Clear View Wealth Advisors, LLC
Managing Member / Financial Planner
As a CERTIFIED FINANCIAL PLANNER ™ Professional, Steve Stanganelli has been providing financial, tax, retirement and college funding advice for more than 30 years to individuals, families and business owners throughout Greater Boston, the Merrimack Valley and New Hampshire Seacoast.
Professionally, Steve sees himself as a financial coach or navigator. His role is to help clients navigate the sea of confusion that is personal finance. He has worked hard to develop his experience and assemble the kinds of tools that are needed to help his clients with a variety of financial challenges including divorce, funding college tuition, and building efficient portfolios for long-term investing goals.
In his professional work, Steve is humbled knowing that people entrust him with their hard-earned wealth — regardless of the amount — or seek his guidance on any number of life-changing issues that can affect their personal bottom line. He finds it rewarding and humbling each time a client entrusts him not just with their money to manage but their dreams. Like many of his peers, Steve is a member of the “Sandwich Generation” helping to care for elderly parents while raising a family of his own.
Steve knows what it feels like trying to deal with the frustrating details of Medicare and the Part D “donut hole.” He knows what it feels like to juggle the responsibilities as an elder care giver with the demanding schedule of school-age kids. Steve knows all too well the sense of loss created by an unexpected corporate downsizing or downturn in business or sudden death of a loved one.
Like many of you who may read this, Steve leads a complex life – husband, father, son, homeowner, landlord, professional by day, weekend athlete (road cyclist). He can relate to the challenges his clients have faced or will meet. And he genuinely wants to share his insights, experience, and training to help others make the most with their lives.
Initially, Steve was a registered representative affiliated with an independent broker-dealer. Then he affiliated with a national wire house broker completing their extensive training programs and using the opportunity to complete the educational requirements for both of Steve's financial planning designations. Ultimately, Steve decided that he did not fit into the culture of a broker-dealer and turned toward more fee-only planning-oriented firms. In 2010 he consolidated his practice into his own firm, a state-registered investment advisor, to offer flexible financial and tax planning services as well as low-cost ETF investing solutions.
BA, Economics, University of Massachusetts at Lowell
MS, Finance, Bentley University
Assets Under Management:
This is a complicated answer. There really is no single allocation that is best for someone. It really will depend on your risk tolerance, risk capacity, and retirement income needs.
Risk tolerance describes your comfort level with investment variability (sometimes referred to as volatility and measured by standard deviation which you'll sometimes see listed in an investment fact sheet at Morningstar).
Risk capactity refers to your ability to take on risks after looking at the big picture of your finances. Example: You have a small nest eff and may have a high risk tolerance and willing to accept sharp ups and downs with your investments. But you lack an adequate emergency reserve account or are missing some other critical insurance coverage. In this case, you lack the capactity to take on lots of risk. Think of it in these terms: Your spirit is willing but the body is weak.
Finally, you have to consider what you need your investments to produce to support your lifestyle. There are rules of thumb (example:withdraw 4% of your total investments each year and it may last you 30 years in retirement). A better way is to factor in all that you'll need to cover your fixed overhead and discretionary (i.e. fun) cash needs. Make a best guess about your life expectancy or use online tools based on actuarial tables (see www.longevityillustrator.org). Then add up all your fixed or guaranteed income sources like pensions, Social Security, rent received. There will be a gap and that is what the investment portfolio needs to fill - preferably from gains, interest, and dividends. But if you're short, you'll probably need to take it out of the principal amounts you're investing.
All that being said, you should probably aim for setting aside a bucket into cash or near-cash investments (money markets, CDs, ultra short-term bonds) equal to a minmum of six months up to 3 years of fixed expenses. The exact amount will depend on your risk tolerance.
