Fishing. The cool northwest air, sun peaking over the horizon, the roaring river sweeping in front of me.

Some of my favorite moments are spent in quiet, as I stand on the river bank rod in hand, waiting in anticipation. Moments like these bring me to life.

Yet if I am at all honest with you, I am not a good fisherman. I tend to be too impatient. I cast and by the time my fly lands in the water, I’m already casting in to a different spot. My timing is off. When it comes to investing for retirement, frequently investor’s timing is off. I find that there are many similarities between being a good fisherman and a successful investor. To be a wise investor it takes experience, discipline and sometimes a guide.

Now let’s think of these attributes in light of the current financial markets and the ‘doomsday’ media portrayal. It seems as if the waters of the market match up to a category 3 hurricane which are not typically conducive to catching fish or investing for retirement. So as a thoughtful investor, how should we react in moments like this?

Take into consideration the 3 aforementioned attributes: experience, discipline, and guidance.

Experience- Any experience in investing shows that the market is relentlessly in favor of the investor. Let us take into account the S&P 500. Over the last 20 years despite the “dot com bubble” and the “housing market crisis,” the S&P 500 is up over 300%.

Knowing the big picture statistics can help us understand the tendencies of the financial market.

Discipline- Don’t pull your line up! This goes for fishing and investing. When it comes to investing, people often miss out on market gains when they try to time the market. Taking money out of the market when it seems to be doing poorly you often times miss out on the biggest gains. In fact, 6 out of 10 of the market’s best days since 1995 have been within 2 weeks of the market’s worst days. Stay invested! It takes discipline.

‘If an investor stayed fully invested in the S&P 500 from 1995 through 2014, they would've had a 9.85% annualized return. However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 6.1%.” (JP Morgan, 2015 Guide to Retirement)

Guidance- Fear of the future can be debilitating, especially when it comes to investing. These thoughts and emotions can prevent us from making wise decisions. When overcome by this uncertainty, it is good to remind ourselves to ask for help.

If you are looking for a guide with your retirement plan, your Human Investing 401k team would love be that just for you. This is one of the many benefits of being a Human Investing 401k client, is to access our 8am-5pm Monday to Friday call line.

Sometimes when the fish aren’t biting and frustration sinks in, emotions get in the way of the true enjoyment of fishing. These are the times when it is important to take a step back and assess what I know to be true. It is important to invite people that know what they are doing to come alongside me. I often times enlist friends who are great fishermen to guide me, stand on the bank alongside me and bring me back to the basics of what I love. I’ve found doing this greatly increases my potential for success.

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Retirement Savings Contribution Credit (Savers Credit)

For anyone who has made a contribution to a retirement account in 2015 or is considering contributing in 2016, you might be eligible for an additional tax credit. The Retirement Savings Contribution Credit, also known as the Savers Credit, is a special tax break to low and moderate income taxpayers who are saving for retirement. This credit, in addition to other tax benefits for saving for retirement, can reduce or even eliminate your tax bill if you qualify.

Interestingly enough, a recent survey showed that only 12% of American workers with annual incomes of less than $50,000 are aware of the Savers Credit. In other words, the population that should know about this Savers Credit the most is under-informed. With hopes of raising awareness and equipping savers on how they could potentially pay less in taxes, see below for a brief Q&A on the Savers Credit on how it works and what you should know.

How much could the Savers Credit cut from my tax bill?

You can claim the credit for the 50%, 20%, or 10% of the first $2,000 you contribute to a retirement account depending on your adjusted gross income and tax filing status. Note that the largest credit amount a married couple filing jointly can claim together is $2,000 and the credit is a “non-refundable” credit. This means that the credit can reduce the taxes you owe down to zero, but it can’t provide you with a tax refund.

What retirement accounts qualify?

The Savers Credit can be claimed for your contributions to a 401(k), 403(b), and 457 plan, Simple IRA, Traditional IRA, and ROTH IRA. Note that you cannot claim any employer contributions to employer sponsored retirement accounts.

Am I eligible?

