DIY - Financial Wellness at Work

 Recently, I set up a Slack channel at work descri

Photo Credit: Benold Financial Planning

bed thusly: "An information and learning commons to jointly develop the financial acumen we fear we don't have."  I did it because the issue of not knowing where to start had emerged as a theme in a number of random discussions and on our annual employee survey.  After a lifetime spent managing the financial affairs of small businesses and nonprofits, I figured I'd learned enough to lead self-help discussions. I don't think of myself as a financial expert, just a knowledgeable amateur. 

 

The experiment is still new. That said, it's been fun so far and early reactions have been positive.  To get the conversation going, I've tried to post about subjects of interest once a week. These are my first two. 

 

January 13, 2022 - Dependent Care FSA and Childand Dependent Care Tax Credit

 

Photo Credit: Buford City Employees Childcare Ctr

If you can swing it, the tax benefits of using the Dependent Care FSA are significant... "An example of your tax savings would be:  "If you contribute the maximum $5,000 in a given year, and fall into the 24% tax bracket, you’d be saving about $1,583 a year in taxes including both federal income tax and the 7.65% Social Security and Medicare tax."One strategy to lessen the per paycheck bite that is available to married people, both of whom are working, is to split the Dependent Care FSA contribution between them. That way each person only sees $2,500 in paycheck deductions over the course of a year.This blog post takes a look at the Childcare Tax Credit.

 

What I don't know is whether or not you can contribute to a Dependent Care FSA and also take the Child and Dependent Tax Credit, if your expenses are high enough. Does any else know?  Looking further, I found reason to hope in the form of this post. It suggests that, if you qualify, you can, indeed, claim both --with some limits."...while the maximum allowed under a Dependent Care FSA is $5,000, you may be able to apply the Child and Dependent Care Tax Credit for amounts over that limit - up to your tax credit limit - depending on your tax situation." The devil is always in the details, isn't it?

 

January 26, 2022 - Risk, Target Date Funds...Life Before and After Retirement

 

Target Date funds - those offerings that you find in 403(b) and 401(k) funds have become a tremendously popular "set it and forget it" investing strategy for long-term holdings. In fact, as of October, there was $3.1 trillion dollars being held by savers in those types of accounts. 

 

The mechanism is simple--you pick a fund based on the year you are likely to retire (anything from 2015 to 2070!) and the investment house (Vanguard, Fidelity, TIAA-CREF, etc) has their experts reset the percentage of stocks and bonds that all participants in the fund hold annually. By the time you retire, your investments are mostly in less risky bonds. 

 

A typical scheme transitions investors--over time--to a 30% stock and 70% bond portfolio (after retirement). That makes sense: If you are retired, you can't afford to lose principal because you are living on your savings. Many Americans learned that the hard way during the 2008 recession.

 

Photo Credit: Clip Art Zone

Risk is a personal thing. Some of us are gamblers and some are not. Some of us have higher pain thresholds than others. A finger in the wind that is often suggested is, "How upset would you be if you lost 10% of your retirement savings in a market correction?"    

During the 2008 recession, I asked myself that a lot. At one point, I think I'd lost all earnings on my IRA, but none of my own contributions. With more than a decade left to work, I hoped I had enough time to make up my losses. As it turns out, I did. If that happened today, I'd probably be much more panicked than I was then. Why? Because my window of opportunity is much smaller. You can't make up losses when you are withdrawing money. You can only make them up if you leave your money in the market.

Yet...as with any conventional wisdom, times and theories change--as do people. This article is quite readable and worth the time it takes. I recommend it highly. The author, Jeff Sommers, offers some interesting ideas and conclusions--and not just for grey beards!  

For those still enjoying their salad days, I suggest taking a look at the Target Date funds you might have chosen within the 403(b). Remember, if you don't make a choice, Homebase defaults your deferrals and its matching contributions to the Target Date fund that is geared to your normal retirement date. That's a pretty standard default these days. 

 

 Don't get all bogged down in which stocks and bonds are in your Target Date fund--not on the first pass, anyway. For now, just look at the percentages of stocks it holds versus the percentage of bonds it holds. 

 

Compare that with your answer to the question of how upset you would be if you lost 10 percent of your balance. Add in the number of years you have until retirement--that's your recovery window. And...remember that women tend to do two things differently than men: They invest less AND they invest much more conservatively, to their detriment.

 

No answers here, just food for thought.

 

Also...one last consideration about retirement savings--this one is my own. 

 

You may or may not have noticed that one of the options Homebase  offers in its retirement plan is the option to have your portfolio re-balance automatically on a periodic basis. I have not had this option before. I really like it.

 

Here's why: I spent a little bit of time setting up my investment options. I tried to use a mix of target date funds, bond funds, stock funds, and other things. I'd call myself an advanced beginner in terms of investing, but I did my best to apply various bits of conventional wisdom to my choices. Over time, different of my choices did well and less well.  That leaves me with more than I planned in some of my investment choices and less than I planned in others.

 

I'm lazy. I know I should go back and re-adjust my investments; move money around so as to get back to the percentages I set up last year--and I know I won't. What saves me from being lopsided? The auto-rebalance option! 

 

I opted for annual re-balancing. You might choose to test drive this feature at a longer or shorter interval.

 

At whatever interval you specify, the plan overseers (aka the funds custodian) go into your account, buy and sell things, and get you back to your chosen percentages in each investment. They send you a recap so you know what they did. 

 

This handy "set it and forget it" feature keeps me from being over-exposed to winners that will probably stop winning soon and under-exposed to options that are about due to enter the winner's circle. Remember: Nothing lasts forever. 

 

Bonus: I no longer feel bad about being lazy and I know longer worry about how cavalier I am being about unintentional risk.