When our clients come to us for assistance, one of the most common concerns is figuring out how they should address a diverse range of financial goals. This challenge is especially prevalent among younger clients, who are faced with both opportunities and challenges when structuring their investments. 

Young professionals need to carefully balance how they manage their investments in order to meet both short-term and long-term goals, and must also regularly update their portfolios as their circumstances change. When done successfully, they will be well-positioned for the future.

The Financial Circumstances of Young Professionals

Before deciding how they should prioritize their financial goals, young professionals should first assess their financial circumstances. Naturally, each person’s income, expenses, and goals will be different, so creating an investment budget is a useful first step.

Starting a career may be the first time a young professional is handling a complete household budget. Once they have accounted for rent, utilities, groceries, and other essential expenses, along with how much they want to spend on non-discretionary items like dining out and entertainment, they can determine the goals they want to achieve with their leftover income.

Some common aspirations for young professionals include:

The Risks of Hyper-Focusing on a Single Goal

We sometimes see that young clients are zeroing in on one goal, such as supercharging their retirement portfolio or tackling their student loan debt, and giving less attention to others. In doing so, they hope that they can achieve a goal more quickly and be better positioned to address others. Unfortunately, this strategy risks the possibility that some goals may go unfulfilled.

Here’s how hyper-focusing on a single financial objective can be detrimental:

Investment timelines

Each financial goal will come with its own timeline, which can also guide the investment strategy that is best suited to meet it. Short-term goals include the down payment for a house, paying off credit card debt, establishing an emergency fund, or acquiring enough capital to start a business. Saving for these goals should focus on building up the assets, keeping them liquid so they are easily accessible, and minimizing risk.

Medium-term goals, which can take up to a decade to complete, include paying off student loans, saving for a child’s higher education, completing significant home renovations, and starting a family. Investments toward these goals can assume more risk due to the longer timeline, though a gradual adjustment toward lower-risk investments should occur over time.

Longer term goals include retirement and general wealth accumulation. Investing toward these goals can take place over several decades, and use more aggressive strategies at the outset to maximize gains. By regularly contributing to these funds, periodically rebalancing a portfolio, and taking advantage of compounding interest, the lengthy investment period can potentially build up a substantial balance.

Balancing investments as a young professional

The challenge for investing as a young professional is that so many goals still lie before them, and they are often trying to achieve several goals over varying periods of time. Some general strategies that can be useful for young professionals to work toward these goals include:

To set up a meeting with one of the financial advisors at Grey Ledge Advisors, call 203-453-9075 or use our online contact form.

One of our favorite things to say at Grey Ledge Advisors is, “You have enough.” With these three words, we can deliver the joyful news that a client’s retirement savings will allow them to comfortably retire.

Choosing when to retire can be a tricky question. In order to exit the workforce and enjoy a stress-free retirement, you need to determine an amount that can cover all the anticipated expenses of your post-work life.

Our financial advisors work with each client to determine their individual needs and when they have hit this magic number. While this figure is different for each person, there are several things you’ll need to consider to determine if you’re ready to retire.

How much is “enough” for you?

There are essential expenses that retirement savings must cover, such as housing, food, health care, and taxes. However, retirement also tends to come with substantial lifestyle changes. One needs to be prepared not only to meet regular expenses, but also to pursue any goals they hope to achieve.  

Here are some of the key things to take into account when determining if your retirement savings are enough to support your preferred lifestyle:

Sources of retirement income

The goal of retirement is to have enough money saved up that you’ll have a steady source of income in your later years. These funds can come from a variety of sources, so you’ll need to consider all potential options when determining if you’re in a good position to retire:

Important things to remember 

Certain factors will determine whether the money you’ve saved is enough to support your retirement and meet your individual goals. It’s important that you remember them as part of your planning:

Retirement planning calculations

There have been various suggestions on how to calculate whether you have enough saved up to retire. One is the “4 percent rule,” which suggests that you have enough on hand to subsist on withdrawing 4 percent of your assets each year — which allows the funding to last for about 30 years. To determine if you’ve reached this threshold, you simply need to multiply your desired retirement income by 25.