Then with your remaining investable resources you should aim for an amount in equities equal to about 115 minus the age of the youngest spouse. There's a general rule of thumb that says 100 minus age but with people living longer and insurance companies using life expectancy tables of 120, you'd be safer using a higher number. As uncomfortable as it may make you, the reality is that the best investments to counter the risk of inflation in retirement will be owning stocks (individually or through equity-focused mutual funds or Exchange Traded Funds).
With the balance you can allocate to fixed-income (bond funds, bond ETFs, or individual bonds).
Given low current interest rates, you may want to consider a higher allocation to equities. As the Fed increases rates, you're likely to see the price on existing bonds or bond funds go down (the price of bonds moves in the opposite direction of market interest rates). While there's no "safe" investment, you may find stocks or funds that invest in dividend-paying companies can be a lower risk option. These include "Steady Eddies" like utilties and large consumer product companies.
And if it's yield that you're looking for, you should consider adding an allocation to real estate-oriented funds.
For a more specific allocation tailored to your needs, consider reaching out to a qualified financial planner or investment adviser.
There are a host of differences between a savings account and a Roth IRA.
First, a savings account is typically offered through a bank. As a bank deposit, these funds are guaranteed by depositor insurance in case the financial institution were to fail. Because these accounts have little risk, you are paid an interest rate that reflects this. You'll find savings account interest rates hover near 0%. You'll also receive a Form 1099-INT from the bank annually (assuming you earn at least $10 per year in interest) that will also be reported to the IRS. You'll have to include this interest income on your tax return which will become part of your taxable income. Savings accounts are great vehicles to build up money that you can access for emergencies or unexpected expenses.
A Roth IRA is a retirement account. You can set these up through a bank, brokerage firm, mutual fund company, or an investment management account through a Registered Investment Advisor.
With a Roth IRA, you'll have access to a variety of investments beyond just a money market account, which is the closest approximation with a bank savings account. You may invest in stocks, bonds, mutual funds, unit investment trusts, master limited partnerships, and more. You have a greater potential for gain and accordingly have more risk and exposure to volatility in returns.
Unlike a savings account, you do not need to pay taxes on earnings (dividends, interest or capital appreciation) each year. And in retirement, you do not pay income on these earnings either. Why? Because you don't take a tax deduction for contributions to a Roth, you are investing "after-tax" money" so you don't pay taxes on the gains later when you make withdrawals in retirement.
Another feature of a Roth IRA is that you don't have to take distributions in retirement. Unlike a traditional IRA or your 401(k) plan at work, you are not required to take any distributions. You could, in effect, choose to let the money compound through retirement and then potentially leave a bigger pie as a legacy for your beneficiaries who inherit the funds.
Unlike a savings account, there are limits on how much you can contribute each year based on your age and adjusted gross income.
One great feature of a Roth IRA is that you can access your principal (what you contributed from time to time) without a tax penalty for early withdrawals. There are exceptions that allow investors to access the funds to help pay for college or a first-time home purchase. This is why these are great savings vehicles by parents of college-bound students or by students themselves. Unlike a 529 savings plan which requires the funds to be used for qualified education expenses, a Roth IRA can be used for other things allowing more flexibility. So a parent wouldn't have to tie up funds in a 529 for a student who might not use the funds because he chose not to go to college or trade school, or received a scholarship and didn't need the 529 funds.
There are two parts to this question as I understand it: Social Security withholdings on earned income and taxation of Social Security benefits.
As is the case with most things in life, it depends. In this case, it depends on which question you're asking. For completeness, I'll cover both.
If you're still working, whether in a self-employed capacity or for an employer, then the answer is a very simple 'yes'. As long as you are working and earning an income, then you'll be required to contribute to Social Security.
For the other side of this question, you may or may not need to pay taxes on your Social Security benefits. This depends on whether or not your Modified Adjusted Gross Income (MAGI) is above a certain threshold that depends on your filing status (i.e. single or married filing jointly, for instance).
Up to 85% of a taxpayer's Social Security benefits may be taxable. This will depend on your MAGI and filing status: above $32,000 and filing jointly, or above $25,000 and filing single, head of household, or filing separately.