In order to claim a Savers Credit you must be:

• Age 18 or older

• Not a full-time student

• Not claimed as a dependent on another person’s return

Additionally you must meet the necessary income requirements. In 2015 the maximum adjusted gross income for the Savers Credit is $61,000 for a married couple filing jointly, $45,750 for head of household, and $30,000 for all other filers. The maximum credit you can claim phases out as your income increases. See the below table that outlines how much you can claim and at what income levels:

2015 Saver's Credit Credit Rate Married Filing Jointly Head of Household All Other Filers 50% of your contribution AGI not more than $36,500 AGI not more than $27,375 AGI not more than $18,250 20% of your contribution $36,501 - $39,500 $27,376 - $29,625 $18,251 - $19,750 10% of your contribution $39,501 - $61,000 $29,626 - $45,750 $19,751 - $30,500 0% of your contribution more than $61,000 more than $45,750 more than $30,500

This information can also be seen at on the IRS website. If you are eligible use the Form 8880 to claim your credit and other best practices.

Example:

Dan and Kailey are married and file jointly. He contributed $1,000 to his 401(k) and she contributed $500 to an IRA. Their 2015 combined AGI is $35,000. Therefore, each of them is eligible to claim a 50% credit for their contributions and together their credits are worth $750.

If you have questions on if you are eligible for the Savers Credit feel free to email or call us and we would be happy to walk you through this blog post in more detail and how you can best take advantage of this credit.

*Please note that Human Investing does not provide tax advice/guidance and you should contact your CPA with specific tax related questions.

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It doesn’t seem to matter where we are, bumping into one another at the grocery store, meeting up over lunch to catch up, or standing in each other’s kitchen’s; when my girl friends and I get together we inevitably talk about relationships. From my single friends I want to hear the updates on their dating life. From my married friends I’m listening to how life impacts that relationship and how it can endure. Without a doubt, relationships are exciting. I’ll even go out on a limb to say that it’s relationships that make the world go round. And while it’s thrilling to feel the rush of a new love, the joy of a steady friendship, or the deep comfort of a long-time connection, why is it that the idea of relating in this same way to our money makes our stomachs turn?

While we all may have a different reason for the way we react to money, turning a blind eye, claiming we don’t understand finances or sticking our heads in the sand; none of this helps us in the short run or the long run, for that matter.

Financial Finesse, a firm researching financial trends, compiled its 2015 Gender Gap in Financial Wellness report stating: “Women have a higher risk of outliving their money due to longer life expectancies, greater healthcare costs, lower lifetime earnings, and smaller retirement plan balances compared to men.” This could be viewed as really bad news, but what it also says is there is great opportunity for us to learn and grow, to make a choice to have a real relationship with our money. For those of you who are ahead of the curve I applaud you! You are getting real and the results of that are greater financial understanding leading to greater confidence in how you save, spend and even give.

For those of you still struggling to look at your spending habits or ask a question like “how do I balance a budget?” there is hope! First off, this is not a perfect science. Similar to our personal relationships, it’s about choice and commitment. As you learn you will grow. The funny thing about learning more about your money is that this new found knowledge will raise your confidence and leave you feeling better equipped to make financial decisions. As your confidence grows so does your outlook and behavior towards money. You may be on a very restrictive budget but there is nothing better than knowing where you’re ‘at’ and what you’ve got to work with (I promise this is true, even if it doesn’t feel good at first). I’ve always struggled with the ‘just give up your latte’ approach to budgeting just as much as I don’t like ‘if you want it, get it, you deserve it’ form of money management because it feels like a gimmick or dieting, both of which I dislike. Somewhere in the middle of this is a great relationship with your money! To find that great relationship it takes entering in and participating in an active way.

Just like we’ve all heard from the flight attendant:

If you are taking care of yourself, you are better equipped to take care of the one’s around you. That’s what I call purposeful power! One day at a time, one choice at a time.

So today, make a point to begin thinking about how you view your money; what you like about it and what you’d like to change, because it’s time and because it matters, and because you matter.

