Should I save now or save later?

Should I save now or save later?

Fact of the matter is, the longer you put anything off, harder it is to get started on it later. Though you may feel that today’s expenses are a lot to take one with your current salary, there are still ways you can save for your retirement. if you wait to save for retirement, you risk not saving enough for retirement.

If you choose to save even a small amount each month, you may be able to save a great amount over time. One useful method is to choose a dollar amount or percentage of your salary every month to pay into your retirement savings. With this method, you will be essentially treating your retirement as a required expense.

Here’s a hypothetical example of the cost of waiting. Two friends, Chris and Leslie, want to start saving for retirement. Chris starts saving $275 a month right away and continues to do so for 10 years, after which he stops but lets his funds continue to accumulate. Leslie waits 10 years before starting to save, then starts saving the same amount on a monthly basis. Both their accounts earn a consistent 8% rate of return. After 20 years, each would have contributed a total of $33,000 for retirement. However, Leslie, the procrastinator, would have accumulated a total of $50,646, less than half of what Chris, the early starter, would have accumulated ($112,415).

This example makes a strong case for an early start on saving so that you can take advantage of the power of compounding. Your contributions have the potential to earn interest and so does your reinvested interest. This is a great example of having your money work for you.

Suppose you have trouble saving money on a regular basis. Try savings strategies that take money directly from your pay check on a pre-tax or after-tax basis. Examples of this include employer-sponsored retirement plans and other direct payroll deductions.

Which ever method you choose, it’s extremely important to start saving now and not later. Even small amounts can grow to large amounts in the future. Another saving strategy you could try is to increase contributions by as little as 1% each year as your salary grows.

For more information on saving for retirement, click here or call us today at 201-342-3300. One of our associates will be happy to speak to you.

Refinancing Methods

Refinancing Methods

As you may know, fixed mortgages were almost at their lowest in almost 30 years. If you are one of the many people who took out mortgages a few years prior to that, you may be wondering if you should look into refinancing.

If you have a mortgage that was taken out within the past five years, it may be worthwhile to if you can get the financing at least one or two points lower than your current interest rate. You should plan on staying in the house long enough to pay off the loan transaction charges.

Based on your situation, you will have to see which type of mortgage suit you best. For example, if you plan on staying in your home for several years, and the current interest rate is rising, your best bet is a fixed-rate mortgage. Conversely, if you will be moving within a few years, an adjustable mortgage would be best. Please make sure that you will be able to cover the increasingly higher payments in the event that interest rates rise.

One way to use refinancing to your advantage is to take out a new mortgage for the same duration as your old one. The lower interest rate will result in lower monthly payments.

For example, if you took out a $150,000 30-year fixed-rate mortgage at 7.5 percent (including transaction charges), your monthly payment is now $1,049. Refinance at 6 percent with a 30-year fixed-rate mortgage of $150,000 (including transaction fees), and your payment will be $899 per month. That’s a savings of $150 per month, which you can then use to invest, add to your retirement fund, or do with it whatever you please.

Another option is to exchange your old mortgage for a shorter-term loan. Your 30-year fixed-rate payment on a $150,000 loan was $1,049 per month. If you refinance with a 15-year fixed mortgage for $150,000 — including transaction costs — at 6 percent, your monthly payment will be $1,266. This payment is only $217 more than your previous mortgage, but your home will be fully paid for several years sooner, for a savings of more than $150,000! And some banks around the country are beginning to offer 10- and 20-year mortgages.

If you are considering refinancing your home, please consider speaking to one of our financial advisors at Federal National Funding by calling 201-342-3300.

Effects of Inflation

Effects of Inflation

If you have long term savings goals such as saving for your children’s college education, or retirement, you’ll want to read today’s blog on the effects of inflation.

To put it simply, inflation is the increase of the price of products over time. The rate of inflation fluctuates over time, sometimes it can run high, other times, it’s so low we don’t notice. But all these fluctuations are generally short term, what we need to focus on is the long term.