Another option, known as the replacement ratio, suggests dividing your estimated annual retirement income by your pre-retirement income. If you can hit a target of 70 or 80 percent, this calculation suggests, you’ll be able to retire.

While these calculations can provide a good reference point, they are not sufficient to account for factors like market volatility, lifestyle changes, or inflation. They also tend to be less accurate for longer lifespans, especially those involved in early retirements.

By meeting with a financial advisor, you’ll be able to carefully weigh all of the factors affecting your retirement planning and get a customized plan that meets your needs. To set up a meeting with a team member at Grey Ledge Advisors, contact us online or call 203-453-9075.

Between the tree trimming, gift purchases, and all the other assorted tasks of the holiday season, the end of the year is a hectic time. It’s also a time when we try to relax, enjoy time with our families, and think back on all that’s happened during the year.

Naturally, this often means that the end of the year is when we start thinking ahead to what we hope to accomplish in the year ahead. As you consider your financial goals for the coming months, you should also take the time to develop a comprehensive year-end review to assess your current financial situation and guide your decisions in the future.

By taking the following steps, you’ll be able to outline useful information for you and your financial advisor to determine your next steps.

Update your income and expenses

Take a look at all sources of income you’ve had over the past year. This should include your salary along with any additional income, such as bonuses, money earned through freelance work or other side jobs, and passive income such as stock dividends or earnings from rental properties. You should also consider any income from pensions, Social Security, or other retirement funds.

Do a similar review for your spending over the past year. This should include expenses for housing (rent or mortgage, utilities, insurance, maintenance costs, and property taxes), transportation (car payments, maintenance, gas, and insurance), food, clothing, healthcare, education, and debt payments. Add up any non-essential expenses as well, including money spent on entertainment or dining out.

This assessment will let you determine where you may be able to reduce your spending or expenses. You can also consider getting a budgeting app or starting a spreadsheet for real-time expense and income tracking in the new year.

Analyze your assets

A review of your assets should include anything of value. This includes cash, real estate, vehicles, investments, intellectual property, retirement savings, and valuables.

When reviewing your investment portfolio, check its performance against market benchmarks. If the portfolio is underperforming, you may want to rebalance it so it can better align with your investment goals and risk tolerance.

Be cautious when considering the value of certain assets. For example, when valuing your real estate holdings you should be mindful of any anticipated maintenance or repair costs, along with any factors that may influence property values. Make conservative estimates when valuing items like jewelry or artwork, as their value can vary significantly based on their condition and market demand.

Your review should also assess the current liquidity of your assets, or how easily they can be converted to cash value if necessary. If you anticipate that you’ll need higher liquidity in the new year, you’ll want to begin taking steps to adjust your holdings.

Review your debts

Evaluate any debts, or liabilities, that you currently owe. These may include your mortgage, vehicle loans, credit card debt, student loans, or personal loans. 

Once you have this information, you can calculate your debt-to-income ratio to determine how much of your gross monthly income is going toward debt repayment. A debt-to-income ratio of 36 percent or less is ideal, since it allows for greater financial flexibility.

By regularly reviewing your debts, you can determine a debt repayment plan that works for you. Focusing on higher interest debts will help you save money over the long term. You may also be able to use debt consolidation strategies to save on monthly payments.

Calculate your net worth

Once you’ve completed the steps above, you can simply subtract your debts from your assets to determine your net worth. This measure provides a useful look at your overall financial well-being, helps measure how well you are progressing toward your financial goals, and identifies where you might need to make improvements.

If you want to track your net worth over time, you can create a net worth statement to update the value of your assets and debts at regular intervals.

Review your retirement savings

Check the current balance of your 401(k), IRA, or other retirement accounts. Estimate how much retirement income you are likely to need based on your desired lifestyle, healthcare costs, inflation, and other factors.

Using this information, you can assess your current savings strategy and determine if it is adequate to meet your retirement savings goals. Your financial advisor can review this information with you and determine what changes you may need to make.

Check your insurance coverage

Check your health and disability insurance to ensure that you have adequate coverage for potential medical expenses and lost income. You can also review any life insurance policies you have to determine if their coverage is enough to meet your family’s needs. Review additional insurance policies as well — such as those for your home, vehicles, and valuables — to see if they accurately reflect the value of these possessions.