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401k’s are purposed for long-term retirement savings; for what comes after the working years. They are arguably our best means of influencing our financial futures – through diligent, faithful saving. Still, life happens. And what’s ideal doesn’t always copy and paste perfectly onto each of our own realities. Thus, there are sometimes¹ allowances that permit 401k participants to borrow dollars from their current accounts in the form of a loan. Though borrowing from a 401k is not the intended use of the account, we aren’t saying they’re always the worst option. What we are saying is that 401k loans are worth thinking twice about. And in my experience, there are a few points that consistently surprise people.

For example, do you know what would happen if you stopped working with a company while you had an outstanding 401k loan? In many cases, you’re left with two options:

1. Pay back the loan in cash within approximately 60 days

2. Default on the loan, and pay taxes and any applicable penalties on what’s owed

So, especially if you’re considering taking out a larger sum, it’s important to know the implications of what taking a loan means for both the short and the long term. See below for some more thoughts…

¹401k loans are not available through all 401k Plans, and the logistics of how they work and when they’re allowed can differ between Plans. With questions, call Human Investing at 503-905-3100 or email 401k@humaninvesting.com.

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The more I work through financial planning scenarios with individuals and families the more I realize how important it is to have a clear understanding of your social security benefit. A study in 2014 showed that 55% of retirees defined social security as their main source of retirement income and 88% responded saying that social security would need to be a steady source of income in order to meet retirement goals. These numbers make perfect sense due to longer lifespans, increased healthcare costs, and corporations using 401k accounts rather than pension plans. Now more than ever, it is becoming necessary to have a steady stream of income that has the ability to last the rest of your life.

The goal of this post is simple; equip you with tools on how to best take advantage of your Social Security benefit. See below for three things to consider when looking to get the most out of a program you’ve been paying into your entire working career:

1. The Waiting Game

Generally speaking, you’re eligible to receive 100% of your Social Security benefit at your full retirement age (FRA) which is currently between the ages of 66 and 67. If you decide to claim before your FRA, the benefit amount will be reduced. For each month you delay claiming Social Security your benefit increases until you reach age 70. If you were born between 1943 and 1954 here’s an illustration that provides some context to your benefit percentage:

Notice that between your FRA and age 70 your benefit increases at a rate of 8% per year. This is risk free rate of return that you receive just for delaying your benefit. Note that investors in the stock market who have the potential to lose 10% of their money in a given week are very pleased with an 8% rate of return in a given year!

2. Finding Break Even Points

Once you have an understanding of why it might make sense to wait to take your benefit, combine that with a knowledge of your personal health and family history, and you're ready to make an educated guess regarding when to take your benefit. Below are a couple key numbers to keep in mind.

Between 77 and 78

Is the age where an individual who files at FRA today catches up and exceeds the age 62 filer in total money collected. Also remember that the FRA filer has higher monthly payments going forward so the gap is only going to increase.

Between 80 and 81

Is the age where an individual who files at age 70 catches up with and exceeds the age 62 filer in total money collected.

Between 82 and 83:

Is the age when the age 70 filer catches up with and exceeds the FRA filer in total money collected. Many variables can factor into these equations such as; taxes, employment status, and other financial considerations. While I encourage you to dig into these calculations on your own, make sure to consult a financial professional (like Human Investing) when making these decisions.

3. Additional Income and Social Security

While there are many things to consider when filing for Social Security don’t forget how other income affects your benefit. Many people that I've spoken with about this issue commonly confuse "keeping" your benefit at FRA vs. "being taxed on" your benefit at FRA. The short of it is once you reach FRA you can keep all of your benefits, but you can also be taxed on those benefits contrary to what some people think. See below for a summary on the differences between keeping your benefit and being taxed on your benefit when accounting for additional income:

• If you work, and are full retirement age or older, you may keep all of your benefit, no matter how much you earn. If you’re younger than full retirement age, there is a limit to how much you can earn and still receive full Social Security benefits. If you’re younger than full retirement age during all of 2015, the government must deduct $1 from your benefits for each $2 you earn above $15,720. If you reach full retirement age during 2015, the government must deduct $1 from your benefits for each $3 you earn above $41,880 until the month you reach full retirement age. This brochure provides some additional commentary on how working income factors into your benefit.

