Your twenties are an exciting time in one’s life and also an extremely important time to set the financial foundation for the rest of your life. In your 20s you must learn to transition from a lifestyle without significant responsibilities into the “real world” making your 20s a decade of tough lessons. Whether you’re on your own or still with your parents, trying to discover the best career or still in school you should look to your peers who have already been through it.

Here at Lighthouse Financial we believe this stage of your life is the “Building the Foundation” stage. Listed below we have five important ways you could help yourself build the foundation to achieve the ultimate goal of Financial Freedom sooner than later.

1) Pay Yourself First
The golden number is to try and save 10% of your annual income. One of the most important savings plans we should take advantage of are the “tax-deferred” savings plan your employer offers. Retirement may seem too far away to worry about, but the earlier you start, the better off you will be. Use the “Compound Interest Calculator” to see how much any savings each year could help you retire at the age you desire.
i. http://www.investor.gov/tools/calculators/compound-interest-calculator

2) Have an Emergency Fund
This is something people of all ages struggle with, but it’s important for individuals to understand the consequences of not having an emergency fund at a young age. A general rule of thumb is to try and have 3 to 6 months’ worth of expenses tucked away and easily available when needed.

3) Establish Credit
Building good credit in your 20s will allow you to make those bigger purchases later on in life. You should start by selecting a good credit card and focus on establishing smart credit card habits. Make sure you learn the differences between bad debt, good debt, and acceptable debt. Avoid the bad, use the acceptable debt wisely, and take advantage of the leverage of good debt.

4) Always be covered with Health Insurance
Many individuals in their 20s feel invincible when it comes to health. What they may not realize is that medical bills are one of the biggest causes of personal bankruptcy. You should take advantage of the health insurance your employer provides and if they do not offer you should take a look at https://www.healthcare.gov/ to see what kind of coverage you could afford. What many individuals do not realize is that health insurance is mandatory in the US, and individuals who choose not to have it are required to pay a fee of 2% of your annual household income or $325 per person each year. (Whichever is higher)

5) Invest in Yourself and your Career
Your career and your ability to create income is your greatest asset. In your 20s you should be more concerned with taking the job that offers you the most professional opportunity and not necessarily the highest salary. For many individuals, the biggest asset in their portfolio is their human capital. It is their ability to use their skills, experience, and talent to earn income throughout their lifetime. It is a great time to add to your resume by earning a master’s degree or taking professional certifications and training courses to broaden your professional horizons.

Choosing the right age to start Social Security benefits is one of the most important decisions in your financial life.  Unfortunately, most people are tempted to claim as soon as they become eligible at age 62.  This strategy results in reduced lifetime benefits for you and your spouse and may have a lasting impact on your financial future.

If you can afford to wait till full retirement age (FRA) between 66 to 67, or better yet age 70, you can substantial increase your monthly benefit.  If you start social security at age 62, you will receive 25% less per month than if you waited till FRA.  If you can wait till age 70, then your monthly benefit will increase 32% more than FRA benefit.  For example, if your FRA benefit is $1,600 then you would receive $1,200 at age 62 and $2,112 at age 70.  It is tough to earn a guaranteed 8% annual return in this interest rate environment!

According to the Social Security Administration, at whatever age you start receiving benefits, you will collect the same amount of total benefits if you live to your average life expectancy.  The average life expectancy for a male turning 62 is 83.9 and the average for a female is 86.3.

Taking your Social Security benefit early may have a huge impact on your spouse.  The spousal benefit is limited since he is eligible for a percentage of your benefit and a lower benefit equals a lower spousal benefit.  In addition, if your spouse outlives you he would be entitled to your full monthly benefit for the remainder of his life.  This is known as the survivor benefit.  Also, if you claim benefits before FRA, you lose out on a very valuable strategy known as “file and suspend,” where you wait till FRA, file a claim then suspend the benefit immediately.  This allows your spouse to collect on your record while their own social security benefit grows and he can collect on the higher benefit at age 70.

The cost-of-living adjustment (COLA) is updated on an annual basis and a lower starting benefit equals lower increases in the future.

Ultimately, the right strategy depends upon several factors including retirement savings, life expectancy, career earnings and goals.  The key is to understand all your options before making a decision.

As if the fiduciary standard meme isn’t enough of a debate these days, JPMorgan hopes that nobody notices how far away they are from relative suitability. In fact, the entire JP Morgan private banker model is to shovel as much $JPM product down clients’ throats as they possibly can. Mutual funds, mortgages, trust services, credit cards, etc. are all part of the dog and pony show when you become a client of the $JPM private bank. The overt attempt to stamp JPMorgan product all over a client’s portfolio is so far beyond any discussion of ‘fiduciary duty’ that it would make you laugh if you could stop crying. Here is the correspondence that we received – both the picture of the letter and the actual text. It is eye opening:

“So, where did the crack begin?

When JPM PB introduces a “metric system” about 7+ years ago, Senior Bankers were to be paid a discretionary bonus based on (1) net new AUM, (2) percentage change in revenue, and (3) net new clients. Fair enough. Except in a “tales you lose, heads I win” approach, management takes these metrics and then uses them to “quintile” you vis-a-vis your peers. Remember, I said “discretionary” bonus. Over time, the quintilling system got very opaque. Regardless of metric achievement, JPM needed to do well. Asset Management needed to do well, Private Bank needed to do well, and your team needed to do well. And of course, you needed to do well: as in high quintile. In other words, you might as well say: Mars needed to align with Saturn and the moon needed to be in lunar eclipse when bonus decisions were made.

