckily most providers will let you set up a monthly payment plan with no interest if you can’t pay the full amount, says Snyder. Consult with your health insurance about what is and isn’t covered, then chat with your doctor’s office to find out what options you have. (Check out this piece for five more ways to save on some of the biggest parenting expenses.)

Tip No. 3: “Plan for the pregnancy, as well as the baby.”

Source: Bellaria Jimenez, CFP®, Managing Director of MetLife Solutions Group 

The reasoning: When considering having a baby, it’s important to plan for additional costs during the pregnancy, as well as the cost of caring for the baby, says Jimenez. If you have a good insurance plan, the cost of prenatal care might just mean the cost of co-payments, but without good insurance this can cost you thousands out of pocket (or even with it). On top of that, prenatal vitamins purchased over the counter can range from $10 to $20, and if you are like many moms-to-be, eating healthy and organic during pregnancy can mean an increase in monthly grocery bills, as well. Some other things to consider: The cost of an uncomplicated cesarean section was about $15,800 in 2008, and $9,600 for vaginal birth, according to WebMD. Many moms hold baby showers to prepare for the upcoming baby, but be smart about your gift registry to help save you money down the line. For example, requesting gift cards in lieu of gifts can assist you with purchasing diapers and formula if you choose not to breast-feed. There are subscription services and bulk purchases for baby items that help. Several websites also offer “cost of raising a child” calculators that can be helpful for planning. (For more on this aspect of financially planning for baby, check out this piece.)

Tip No. 4: “Sign up for your FSA.”

Source: Sophia Bera, CFP®, Founder of Gen Y Planning

The reasoning: Doing so will often allow you to use pretax dollars to pay for daycare costs.

Tip No. 5: “Sign up for your HSA.”

Source: Ed Snyder, CFP®, ChFC, Oaktree Financial Advisors, Inc.

The reasoning: We’ve already talked a little bit about healthcare costs, but if you have a high deductible health insurance plan, Snyder suggests pairing it with a Health Savings Account so that your medical expenses — and the baby’s — are tax-deductible. (Confused about the differences between an HSA and an FSA? Check out this piece.)

Tip No. 6: “Familiarize yourself with the tax laws.”

Source: Molly Stanifer, CFP® 

The reasoning: Certain tax breaks could really help you out, especially that first year when you have the baby. The childcare tax credit, for example, allows you to use a credit to net against taxes you owe in a given year, says Stanifer. “The idea behind the credit is to offer parents with children aged 12 years or younger a little help so they are able to work. The amount of childcare expenses you can use toward the credit are limited to $3,000 per child, but no more than $6,000. After that the credit is limited by your income. Work with an advisor if you’re unsure exactly of how the laws work in your favor.”

Tip No. 7: “Use nicknames for your savings accounts.”

Source: Mark Thorndyke, CFP®, Managing Director, Wealth Management Advisor, Thorndyke Wealth Management Group, Merrill Lynch

The reasoning: It might sound silly, but assigning nicknames to savings accounts has actually proven a very effective way to save for defined goals, says Thorndyke. For example, when Thorndyke started nicknaming his own accounts with specific goals seven or eight years ago, he found that it provided him with a strong psychological motivation to continue to save. “Parents [I’ve seen] have defined goals as college, education, retirement, travel, emergency fund, vacation/second home, kids wedding, automobile, etc. Their children, on the other hand, have specific goals like college savings, checking, general savings.”

Tip No. 8: “Think twice before putting funds in a child’s name.”

Source: Cecilia Beach Brown, CFP®

The reasoning: Depending on where you live, you may have access to UTMA (Uniform Transfer to Minor Accounts) and UGMA (Uniform Gift to Minor Accounts). “These have long been used as a tool to keep taxes lower on account earnings, however, when the child reaches the age of majority for your state, they have full access to the funds,” says Brown. “You as a parent give up control. Weigh the actual tax benefits to you before putting funds in a child’s name — it might not be worth giving up control.”