• Some people have to pay federal income taxes on their Social Security benefits. This usually happens only if you have other substantial income (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return) in addition to your benefits. This link provides some more details on the taxes you pay on your social security when factoring in other income. Lastly, this web page gives the best example I've seen when factoring in taxes and Social Security.

By looking at the advantages of waiting to take your benefit, some break-even points, and tax strategies for social security hopefully you see that it takes time and effort to make the most of your benefit. It’s possible to literally leave tens of thousands, if not hundreds of thousands of dollars on the government's table if you’re not thoughtful in how you receive this benefit.

So, if you have questions on your Social Security benefit and how it affects your retirement timeline, feel free to email or call Human Investing at any point. We’d love to partner with you in making the most of this benefit.

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When investors experience market turbulence, it’s never fun. It’s a lot like being on a plane when the fasten seatbelt sign goes on and the wings of the craft start flapping like a bird in air. Our investment firm has experienced 30% of the worst days in the market since the year 1899, so we’ve endured our share of turbulence. The purpose of this note is to address participants investing in their 401k plan and to share lessons we’ve learned from the past.

1. Participants should understand what is “normal" turbulence in the stock market. A correction (aka turbulence) is typically defined by a decline of 10% or more with a “bear market” declining 20% or more. Although corrections and bear markets never feel good, they should be considered normal and expected. In the last 85 years, there have been 51 corrections or bear markets. In the last five years alone, we’ve had six periods of declines of nearly 8% or more. In short, normal never feels good but normal is normal.

2. As the Dow Jones has increased in value from the year 1987 (1,793) to today (16,000), the drops in point value don’t have the same impact as in earlier times. Take for example the one day crash in 1987 where the market lost 8% of it’s value in a single day with a 156 point drop. If that same sort of drop were to occur today, we’d need to see a 1,600 point plunge. The bigger number seems scarier on the surface but its impact as a % loss on the portfolio is the same. Put another way, 156 point drop today would not even be a 1% drop…

3. When thinking about what to do when turbulence sets in, participants MUST think about their personal timelines for their money. In most cases, for someone 50 years or younger, you’ll have 15+ working/investing years before retirement. During those 15 years you get the benefit of being able to buy into the market as it declines. Ultimately, without having to think about it, you are buying lower with the hope that the shares you are purchasing NOW will be worth more in the future. For those nearing retirement, the question about what to do is a bit more complex. At or near retirement making sure you have adequate cash and safe investments to cover living expenses is everything. Having several years worth of living expenses put aside in CD’s, cash, or money markets makes a ton of sense. This enables you to hold onto the stock or equity investments you have until the turbulence subsides.

4. Managing your emotions during the turbulence is wise. Much like unbuckling your seatbelt and walking around the cabin during a rough flight, making snap decisions about your 401k during turbulent times can be dangerous to your financial future. Again, although it does NOT feel good when the market(s) get choppy, acting prudently and slowing down can greatly benefit you and your retirement funds. One of the many benefits of being a Human Investing 401k client is access to our 8am-5pm Monday to Friday call in line. One of our advisors can walk you through all your options as well as give you advice based on your specific account. In the end, whatever you opt to do, your decision will be well thought out, informed and discussed.

There are many important lessons we’ve learned from the past. This note is intended to take those lessons and to provide you with some perspective and thoughts on how you might want to approach volatility in your account. In the end, if you have questions and want to talk it over with one of our advisors, please call us as we would be happy to hear from you.

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During my time leading our participant education efforts for the retirement plans we manage, I’ve received all kinds of questions. Questions ranging from, “How do I start a 401k?” to “What’s the best way to consolidate my student loans?” However, a question I’ve gotten more frequently is:

“If I have the ability to save more, should I pay off my mortgage or should I put more towards retirement saving?”

