Ep. 137 Launch Financial-US Economy Digests Rising Interest Rates Awaiting CPI Data

Overview: Tune into this week’s episode of Launch Financial as we discuss last week’s interest rate hike of 25 basis points and this week’s economic topics of the debt ceiling, CPI and PPI data reports. How are you and your family feeling as it relates to travel and the costs associated? Let us know at info@shermanwealth.com

Show Notes:


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Why A Roth IRA and 401(K) Are Smart Retirement Vehicles For You

While saving for retirement is a great way to build your financial wealth and pile away money for the future, many individuals are unclear on the best vehicles to use when saving for retirement. Furthermore, we have been reading articles and hearing remarks from individuals, especially those of younger generations, that they do not want to tuck away money now for retirement, funds that they can’t touch for many, many years. So, for those of you who resonate with this feeling, but still want to optimize your retirement savings, let’s explore why a Roth IRA might be the right savings vehicle for you.

So, for starters, let’s explore what a Roth IRA (individual retirement account) is. For those who don’t know, a Roth IRA is a retirement vehicle that allows individuals who fall under a certain AGI limit to contribute after-tax dollars to a retirement account, meaning you pay taxes on the money upon contribution so your future withdrawals are tax free. Some benefits of a Roth IRA are that your earnings can grow tax free, there are no mandatory withdrawals, unlike a Traditional IRA, and that withdrawals can be taken out tax-free and penalty free, given you’re age 59½ or older and you have met the minimum account holding period, which is 5 years.
Another benefit of a Roth IRA that many young savers find attractive and comforting is the fact that they you can always access the money you contributed without penalty, no matter your age, unlike a traditional IRA. Of course, any gains in the account may be subject to taxes and penalties is withdrawn before age 59½, unless you qualify for an exception. So, while we don’t recommend withdrawing from your account, for those worried about totally locking up their money until retirement, a Roth IRA provides piece of mind that you do have access to those funds in case of an emergency. In fact, studies show that many young individuals don’t end up withdrawing from their accounts, but feel comfort knowing that they can. So if you get weary about your retirement savings, a Roth IRA and its flexibility might be right for you.
While there are many benefits of contributing to a Roth IRA, if you or your combined household has too high of a AGI, you may not be able to contribute. However, if you still want to take advantage of the Roth option within part of your retirement picture, see if your 401(K) has a Roth component. Unlike a Roth IRA, the Roth 401(K) has no income limit and follows the same contribution limit as the traditional 401(K). If you are a small business owner or self-employed, but make too much to contribute to a Roth IRA, consider setting up a 401(K) for your business and adding a Roth component. This is a great way to take advantage of the benefits a Roth account offers, and also save for retirement. If you are looking to implement a 401(K) for your small business or the Roth component to your existing retirement plan, email us at info@shermanwealth.com and we are happy to help!
Given all the market volatility and economic uncertainty we’ve seen over the last few years, having a good grasp on your financial picture is important. While saving for retirement is a key piece of your financial plan, its only one piece of many, which is why we encourage working with an advisor on a holistic financial plan to analyze the larger scope. If you have any questions about your particular financial situation or a Roth IRA, email us at info@shermanwealth.com or schedule a complimentary intro-call here.

Don’t Make These Errors With Your Estate Plan

Estate planning is a financial topic that many individuals oftentimes overlook; however, it is one of the most important components of a solid financial plan. We know that estate planning is not the most joyful conversation topic and it is typically avoided due to its morbidity, but if you are reading this, we want you to take this opportunity to revisit your estate plan and avoid these common mistakes. 

The most common mistake you can make around estate planning and your will, is NOT having one. Everyone knows they should have a will, but many either think they are too young for it to make sense or think they do not have enough assets to need one. However, this misconception has been proved wrong time and time again. In fact, we recorded a podcast episode with Head of Trusts and Estates Practice, Adam Moskowitz on why it’s never too early to establish a will, medical directive, and power of attorney. Many also believe that they only need a will, and forget about their power of attorney and medical directive, that plays a crucial role in your wishes should anything happen to you. 

Another common mistake we see is not updating your will as your life becomes more complicated. Whether it’s a new house, more children, marriage, or complexities within your familial situation, updating your will as your life becomes more complex is extremely important. Making regular updates to not only your will, but also the beneficiaries on your retirement and other investment accounts is a great way to make sure you remain protected as your life goes on. Make sure that when you make changes to your will or living trust, that you are reflecting and updating those changes on your beneficiary designations as well. 

Depending on your financial and life situation, creating a will, medical directive, and power of attorney can include many moving parts, which is why we encourage you to at least speak with a professional who can help guide you through it or in the right direction. Another common error many individuals make when it comes to their will is losing their original copy, so make sure you are holding onto your original copy somewhere safe. 

As you can tell from above, drafting a will, medical directive and power of attorney is a crucial player in your financial plan. Not only do you want to protect yourself should anything happen to you, but you also want to think about your heirs and make sure that they are taken care of as you wish. If you have any questions for us regarding your need for a new or updated estate plan, let us know and we are happy to set up a conversation to head you in the right direction. If you have any questions, email us at info@shermanwealth.com.

How To Get Your Financial House In Order Before Buying a Home

Despite the current housing market and higher interest rates, many of you are still in the market to purchase a new home. Whether you’re a first time home buyer or you are upgrading from your “starter” home, there are many tips you can implement and mistakes to avoid to improve your financial situation and ensure the process is more seamless. So let’s dive in. 

As you know, buying a home is a major purchase, maybe even the largest purchase you will make in your lifetime. So, it’s key that your financial house is in order prior to applying for a mortgage and taking on a large loan. So, first and foremost, ensure that your credit score and report are in good shape. Why? Because your credit is the lifeline of your financial life, and when it comes to purchasing a home, lenders will check out your credit to determine what interest rates you will be able to capture. If your credit is not so great, it may be possible you have a higher and more costly interest rate, making your home purchase more expensive than it needs to be. So, make sure you are paying your bills on time, always pay at least the minimum, pay down existing debt, and open multiple lines of credit, taking on “good debt”, that you can pay back responsibility. Check out our other blogs for more information on your credit score

Another tip to keep in mind when preparing to purchase a home is to ensure your emergency fund is sufficient and you have saved enough for the downpayment and fees. So what does this mean? Well, buying a home comes with tons of unexpected expenses. Especially if it’s your first time, having only enough cash for the down payment and fees most likely won’t be enough to cover all the expenses coming your way. So, have an emergency fund, remember about items such as furniture, wifi, utilities, and more. You don’t want to tie up all your cash in non liquid investment vehicles when you might need it for something else in the near future. So, consider opening a high yield savings account that you can park your cash reserve in, while also earning additional interest. 

Along with saving enough cash for your big purchase, having a realistic and achievable budget is extremely important as well. We oftentimes see individuals stretch themselves too thin with their home purchase, making it more financially stressful to reach their other financial goals. Especially given where the economy is with inflation, we’ve been recommending individuals to re-visit and tweak their budgets. So, separating your wants versus your needs and really breaking down your financial goals is a great way to determine what your budget should be. We also recommend working with a financial advisor to dive deeper into this budget and build a strategy to hit all your goals in life. Purchasing a home is such an exciting and fulfilling achievement, so we want to make sure you go about it in the best way possible. We will continue to track the housing industry and mortgage rates as the Federal Reserve continues to raise interest rates and report back how this will impact you. If you have any questions, email info@shermanwealth.com