Depending on your insurance coverage, you may want to update your insurance coverage to better reflect the value of your possessions. You can also review rates and coverage options to find potential savings.

Get ready for tax season

A financial advisor can help you identify strategies like charitable donations and contributions to tax-advantaged retirement accounts that can help you save money on your taxes. You can also review tax credits and deductions that may be available to you when it comes time to prepare your tax documents in the new year.

Consult with a tax professional for further information on maximizing your tax benefits.

Set your financial goals for the new year

A year-end financial review is an excellent way to get a complete view of your financial situation and identify any areas for improvement. This will help you identify specific goals to address in the new year.

Common financial resolutions for the new year include:

Once you’ve determined your financial priorities for the new year, you can create a plan for how to address them. A financial advisor can help you come up with strategies to address your goals, review your progress, and make any adjustments as needed.

In today’s competitive job market, a robust retirement plan can be a game-changer. SECURE Act 2.0, passed at the end of 2022, has made (or is phasing in) several changes to retirement planning that make it easier and more cost-effective for companies to offer retirement plans. The legislation also encourages employees to save for their future.

An easier way to start a plan

SECURE Act 2.0 offers a suite of benefits that make establishing and maintaining a retirement plan more cost-effective — thus helping smaller companies to start and maintain these benefits. There are now tax credits available to cover up to 100% of start-up costs for certain plans, as well as options to help offset employer contributions.

Small businesses with up to 50 employees can receive a credit covering 100% of administrative expenses (capped at $5,000) for the first three years of a new plan. There’s also an additional credit for employers with 100 or fewer employees to help offset the cost of employer contributions, up to $1,000 per employee.

If you don’t have an existing plan, you can create a streamlined deferral-only 401(k) or 403(b) starter plan with lower contribution limits. These plans are easier to administer and meet participation requirements automatically.

The legislation also makes it simpler for employers to offer Roth IRA contributions as part of their retirement plans. This option can be administered more easily, and will also appeal to employees who prefer making after-tax contributions to their retirement savings in order to make tax-free withdrawals later on.

Encouraging employee participation

Even when an employer offers a retirement plan, employees may not participate — often because they forget to opt in once they become eligible, or believe it’s preferable to retain more of their income in the present day. Failing to participate in a retirement plan is a major error, since it means an employee will miss out on an account’s potential for long-term appreciation and have much less money available in the future.

SECURE Act 2.0 aims to reduce non-participation by requiring plan providers to automatically enroll eligible employees in retirement plans established after December 29, 2022. This automatic enrollment will begin in 2025, with an initial contribution set by the employer between3% and 10% and an automatic increase of 1% each year to a minimum of 10% or a maximum of 15%. 

This requirement means companies take a more active role in helping their employees start and advance their retirement savings, while still giving employees the option to opt out. Note that some businesses are excluded from the requirement, including small businesses with fewer than 10 employees and businesses that are less than three years old.

Also starting in 2025, part-time workers who meet eligibility requirements (at least 21 years old and at least 500 hours of service in two consecutive years) will be able to contribute to a 401(k) or 403(b) plan if one exists. Currently, part-time workers can only make these contributions if they have worked for a business for three consecutive years.

A saver’s match incentive beginning in 2027 will further encourage retirement savings. This will offer a government-funded 50% match on contributions to an IRA or retirement account, up to $2,000 for eligible individuals or $4,000 for eligible couples. This replaces the current system of lowering eligible employees’ tax liability, with the funds being deposited directly into the recipients’ retirement accounts.

Flexible options

The SECURE Act 2.0 also builds more flexibility into how employers can put together their plan, and how employees can access it: 

Ready to take the next step?

A strong retirement plan isn’t just good for your employees; it’s good for your business. By offering a path to financial security, you can attract and retain top talent and keep your employees happy.

Grey Ledge Advisors can help you navigate the SECURE Act 2.0 and explore your retirement plan options. We’ll work with you to design a plan that fits your budget and helps you build a winning team. Contact Grey Ledge Advisors today to learn more.

Financial advisors handle portfolios of all sizes. Some clients have a modest sum left over to invest after accounting for their regular expenses. Others have millions of dollars they’re willing to put into the market in pursuit of strong returns.