I feel like this question has been on people’s minds as our economy has made a nice recovery since 2008. For people I’ve talked with, the question has come up due to a change in financial circumstances such as; an inheritance or some form of windfall, the sale of a home, or a recent bonus. Regardless of the circumstances, these individuals have been sitting on this money in low interest rate saving accounts and are looking for ways to have their money work harder for them. While there is no all-inclusive answer, I’ll do my best to outline some of the pros and cons of paying off your mortgage/making additional payments or saving more toward your retirement account.

Your home.

You will not change the value of your home by contributing more to the mortgage, or even paying it off. If your house is worth $350k, it’s always going to be worth $350k until the market determines otherwise. When you put more money into paying off your house, it’s not doing anything to change the value of the house…you’re basically putting money into an illiquid asset that you can only access when you sell the home or take a HELOC.

Additionally, your house is most likely financed at a low/tax-deductible interest rate. Your interest rate might be in the 4.5% ballpark. With your tax deduction, you’re most likely paying a real interest rate of 3% to 3.5%. That’s pretty cheap money. If interest rates were much higher (like in the 8% to 9% range), then it would be a different story and paying off your mortgage might make more sense.

Investing.

When putting money into a long-term retirement account and investing appropriately, you’re building an asset that can grow at 9% per year, using the S&P 500 as a benchmark, over a long period of time. By putting money in, you’re actually giving those dollars the ability to grow over the years. Unlike putting money into your mortgage, your deferrals will directly affect the type of return and the growth of that account over time. So, the more you put in, the more you will get out in the end.

Example: Keep in mind that nothing you do, except making updates to your home, will increase the value of it. Compare that with an investment/retirement account. Let’s assume there are two different people…one has been putting a fair amount of savings in their retirement account, the other has contributed a much smaller amount. For the sake of the example, let’s call them Kelly and Chip.

Kelly has a $110k account. Chip has a $10k account. It’s 2014 and they are both invested in the Vanguard Target Retirement 2040 fund. The return on that fund in 2014 was 7.15%.

So, to start 2015 and without additional savings, Kelly now has an account worth $117,865 and has gained $7,865 just on return alone. Chip now has an account worth $10,715 and has gained $715 on return alone. Both are good, but Kelly is setting herself up to have a suitable retirement account. By the way, if we assume that neither Kelly or Chip contribute another dollar to this account forever, in the year 2040 (assuming an average 7% rate of return per year) Kelly will have an account value of about $640k, while Chip will have an account worth about $58k. That’s a huge difference! Personally, I’ll take the investment accounts over paying off my mortgage a few years earlier.

Regardless of your views on this specific question, know that if you’re wrestling with anything retirement account related feel free to reach out by phone at 503.905.3100 or email 401k@humaninvesting.com anytime. We would love to connect with you!

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A transplant to the Northwest, I recently developed a penchant for hiking. It’s necessary to point out the fact that I’m not a native of the Pacific Northwest, if only to highlight the amount of wonder that I experience every time I venture beyond the city limits. For me, every step reveals something new and exciting that I never encountered in the Midwest. Hiking in Ohio is quite literally a walk in the park compared to the trails out here, and I’ve learned the importance of being organized and prepared. Not long ago, I was packing for a trip to Mount St. Helens, going through my checklist, and my thoughts turned to retirement planning. In part because I knew that I had this blog to write once I returned, but also because I’m actually passionate about the subject. Much like hiking, planning for retirement requires some forethought and strategy. With that in mind, here are my top three hiking/retirement planning tips!

Don’t lose sight of the trail while hunting for Sasquatch...

We’re often asked, “what is the best investment?” This is a simple question that warrants a complicated answer because factors like age, risk tolerance, and estimated retirement date can all influence an individual’s investment strategy.

The Putnam Institute completed a study in 2012 that showed the impact of selecting the top performing investments quarter over quarter (labeled the “crystal ball strategy”) vs. increasing your savings rate. The study revealed that while the crystal ball strategy yielded a higher account balance than the base case, a 1% increase in savings rate “had a wealth accumulation impact 30% larger than the crystal ball fund selection strategy”. In other words, we can’t always control selecting the “best” fund, but we can control how much we save.