To calculate your MAGI,
- Take one-half the total of your Social Security or Railroad Retirement benefits from your SSA-1099 or RRB-1099 (these are reported on Form 1040, line 20a);
- Add earnings from W2s (Form 1040, line 7);
- Add taxable interest from 1099-INTs (Form 1040, line 8a);
- Add ordinary dividends from 1099-DIV (Form 1040, line 9a);
- Add other gains from Form 4797 (Form 1040, line 14);
- Add IRA distributions from 1099-R (Form 1040, line 15b);
- Add taxable pensions from 1099-R (Form 1040, line 16b);
- Add Schedule E income (rental real estate, royalties, partnerships, etc.);
- Add farm income (Form 1040, line 18);
- Add unemployment compensation (Form 1040, line 19)
- Add any other income that is reported on Form 1040, line 21;
In addition to these forms of income, you also need to add back any tax-exempt interest from investments like municipal bonds (reported on Form 1040, line 8b).
Whether or not you are exempt from tax will depend on your filing status, the amount of the gain, and your occupancy status for the property sold.
Under Internal Revenue Code Section 121, you only pay taxes when your gain is more than $250,000 above your 'basis' if you are a single filer, or $500,000 if you are filing jointly.
Your gain is figured by determining your basis. Your basis consists of what you originally paid for the property plus certain closing costs at the time. Then you add in major home improvements (i.e. new kitchen, adding a room, etc.). Then you add in whatever real estate transaction fees you incurred.
To figure out the gain, take your sale price less this 'basis'. If the difference is less than $250,000 (single filier) or $500,000 (filing jointly), then you will have no tax on any of your gain.
You will need to file a form with your taxes to document this.
To best determine whether or not your property sale is exempt, you may want to speak with a qualified tax planner. You can also review the relevant IRS publication: https://www.irs.gov/publications/p523/ar02.html
All of the options you outlined make sense. The one that fits best for you depends on your circumstances. I know, no one wants to hear 'It depends," but in this case it does.
Let's look at each of the options.
Prepay the auto loan- In this market, with relatively low interest rates on loans, you may not get the biggest bang for your buck (or $320 bucks in your case). Assuming that you have a fixed-rate loan, any amount you prepay will not change your monthly required payment. Yes, it will reduce your principal and shorten the actual loan term which will save you interest that isn't otherwise tax deductible anyway. Don't get me wrong here. I'm a big proponent of prepaying stuff. In fact, I have one car which was prepaid more than two years early and is now freeing up $500 per month in my household budget. And by adding an extra $150 per month to a mortgage, I turned a 30-year loan into a 20 year loan. And now, I'll be freeing up $450 per month.
Save It- If you don't otherwise have an emergency fund, this might be a good way to get things started. You should try to target enough to cover your fixed overhead for a few months. To do this, I generally recommend looking at saving at least 10% of your net take-home pay. But this lump sum could be a way to add to this savings budget. Here's a hint; put the funds in an account that you can't easily access from an ATM. There are a lot of online banks that can be used that you can link to the account you use for your daily money needs. But at least you won't be tempted so easily to dip into it.
Other Urgent Expenses- It depends on what these are. If we're talking about the latest 'must have' electronics gadget or splurging on a vacation when you don't have an emergency fund, then the answer would be 'no'. If we're talking about car expenses and you need that car for work, then more likely 'yes'. There will always be urgent expenses (If you're a parent, then you can multiply this). All the more reason to have funds saved so that you can be able to pay these without having to take out a loan or accumulate a credit card balance or worse, a credit card advance.
Retirement- While you didn't ask, I thought it a good idea to address this. It's never too early to start saving. But if you haven't got a deep enough emergency fund, then saving for retirement may just lock up your money in a place that you'll end up tempted to break into to get access which will leave you with less anyway after you pay taxes and penalties.