With the growing awareness of accessible portfolio options, the misconception that you need a large amount of money to begin investing is fading. However, the amount you invest can still influence your investment strategies and goals.

Here are a few points to keep in mind:

Smaller investments won’t always affect your risk tolerance

Investing offers the potential to grow your assets more quickly than if you simply put your money into a savings account. People are sometimes wary of investing, though, since there is the possibility that your portfolio will lose value if the market dips or your investments underperform.  

For this reason, it’s important to create a budget as a first step. This allows you to compare your income, expenses, and contributions to other funds to determine how much money you can comfortably invest. 

Individuals who have a substantial amount of money available to invest will have a higher risk capacity, which means they’ll be better equipped to absorb losses on their investments without it affecting their financial well-being. For this reason, people who can afford to put more money into investing may have more risk tolerance and will pursue more aggressive high risk, high reward strategies.

People who have less money to put aside for investing are considered to have a lower risk capacity. Since a larger share of their income goes toward essential expenses, they may be more concerned about potential losses and financial difficulties if their portfolio loses value. As such, people investing smaller sums may prefer low-risk investments that offer lower returns but also greater stability.

Even if you only have a modest amount of money available to invest, you may be able to pursue a more risk-tolerant strategy if you take steps to ensure financial stability. One key step is to establish an emergency fund with enough money to cover three to six months of regular expenses. By having this dedicated account, you’ll have a safety net to address unexpected emergency expenses such as a major medical bill. This will give you a way to remain financially stable even if your portfolio loses value, allowing you to pursue investments that carry higher risks but can also produce higher returns.

Similarly, having a high risk capacity doesn’t necessarily mean that you’ll want to pursue a high-risk investment strategy. For example, if your goal is to set up an investment fund to leave to your children as part of your estate planning, you may opt for a lower risk capital preservation strategy.

Short-term goals may be prioritized with smaller portfolios

Whenever you invest your money, you should have your personal financial goals in mind. These may include long-term objectives, such as putting aside enough money to retire, and short-term objectives, such as building capital for the purchase of a home or your children’s college education.

If you have a large amount of money to invest, it’s easier to establish multiple investment strategies to pursue different goals. You’ll also likely want to contribute more money toward long-term goals, since adding capital to these investments will allow for stronger gains over the long timeframe. 

Those investing smaller amounts will need to weigh their options more carefully. It may be more challenging to pursue multiple goals with a smaller amount of funds, as this could minimize your gains. Short-term goals may take precedence over long-term ones; this priority could also necessitate a lower risk strategy, since you’ll want greater stability for certain goals (such as accumulating enough money to pay for a down payment on a house).

At the same time, investors with smaller portfolios shouldn’t lose focus on long-term investments, especially contributions to a retirement fund. Since these have a longer timeframe in which to gain value, even small contributions toward these goals can have substantial returns over time. 

Smaller portfolios should pursue more tax efficient investments

If you only have a modest amount of money to invest, you’ll want to minimize the tax impact on your portfolio in order to maximize your gains. This is particularly important for long-term investments like retirement accounts, which offer tax-advantaged options like IRAs or 401(k)s.

Some more short-term investment options will also allow greater tax efficiencies for smaller investments. These include 529 funds for education savings, where earnings are tax-exempt, and dividend-paying stocks.

Investors with larger portfolios will be more capable of spreading their investments across both tax-advantaged options and taxable accounts where gains are taxed as ordinary income. Even though these accounts will lose some value to taxation, they can also offer other advantages such as greater flexibility and higher returns.

Financial advisors provide helpful guidance for all portfolio sizes

Whether you have a lot of money to invest or a small amount, financial advisors are valuable partners who can assist you in building and maintaining your portfolio.

With smaller portfolios, a financial advisor can help you set realistic goals and create a sustainable plan for your investments. They can assist you with investment options that are well-suited for smaller portfolios, such as fractional shares and exchange-traded funds, and help adjust your strategy as your portfolio matures. 

Larger portfolios require more complex financial strategies and investment decisions, and financial advisors provide in-depth knowledge to assist with them. A financial advisor can also walk these investors through options for minimizing their tax liabilities and offer guidance on matters such as estate planning.