Over the years, inflation can chew away at the purchasing power of your income and wealth. This means that even as you save and invest, your wealth buys less and less as time goes on. Those who put off investing and saving will feel this impact even more.

While one cannot deny the effects of inflation, there are ways to fight them. For starters, you should own at least some investments whose potential return is greater than the inflation rate. For example, if a portfolio earns 3% when inflation is at 4% the investment will lose purchasing power over time. While past performance isn’t an indicator of future results, stocks have provided higher long term returns than cash alternatives or bonds. Still, one has to be aware that even with that potential, there is greater risk and potential for loss. Because of this volatility stocks may not be the best option for the money you count on being available in the short term. You will also have to think about whether you have the financial and emotional capacity to ride out these ups and downs as you pursue higher returns.

Diversifying your portfolio — spending your assets across a variety of investments that may respond differently to market conditions — is one way to help manage inflation risk. However, diversification does not guarantee a profit or protect against a loss; it is a method used to help manage investment risk.

Remember, all investing involves risk, including the potential loss of principal. There is no guarantee that any investment will be worth what you paid for when you sell.

For more information about the effects of inflation, or for more strategies to fight against it click here, or call Federal National Funding today at 201-342-3300. One of our associates will be happy to speak to you.

How long will it take to double my money?

How long will it take to double my money?

The simplest way to figure this out is by utilizing the Rule of 72. The Rule of 72 is a tool that investors use to determine how long it will take for their investment to double in value.

How does the Rule of 72 work?

Let’s lay it out with an example, if you invest $10,000 at 10 percent compound interest, then the Rule of 72 states that in 7.2 years you will have $20,000. You divide 72 by 10 percent to get the time it takes for your money to double. The Rule of 72 is a rule of thumb that gives approximate results. It is most accurate for hypothetical rates between 5 and 20 percent.

I just figured out how long it will take to double my money with the Rule of 72. Is that all?

While to rule of 72 is a great ally to investors in helping them figure out how long it will take to double their money, one needs to remember inflation.

Compound interest is a good tool for investors, but it does not erase the effects of inflation. The real rate of return is the key to how quickly the value of your investment will grow. If you are receiving 10 percent interest on an investment but inflation is running at 4 percent, then your real rate of return is 6 percent. In such a scenario, it will take your money 12 years to double in value.

To learn more about the Rule of 72, click here. If you would like to learn more about us at Federal National Funding, click here, or call us at 201-342-3300. One of our associates will be happy to speak to you.

Difference Between Annuities

What is an annuity?

To put it simply, an annuity is a contract with an insurance company in which you would make one or more payments in exchange for a future income stream in retirement. Funds in an annuity accumulate tax deferred regardless of which type is selected. Because you do not have to pay taxes on any growth in your annuity until it is withdrawn, this vehicle is an attractive way to accumulate funds for retirement.

For more information on the basics of annuities, watch this video.

There are a several types of annuities, but for now we will focus on the four most common ones: fixed, immediate fixed, deferred fixed, and deferred variable.

Fixed Annuities

With a fixed annuity, you can fund it either with a lump sum (say, with the proceeds from a large gift) or with regular payments over time. In exchange, the insurance company will pay and income stream that will last a specified period of time.

Fixed annuity contracts are issued with guaranteed interest rates. Although this rate may be adjusted, it will never fall below a minimum rate that has been specified in the contract. This guaranteed rate acts as a “floor” to potentially protect a contract owner from periods of low interest rates.

Additionally, fixed annuities provide an option for an income stream that could last a lifetime. The guarantees of fixed annuity contracts are contingent on the financial strength and claims paying ability of the issuing insurance company.

Immediate Fixed Annuity

Usually, an immediate annuity if funded with a lump sum premium to the insurance and payments begin within 30 days or can be deferred up to 12 months. Payments can be made monthly, quarterly, annually or semiannually for a guaranteed period of time or for life (whichever is specified in the contract). Only the interest portion of each payment is considered taxable income. The rest is considered a return of principal and is free of income taxes.