Over the same time, an intense sales culture and product push evolved. Some of the older leaders and Senior Bankers began to understand that client retention, client service, and client advisory was not factored in to any of the metrics. Need new clients: well then, open up a custody account and get the fees discounted. Need percentage change in revenue: well then, hit it on any of the metrics. Need percentage change in revenue: well then, hit it on the big one-time transaction but be sure to shuffle the account to a junior person next year (or be saddled with a revenue decline next year when the transaction does not reoccur). The “integrated team”, which was once a trusted advisory partnership, became a source of “product push” partners from different areas (lending, alternatives, mortgages, etc).

Finally senior management has been parachuted in with people who have a sales manager mindset: all with view toward achieving month to month sales objectives. Client grids handed out with products on one axis and client names on the other: why doesn’t this client have a loan, a mortgage with us, even at one point: credit cards! Let’s look at your metrics. I need a pipeline list of your prospects, etc. etc. What new sales calls are you going on. Have you been cold calling?

All the while, solid client management people with years of experience are being pushed aside, not listened to. Compensation was easily down this year for most players. People are working hard, and the beast needs to be fed, the revenues and AUM must continue to increase. Compounding: more and more. There is no relief. there are plenty of junior people that are looking to jump in your seat. There is no respect. My manager doesn’t care about me. You must get new accounts, new AUM, increases in revenue. Hopefully enough to quintile you so you have another year to play. As for your bonus this year: well…Jupiter did not align with Mars, sorry. All the while, there is no time for good solid client advisory and relationship management: that, my friend, is not a metric. And if it is not a metric achievement, it is not valued.”

Loans, mortgages, credit cards – oh my! This certainly makes the fiduciary ‘do or don’t’ conversation pale in comparison. There is also an element of how much more blood can you squeeze out of a turnip? Once clients are loaded up with $JPM product what else can they be burdened with. This seems to be at the heart of this advisor’s issue. 

Written by:  Angela Poupart/AdvisorHub –Mar 25, 2015

Financial advisors get trained in taxes, of course, but they often just get a basic framework for how to structure investments. A CPA can bring a much deeper level of understanding to a client’s tax situation, here’s four reasons how:

1. Let’s face it – taxes are complicated.

From the Medicare surtax to the new, higher top tax rate, wealthy clients face a tax picture with widening complexity. Knowing how investments impact the tax picture — in ways that are not always obvious — can save clients big money.

For Example, will selling an investment this year produce gains big enough to trigger the Medicare surtax? Should municipal bonds be pursued as a source of tax-free income? A CPA can define this for you, avoiding unnecessary surprises come April 15..

2. Asset location is critical.

Investment professionals know that asset allocation is important, but so is asset location. The tax treatment of assets varies by which type of account they’re housed in. Bonds, for example, are better held in tax-sheltered accounts because their income is taxed at the ordinary rate of up to 39.6%. Stocks fare better in non-retirement brokerage accounts because long-term gains can be taxed at the favorable capital gains rate of 20% rather than the higher ordinary income rate.

Where assets are housed is a key component of Morningstar’s gamma factor, a way to calculate an advisor’s value. Proper asset location can boost returns by 20 to 50 basis points a year, Morningstar researchers have concluded.

3. Boomer clients are retiring.

You know the stats: 10,000 baby boomers retire each day, a pace expected to continue for the next 19 years. If your boomer clients haven’t already made the shift to retirement, they soon will.  Boomers need financial advice on how to minimize taxes and generate enough income.

Retirement withdrawal strategies are complicated. The rules of thumb around which accounts to tap, and when, may not work in all circumstances. For example, Some clients may be better off depleting their tax-deferred accounts early on in order to avoid a big tax hit late in retirement. Accountants take a holistic approach to retirement planning.

4. Tax returns show what you’re missing.

A talented accountant can spot not just missed opportunities for tax savings, but also potential gaps in a client’s financial picture. A CPA can review a tax return and understand where a client should be going with their wealth management.  Can your clients defer income to take advantage in a federal subsidy for health insurance on the new exchanges?  Are they contributing too much – or too little – in tax-deferred retirement accounts?

Currently, the financial advisory industry is in the midst of numerous regulatory changes with the most important issue involving the definition of “financial planner” and “financial advisor” and whether these titles require professionals to have a legal responsibility to put their clients’ interests first.  As the law stands now, only advisors registered with the SEC (or state regulator) are held to the fiduciary standard (Note: all financial advisors at Lighthouse Financial Advisors are registered with the SEC and adhere to the fiduciary standard).  Fiduciary standards are typically associated with professions such as medicine and law.

The difference is fiduciaries get paid to provide advice, while brokers get paid based on the investment products they sell.  Unfortunately, most consumers do not understand the difference.   The sales side of the industry is lobbying hard to keep the current standards in place, while the fiduciary advisors are working to create professional standards and mandatory disclosure to consumers.

The goal is to create a new profession that people will recognize for higher standards and personal care.  This will result in less expensive financial products, clear consumer information and more planning options for the middle class.