To set up a meeting with a financial advisor, contact Grey Ledge Advisors online or call us at 203-453-9075.

Every major life event comes with a transition period. It happens with children starting school, people getting hired for a new job, and couples getting married. In each of these cases, there’s the initial excitement over a new chapter in your life, the nervousness about what lies ahead, and eventually a comfortable routine.

Retirement is no different. Once you’ve reached that point in your life where you can comfortably leave the workforce and enjoy your newfound freedom, you’re likely to be excited early on, then grow more restless before becoming accustomed to your new situation. 

All retirees typically go through a few stages of retirement, whether it’s over a period of a decade or just a few years. Here’s a look at what you’re likely to experience in each stage, and how you might adjust your investment decisions along the way.

Pre-retirement

The pre-retirement stage occurs when you become more concerned about your post-career life than any advancement or change to the career itself. At this point, you’ll likely be satisfied to continue in your current role until it’s time to retire.

Retirement planning is essential during the pre-retirement stage, which typically extends about five to 10 years before your actual retirement. This is the time to see how your retirement portfolio is performing against your expected retirement needs; if you’re running a little short, you may need to use this time to catch up with additional contributions or possibly pursue a more aggressive growth strategy. If your savings are on track, you may want to shift to a more conservative strategy aimed at preserving the assets you’ve built up.

Assess your current debts and expenses as well as the income sources you’ll have in retirement, such as savings, pensions, retirement funds, investments, and home equity. You’ll also need to consider some major changes that come with retirement, such as changes to your health insurance that come when you move off an employer’s plan and the possibility of downsizing to a smaller home.

By meeting with a financial advisor, you can use this information to set your retirement goals and realistically plan for a lifestyle you’ll be able to afford. This planning should be an ongoing, flexible process that extends into your retirement, helping to ensure that you don’t outlive your assets and that you have enough to leave something behind for your loved ones or a meaningful charitable cause.

Honeymoon

As the name suggests, the honeymoon stage is marked by excitement and optimism over your long-awaited retirement. You’re now free to spend your time however you’d like! 

This is also a time when retirees tend to splurge a bit, dipping into their savings to take a long-awaited dream vacation. Although it’s a major expenditure, it will also take up a smaller share of your overall savings and won’t have as substantial an impact on its growth potential as it would if you tapped into it later in life.

This stage is a good time to track your income and expenses, monitor your investments, and see how well your assets are supporting you. Your financial advisor can discuss any concerns you may have, and recommend strategies to meet upcoming expenses such as the potential for higher health care costs.

Disenchantment

The honeymoon period is usually rather brief. After awhile, retirees start to feel bored or frustrated with the succession of wide open days, and may feel like they’ve lost their sense of purpose. 

This stage may also be accompanied by growing concerns about your finances and whether you’ll be able to meet your needs as your retirement extends for several more years. This can also be a confusing time to set a budget due to factors such as required minimum distributions from retirement accounts, Social Security eligibility, and unpredictable health care costs.

This is an especially important time to take long-term care expenses into account and meet with your financial advisor on how you can continue to prepare for them. You should also review and update any documents related to the transfer of your assets in the event of your death or incapacitation, including your power of attorney, will, and estate plan.

Reorientation

During the reorientation stage, you’ve had time to experience retirement and can now consider what adjustments you’d like to make. Reorientation is all about finding a new purpose and pursuing new passions now that you’ve decoupled from work. You may find yourself volunteering more, taking on new hobbies, or creating a bucket list of travel destinations.

Some retirees decide during this phase that they’d like to return to the workforce, although this is usually in a seasonal or part-time capacity. Doing so can help give more structure to your days while also bringing in some extra income.

If you’re earning extra money through a job, your financial advisor can discuss options for investing this money. They can also update your retirement plan to adjust for any financial changes that your reorientation may create.

Routine

In this final stage, you’ve established an identity and daily routine you’re satisfied with. This is similar to the routines that come with earlier adjustments in life, but you’ll have more self-direction in your decisions.

Your finances should also be routine, in that your income should be enough to meet your expenses. Your financial advisor can help you monitor your assets to make sure this is the case, and can also help you make any adjustments necessary.