Tip No. 9: “The new way to hire a babysitter could end up saving you tons of money.”

Source: Lynn Ballou, CFP®, Managing Partner and Board Ambassador for Ballou Plum Wealth Advisors

The reasoning: Babysitting co-ops have taken the country by storm, and for good reason. “A babysitting co-op can mean the difference between affording a night out or staying in,” says Ballou. The concept is simple. “Find parents whose values are in line with yours and alternate Saturday nights out.” Swapping babysitting duties with other parents means your child will have playmates, you’ll get to go out for free and you’ll be doing someone else a favor at some point as well. It’s a pretty great deal.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Survey: Millennials Are Underestimating Retirement Savings Needs

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

For many savers, a cozy retirement can seem like a distant dream rather than a realistic future. Costs of living continue to rise, while it’s becoming harder for many to keep up with saving. More and more senior citizens are working into retirement, and millennials may be underestimating just how much they’d need to save for retirement in the first place.

MagnifyMoney commissioned a survey of 800 full-time workers to get a better look at their understanding of their own retirement savings needs. The results show that while millennials may be underestimating the real costs of retirement, so are baby boomers. Furthermore, some baby boomers indicated that no amount of money would make them comfortable enough to retire.

Key findings

  • 73% of full-time working Americans believe $1 million is enough to get them through retirement if they stop working at age 66. There was widespread agreement on this across all age groups.
    • $1 million in retirement savings is a general rule of thumb to follow, although an individual’s actual retirement savings should be more specific based on projected spending in retirement.

  • Meanwhile, nearly 1 in 5 millennials said having $500,000 in their retirement savings account would make them comfortable enough to stop working tomorrow. Another 14% of millennials would retire after amassing $750,000.
    • Millennials aren’t alone in believing less than $1 million is enough. Across all age groups, 20% of respondents said that $500,000 in retirement savings was enough. The next largest cohort — 17.4% of respondents — said $1 million in retirement savings was enough.
  • Interestingly, more than 1 in 5 baby boomers responded similarly to millennials, saying just $500,000 would get them through retirement if they stopped working tomorrow. Another 15% of boomers said $750,000 would be enough to retire.
  • Some baby boomer respondents offered a bleaker outlook: More than a quarter of Americans ages 54-73 reported that no amount of money would make them comfortable enough to retire.
    • Boomers were almost twice as likely to say that no amount of money would make them comfortable enough to stop working compared to younger Americans. 14.4% of millennials and 15.2% of Gen X-ers had the same sentiment.
    • Boomers may be less willing to stop working than other age cohorts because they believe they need to save more before they stop working, or because some feel you can never really have enough money saved for retirement.
  • More than 1 in 10 Americans have lofty goals for their retirement savings. Just under 12% of our respondents want to accumulate at least $3 million before ending their career.

How much should I save for retirement?

Saving for retirement is not an exact science. Shooting for a $1 million nest egg is a common rule of thumb — and most survey respondents agree that $1 million would be enough.

However, the amount of retirement savings you need depends on your estimated expenses in retirement. Your exact number could be more or less than $1 million, depending on how much you expect to spend on housing, discretionary costs or lingering debts.

For example, $1 million in savings would fund a 20-year retirement where you’re limited to $50,000 in annual spending. If you anticipate a 30-year retirement, $1 million in savings would only cover around $33,000 in annual spending.

How much you should have saved for retirement also depends largely on your age. For example, it’s unlikely that at 30 years old, you’ll already have $1 million set aside unless you’re extremely blessed. You’ll have to build up your savings as you go and as your income, hopefully, increases with age.

Fidelity offers a different take on savings guidelines by age. According to Fidelity, by age 30 you should have 1x your annual salary saved, growing to 3x your annual salary saved by age 40, 6x by 50, and 8x by 60.

How do I save for retirement?

If you think you’ve underestimated how much you truly need to save for retirement, there’s still time to get your savings on track.