I’m not saying that we should stop trying to invest well, (or that we should stop hunting for Sasquatch for that matter). I am suggesting that focusing too much on finding the best investments, can distract from other facets of retirement planning that are just as important.

Quality gear is worth the extra expense...

The retirement planning side of this tip is that saving more now, will greatly impact your savings in the long run. This is something that we all know, but it can be difficult to commit to increasing your savings rate until you see the actual numbers. For example, saving in your 20’s and 30’s has a greater impact on your lifetime savings than saving later in life. Due to, compounding returns, someone who saves $4,000 a year from age 30 to age 40 will end up with a greater balance at 65 than someone saving $4,000 a year from 40- 65, assuming a 7% rate of return. I know that statistic seems hard to believe, but check it out, it’s true!

There’s always another mountain...

It’s important to remember that the day you retire isn’t the end of your journey. A 2012 CDC study reported that life expectancy is 78.8 years, which is up from 70.8 in 1970. The point being, often times when transitioning into retirement, retirees feel the need to preserve their “nest egg”. When in reality taxes, inflation, and health care expenses are eating away at their savings. By recognizing the dual purpose of retirement accounts; providing cash flow and growing for the future, you can climb the mountain right in front of you while also planing for the ones on the horizon.

Have questions about the transition from retirement savings to retirement income? We can help with that!

As far as the hiking goes, it’s going to take a long time for me to see all there is to see around the Pacific Northwest. Personally, Dog Mountain (seen on the right) is one of my favorites.

You should also note that if you’re hiking in the rain, “windbreaker” does not equal “rain jacket.” I may or may not have made that mistake.

Call or email us at 503-905-3100 or 401k@humaninvesting.com

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Chances are you drink coffee. I know I do...almost every day. It’s a habit that gets a hold of us somewhere early in our careers and it’s a hard one to kick. In fact, according to the Harvard School of Public Health, 54% of Americans over the age of 18 are coffee drinkers…that’s about 131 million people. According to the same study, Americans spend about $40 billion a year on coffee. That’ll wake you up! (horrible pun, I know). And I bet that if you’re reading this blog article, that means that you most likely fall into the demographic of “coffee drinker”…responsible, working, informed adult…those characteristics generally equal “coffee drinker”.

The Cost Today

So what does our coffee habit cost us? For this exercise, let’s assume that we buy one cup of coffee per working day and that (coffee/americano/latte/mocha [insert drink of choice here]) costs us $2.50, but really it’s $3 because we tip the friendly barista who conveniently works somewhere along the path of our morning commute. Let’s also throw in one weekend coffee for good measure. Do the math and that’s $18 per week, roughly $78 per month and $936 a year. So to answer the question “how much does our coffee habit cost us?”… on average about $1,000 per year.

The Real Cost

But if we dive a little deeper, how much is our coffee habit really costing us? To answer this, we need to think more long-term beyond our initial caffeine cravings. There’s a term we use in finance called “Opportunity Cost” that refers to the potential value of our money if we use it in a different way. So instead of buying coffee, what if we took that $1,000 per year and applied it to our long-term retirement savings? Exciting, I know.

Investing your coffee money for retirement: Let’s assume we’re 40 years old and will work until we're 65 years old, in other words, we have 25 years left until retirement. Let’s also assume that the $1,000 per year of forgone coffee is invested in our 401k account in a way that averages an annual growth rate of 9% per year. That 9% rate of return per year is an average of course, since the stock market is variable from year-to-year and is certainly unpredictable in the short-term. With that being said 9% per year is a fair average if you’re invested in stocks for 25 years.

Summary: 25 years, $1,000 per year, invested in a way to receive 9% per year (primarily US stocks)

At 65, our coffee money will be worth about $85,000. That means that our coffee habit is really costing us about $60,000 ($85,000 minus $25,000). To make it more impactful, the actual cost of a cup of coffee today is not $3…it’s almost $11 ($85,000 divided by 312 cups per year). That means that every cup of coffee you buy today could cost you almost 3 times what you think it does. That better be a good cup of coffee.