Deferred Fixed Annuity

With this type of annuity, you can make regular payments to an insurance company over time and allow the funds to build an earn interest during the accumulation phase. During this process, taxes are postponed, and you get to keep more money to work and grow for you. This means that an annuity may help you accumulate more over the long term than a taxable investment. Any earnings are not taxed until they are withdrawn, at which time they are considered ordinary income.

Deferred Variable Annuity

Rather than fixed returns, a variable annuity provides fluctuating returns instead of the usual fixed ones. The key feature is that you get to choose how to control and invest your premiums by the insurance company. Therefore, you decide how much risk you want to take on and you also bear the investment risk.

Most variable annuity contracts offer a variety of professionally managed portfolios called “subaccounts” (or investment options) that invest in stocks, bonds, and other vehicles. A part of your contributions can be placed in an account that offers a fixed rate of return. Your premiums will be allocated with the subaccounts you select.

Unlike a fixed annuity, with pays a fixed rate of return, the value of a variable annuity contract is based on the performance of the investment subaccounts you choose. These subaccounts will fluctuate according to market conditions, in fact, the principle may be worth less than you the original cost of the annuity when surrendered.

Another great thing about variable annuities is that they have the double benefits of investment flexibility and potential for tax deferral. The taxes on all interest, dividends, and capital gains are deferred until withdrawals are made.

When you reach a point where you want to receive income from your annuity, you can choose a lump sum, a fixed payout, or a variable payout. The earnings portion of the annuity will be subject to ordinary income taxes when you begin to receive income. Annuity withdrawals are taxed as ordinary income and may be subject to surrender charges plus a 10% federal income tax penalty if made prior to age 59½. Surrender charges may also apply during the contract’s early years.

Annuities have contract limitations, fees, and charges, which can include mortality and expense risk charges, sales and surrender charges, investment management fees, administrative fees, and charges for optional benefits. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing insurance company.

For an annuity quote, click here. If you would like to learn more about annuities, click here, or call us at 201-342-3300. One of our associates will be happy to speak to you. 

Depression in Seniors

Depression in Seniors

Is your elderly loved one more tired or irritable than usual? Are you noticing that they are eating less than normal? Have they lost interest in things they would normally enjoy and indulge in?

These are not typical signs of old age. These are common signs of depression.

Depression among seniors is unfortunately, more common than you might think. About one in five seniors in America have either full blown depression or a form of depression.

You may be asking yourself, what is depression? Depression is a common but serious mood disorder that effects millions of people around the world. It causes people to be less active in many areas of life, (eating less, going out less, sleeping more) and it can also be coupled with worry and anxiety. Depression is often considered synonymous with sadness, but it is a stretch. Often, people who are depressed often cannot pinpoint why they are depressed, because it’s caused by an imbalance of chemicals in the brain.

Sometimes symptoms of depression in seniors are confused with that of dementia. For example, slow movements and memory might be off with both dementia and depression affected elderly people. However, seniors with depression have no problem with remembering dates, places or things.

As for treatment, there are options. First off, there’s psychotherapy. This is where a social worker, or psychologist worth in hourly sessions with the client with proven methods to overcome the depression and to develop healthy coping mechanisms. Depending on the cause of the depression, solutions might vary. For example, if the depression is caused by loneliness, the solution might be to visit friends and family and community involvement. Another option is medication. Antidepressants are designed to regulate the chemical imbalance in the brain.

Unfortunately, there is a stigma associated with mental illness that is a greater among older people. Thus, many seniors will refuse to initially admit that they have depression. But if left untreated it can deteriorate the quality of life for a person. If you suspect that your loved one may have depression we recommend that you see a geriatric health care specialist.

College Financial Aid

College Financial Aid

If you are getting ready for college or have children who are nearing the end of high school, today’s blog will be well worth the read as we will discuss financial aid for college.