A common retirement savings tool is the 25x rule, which dictates you need to have 25 times your annual retirement expenses saved. Core to this rule is the assumption that you’ll need to cover 25 years of retirement. So if you calculate an estimated $70,000 in annual spending in retirement, for example, following the 25x rule would indicate a nest egg goal of $1.75 million.

That’s a far cry from the mere $500,000 that 20% of our respondents indicated would be adequate for retirement. If you stuck to that goal, by the 25x rule, your annual spending in retirement would be cut down to $20,000.

It’s best to throw your retirement savings into an investment account, rather than a high-yield savings account. Over time, investing can post returns around 8%, well above the 2% savings APYs we see today. Retirement savings are more than just your 401(k), too: individual retirement accounts, or IRAs, allow you to save on your own, whether instead of or in addition to your 401(k).

If you’re an investing beginner, there are a ton of resources out there to help you get started. Robo-advisors and online brokerages offer an easily navigable investing experience that allow you to set your own goals and preferences.

Methodology

MagnifyMoney by LendingTree commissioned Qualtrics to conduct an online survey of 816 full-time American workers. The survey was fielded October 1-3, 2019.

We define millennials as those aged 23 to 38, Gen X as those 39 to 53 and Boomers as those aged 54 to 73. Members of Gen Z (ages 18 to 22) and the Silent Generation (ages 74 and up) were also surveyed, and their responses are included within the overall total percentages. However, they were excluded from the age breakdowns due to the lower sample size among respondents in those age groups.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Survey: For 36% of Americans, Economy Informs 2020 Presidential Preference

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

The presidential election will dominate headlines throughout 2020, with voters and pundits alike obsessively following polls, reading coverage and watching debates to get a feel for who’s leading in the race for the White House. In addition, they’ll be closely watching another key indicator for the race: the performance of the U.S. economy.

MagnifyMoney commissioned a survey of 1,000 Americans to gauge how people think about the relationship between the economy and the 2020 presidential election. Our survey found that nearly four in ten respondents said monitoring the economy helps them decide which candidate to support, and believe the results of an election can be at least somewhat predicted by the performance of the economy.

Key findings

  • About 41% of respondents believe the outcome of a presidential election can be predicted based on U.S. economic performance in the 12 months leading up to the election.
    • Around 36% said monitoring the stock market and the economy helps them decide which presidential candidate to support.
  • Republicans are more confident than Democrats about three key aspects of the economy over the next 12 months: that the stock market will continue to rise, jobs will continue to be added to the economy and the overall economy will continue to grow.
  • Nearly 1 in 3 respondents think the 2020 presidential campaign will positively impact the economy — while about 18% believe the economy will be negatively impacted.
    • Investors are almost twice as likely as non-investors to believe the campaign will positively benefit the economy, and six-figure earners are also more likely to agree with this proposition.
  • Like many topics in politics, the potential economic impact of re-electing Donald Trump is a polarizing subject.
    • When asked which 2020 presidential candidate made them most optimistic about the future of the U.S. economy, the most-cited candidate was Donald Trump, with 33% of respondents overall.
    • When asked which candidate made them most pessimistic about the future of the U.S. economy, Trump was yet again the most cited candidate, by 35% respondents overall.

How could the state of the U.S. economy impact the election?

Our survey found that about 4 in 10 respondents think you can at least somewhat predict the outcome of the presidential election based on U.S. economic performance in the year leading up to the election. Meanwhile, 37% say that they do not think that economic performance could predict the election’s outcome, while nearly 22% were not sure.

Republicans were more likely than Democrats to say that economic performance could at least somewhat predict the 2020 election, 53% versus 43%. Meanwhile, 50% of millennials think that the state of the economy could at least somewhat predict the 2020 election, compared to 40% of Gen Xers and 32% of baby boomers.

Our survey asked whether people monitor the stock market and economic performance when deciding which presidential candidate to support. We found that the majority of people (64%) do not track such metrics when deciding who to support, while approximately 21% do somewhat and 15% do a great deal. The results didn’t differ greatly when considering party affiliation: 40% of Democrats and 42% of Republicans follow these metrics at least somewhat when determining who to vote for.