Lastly, factor in a matching contribution from your company and your $85,000 could be worth up to $130,000. Still using a cup of coffee as our currency, that is $16 per cup!

How to Respond

Since we now know our coffee is really costing us $11 or $16 per cup, we’re giving up a lot down the road to feed our habit today. I’m not suggesting to change a coffee habit, but rather a spending habit

The video below outlines a few tips I’ve learned over the years to make a great cup of coffee at home and still capture the morning glory that a cup of coffee brings without the cost of a coffee shop.

Disclaimer: I’m neither a barista nor an actor so bear with me and enjoy!

https://www.youtube.com/watch?v=i7Dsy4-ZqZk

French Press instructions:

1. Find a local coffee brewer and buy a 16oz bag of their coffee beans pre-ground to French Press (coarse grind)

2. Make sure you have a french press maker on hand. If you love coffee, this should be a mainstay in your morning routine.

3. Put about a half of an inch to an inch high's worth of your local course ground coffee into the bottom of the french press beacon

4. Using your tea pot, bring about 30 ounces or more of water to a boil on your stove top

5. Once the water has come to a boil, remove the tea pot from the oven burner and let it rest for about 30 seconds

6. Once the water has rested and come down from the boil, pour it into the French Press beacon making sure you douse all of the coffee grounds as you pour it in. Pour the water to the top of the French Press, or the desired amount of coffee.

7. Stir (aggravate) the grounds/water with a spoon

8. Put the French Press Plunger on top to hold in heat and let it sit for 4 to 5 minutes

9. Once 4 or 5 minutes have passed, slowly press the Plunger to the bottom of the French Press Beacon.

10. Pour into your favorite coffee mug and enjoy the amazing flavors that you won't get from Starbucks.

11. Insert $16 into your 401k account and invest accordingly.

Contact Human Investing with any questions about your investments or savings rates. Or how to make a great cup of coffee.

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In Human Terms: What exactly is a 401k?

Don’t you hate it when you’re hanging out with your friends or family and they use a word in the flow of conversation and you have no idea what it means? Well, after meeting with thousands of 401k participants over the years we realize that often times speaking about retirement accounts can turn into one of “those” conversations. That’s why we wanted to start a series of blogs titled In Human Terms. The goal of these posts are simple, to break down financial lingo to its simplest form allowing you to build on your financial vocabulary and create your own glossary.

With that being said, we thought there was no better place to start than asking the question, what exactly is a 401k? Many of us have one today or have utilized a 401k in the past, but there are few who know how it started, what it is, and some simple do’s and don’ts when participating in one.

How it Started

The section of the IRS code that made 401k plans possible was enacted in 1978 and was intended to provide workers with a tax break on their retirement savings. In 1980, the real birth of 401k plans occurred when a benefits consultant took the IRS code and created a simple, tax-advantaged way for employees to save for retirement. From there, different amendments have been made, but 401k plans have turned into the primary tool for Americans to save for retirement.

What it is

Unlike a Defined Benefit plan where the employer promises to pay a defined benefit to retirees who meet certain criteria, 401k plans are a type of Defined Contribution plan, where employees make automatic contributions that are deducted from their paycheck. This money, that is sometimes matched by the employer, is invested at the employees discretion into one or more funds provided within the plan. At a minimum, employees will have the ability to invest in stock, bond, and money market funds. If investments grow over time in employees accounts, the gains are left untaxed on a year-by-year basis until taken out in retirement.

Do’s and Don’ts

Do’s If your employer provides a match, take advantage of it. If you do not know what your match is, or if your company offers one, feel free to call us (503.905.3100) right now! Put together an investment strategy that makes sense for your time frame and check in about every 6 months. If the words "investment strategy" don't mean anything to you, we can help you make sense of your 401k and creating a strategy. We've found that the most successful strategies come from participants who take time to set up a good plan and stick to it. Understand the specifics of your plan. Having a greater understanding of things like vesting schedules, loan provisions, and contribution types, can affect how successfully you invest in your plan and can save you money over time.