How could the election impact the U.S. economy?

While our survey revealed that many people think that economic conditions can help predict the outcome of the 2020 election, we also asked respondents how they think the election will impact the economy once the polls close and the next president is selected.

Overall, people feel very differently about how the 2020 election results will impact the economy, with 31% of respondents saying it will positively affect it, 18% saying it will negatively affect it, 42% saying they are unsure how it will affect it and 9% saying it will not affect it at all.

Those results look somewhat different when party affiliation is taken into account: 41% of Republicans said the outcome of the election will positively impact the economy, compared to just 32% of Democrats. Meanwhile, Democrats were more likely to say that the election would have a negative impact on the economy, 19% compared to 14% of Republicans.

Different generations also had different thoughts on how the election’s results might affect the economy, with millennials (39%) most likely to say they think it will have a positive impact, followed by Gen Xers (28%) and baby boomers (24%). In contrast, Gen Xers were the generation most likely to say the election will have a negative economic impact (20%), followed by millennials (18%) and baby boomers (15%).

Our survey also revealed how people think the stock market will react to a President Trump re-election. Overall, 31% of respondents think that the stock market will fall if Trump is re-elected, 26% think the market would rise, 28% are unsure of how the market would react and 16% think it won’t change. Not surprisingly, 50% of Democrats think the stock market will fall with a Trump re-election, while 52% of Republicans think it will rise.

How could the election impact investor confidence?

Everything from a CEO’s tweets to global trade deals has the potential to rattle an investor’s confidence — and our survey found that the 2020 election is no exception.

Interestingly, we found that overall, 37% of people avoid investing their money during election years. That includes 41% of Democrats and 39% of Republicans, as well as a whopping 56% of millennials, 29% of Gen Xers and 13% of baby boomers.

One reason for the lack of investment during election years could be chalked up to overall uneasiness about the state of the economy in general. When looking at the 2020 election in particular, many respondents aren’t too confident in many metrics that measure the health of the economy.

Overall, 28% of those surveyed are at least somewhat unconfident that the stock market will continue to rise, 30% are at least somewhat unconfident that the U.S. will continue adding jobs in the next 12 months and 29% are at least somewhat unconfident that the overall U.S. economy will continue to grow over the next 12 months.

When looking at confidence levels regarding the overall future of the economy, our survey found that Democrats are much more pessimistic than their Republican counterparts: 38% of Democrats were at least somewhat unconfident that the overall U.S. economy will continue to grow over the next 12 months, compared to just 19% of Republicans who feel the same way.

When looking at how the economy is now versus how it was on the night of the election in 2016, different political parties have very different viewpoints. Only 16% of Democrats think that the economy is in a better position now, compared to a whopping 68% of Republicans.

When asked which presidential candidate made them the most optimistic about the future U.S. economy and which one made them the most pessimistic, the most popular candidate was the same for both: Donald Trump. Overall, 33% of respondents said that Trump was the candidate that made them the most optimistic about the economic future, followed by Joe Biden (17%), Bernie Sanders (14%) and Elizabeth Warren (12%).

Meanwhile, 35% of respondents said that Trump was the candidate that made them the most pessimistic about the future of the U.S. economy, followed by Sanders and Biden (both at 14%) and then Warren (11%).

Methodology

MagnifyMoney commissioned Qualtrics to conduct an online survey of 1,048 Americans, with the sample base proportioned to represent the general population. The survey was fielded October 1-3, 2019.

In the survey, generations are defined as:

  • Millennials are ages 23 to 38
  • Generation Xers are ages 39 to 54
  • Baby boomers are ages 55 to 73

Members of Generation Z (ages 18 to 22) and the Silent Generation (ages 74 and older) were also surveyed, and their responses are included within the total percentages among all respondents. However, their responses are excluded from the charts and age breakdowns due to the smaller population size among our survey sample.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.