Don’ts

• Cash out when you change jobs. Ideally you do not have to cash out a 401k, especially if you are under 59 1/2. The consequences are large. For example imagine you have a $50,000 401k account and you are 40 years old. By cashing out, it’s possible that between the 10% penalty and paying federal and state taxes, your $50,000 becomes $30,000.

• Think of your 401k as a bank. 401k loans can be costly, especially if you leave your company. Before using your 401k for a down payment on a home or to take a trip, give us a call and make sure that there isn't another option.

• Put all of your money in the safest investment option. While not always the case, often times using a money market limits your long-term earning power and puts you in a position where your account is actually losing purchasing power when inflation is included.

Like most things, 401k’s are not perfect. However, if you are looking for an efficient and effective way to save for retirement, they are one of the best tools out there. We look forward to hearing from you soon, if not be on the lookout for the next In Human Terms blog!

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You may have more options within your 401k plan than you realize. A large number of retirement plans are adding a Roth 401k feature, allowing for additional flexibility with how participants save for their future.

Similar to Roth IRAs, Roth 401k’s are funded with after-tax dollars and offer tax-free growth and withdrawals in retirement. You may have access to this benefit through your current retirement plan and not even know it. In fact, a study published by the Harvard Business School noted that, in plans offering the Roth 401k, less than 9% of total dollars in the plan were saved using the Roth feature*. Truly, this can be an excellent way for retirement plan participants to save. Check out the comparison below...

All in all, it’s important to know whether or not the Roth 401k option is available in your retirement plan. And if it is, should you use it? Should you save into both the Roth and the Traditional 401k? We understand that these questions (like many investment-related questions) aren't always simple. That’s why we’re here to help you understand your options. Questions? Worries? Doubts? Let’s talk about it.

Reach us at 503.905.3100 or 401k@humaninvesting.com

*Sources

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If you are looking for the best way to save for your kids’ future college expenses there isn’t necessarily a “one size fits all” solution. In fact there are a number of choices available, each with their own list of benefits and features. The 529 plan is probably the most common and well known option. Similar to a Roth IRA, a 529 plan offers tax-free growth as well as tax free withdrawals as long as the money is used for higher education expenses. This isn’t limited to major 4-year universities either. Most 2-year schools, community colleges, and trade schools qualify under the program.

In addition to tax free growth and tax free withdrawals, if you use your home-state sponsored plan (such as the Oregon College Savings Plan), your contributions may be deductible against your state income tax. These features make the 529 plan very attractive for those who want to maximize their savings for college.

One of the drawbacks of a 529 plan is the limited flexibility in the use of the money. For example, if your child does not go to college, or if they qualify for a scholarship, parents may have to pay a 10% penalty and income tax to otherwise access the money. So for parents who want to save for their children’s college but want to retain flexibility in case they decide to use the money for other purposes, then there is a better option.

For ultimate flexibility a parent can use a traditional brokerage account and invest the money for growth just like a 529 plan. With this option, you give up the tax benefits of the 529, but there are no restrictions on how the money is used and for whom. If the money is managed in a tax efficient manner, this can be a great alternative for many families.

One more option is a UTMA or UGMA account. These stand for Uniform Transfer to Minors Act and Uniform Gift to Minors Act. These accounts offer a middle ground between the two prior choices. On one hand, the money doesn’t have to be used for college expenses, but the account does have to be used for the benefit of the child only. There are also some tax benefits to these accounts as some of the growth may be taxed at the child’s tax rate, which is typically lower than the parent’s rate.

In summary, if you want the best plan to purely maximize college savings, the 529 is the best option. If you still want to provide savings for your kids, but aren’t 100% certain if you’ll need access to those funds down the road, then the other choices can be managed in a way to provide a very similar benefit, while providing additional flexibility.

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