Financial aid can consist of the following: loans, grants, scholarships and work study. Grants and scholarships are preferred because they do not have to be paid back, unlike student loans which does have to be paid back with interest or work study which requires a work commitment. In general there are three main sources for college grant aid: the government, state higher education agencies, and colleges.

To be considered for any type of grant aid, you or your child should file for the federal government’s financial aid application (FAFSA). In addition private colleges, usually require the CSS Profile form of their own individual aid form. The FAFSA and CSS Profile can be filled out and submitted online (is free but the CSS Profile has a fee). Please note that these forms do take some time to fill out, but it will be worth it. Not only are these forms a prerequisite to various types of grant aid, but some colleges may require them in order for students to be eligible for college merit scholarships. Keep in mind that students must reapply for financial aid annually.

U.S. Government Grants

There are two main federal grants for college; Pell Grants and Federal Supplemental Educational Opportunity Grants (FSEOGs). Both are based on financial need.

The Pell Grant program is the United States’ largest financial aid grant program. Pell Grants are made available to undergraduate students with exceptional financial need and are the foundation of every undergraduate student’s financial aid package (for those who qualify). Graduate students are not eligible. Pell Grants are administered by the federal government and awarded on the basis of college costs and financial need. Financial need is based on factors such as family income and assets, family size and the number of college students in the family.

The second largest program is the FSEOG and it is available to students who present the greatest financial need. Priority is given to Pell Grant recipients. The FSEOG is a campus based program, meaning the financial aid office of each college administers it. Every college receives a certain amount of FSEOG funding from the federal government every year. Even if a student is eligible based on their financial need, the college may have already used up all the funds for that year.

State Grants

Many states offer programs as well, each one is different, and they tend to prefer state residents attending in-state schools. For more information, please contact your state’s higher education agency.

College Grants

Many colleges offer specialized grant programs. This is true for older schools with many alumni and large endowments. These grants are usually based in scholastic ability or financial need.

For more information on college financial aid, college funding click here or call our office at 201-342-3300. One of our associates will be happy to speak to you.

Avoiding Probate

Avoiding Probate

Many people will have their estate go through probate after they pass on. But what is probate? Why should we be concerned about it? And how can we avoid probate? On today’s blog we will answer all these questions and more.

Probate refers to the court proceedings that conclude all of your legal and financial matters after your death. The probate court distributes your estate according to your wishes—if you left a valid will—and acts as a neutral forum to settle any disputes that may come up regarding your estate.

There are a number of problems with the probate process that make it worth avoiding.

First off, the probate process may take a great deal of time. Often, it will take months or even more than a year—complex or contested estates can take even longer. With few exceptions, your heirs will have to wait until probate is over to receive their inheritance.

As for the cost of probate, it can vary from state to state depending on where it is carried out. Though all states require the payment of the court fees (which may only be a few hundred dollars), attorney fees will add significant amounts to this cost. Typically, attorney fees are based no what is reasonable for the tasks at hand. These fees can go up dramatically if the will is contested or when something extraordinary arises.

Depending on your state, probate and administrative fees can take up between 6 and 10 percent of your estate. That percentage is calculated before any deductions or liens are taken out.

Fortunately, there are strategies you can use to help avoid the probate process altogether. A trust may enable you to pass your estate on to your heirs without ever going through probate at all. While trusts offer numerous advantages, they incur upfront costs and ongoing administrative fees. The use of trusts involves a complex web of tax rules and regulations. You should consider the counsel of an experienced estate planning professional and your legal and tax advisers before implementing such strategies.

To learn more about avoiding probate, click here, or call our office at 201-342-3300. One of our associates will be happy to speak to you.

What is Asset Allocation?

What is asset allocation?

Asset allocation is about not putting all your eggs in one basket. It is a systematic approach to diversification that can help you determine the most efficient mix of assets based on your risk tolerance and time horizon.

What asset allocation seeks is to manage investment risk by diversifying a portfolio among the major asset classes (stocks, bonds, and cash alternatives). Each one has a different level of risk and potential return. At any given point, one asset may be increasing in value while another may be decreasing. Diversification is a way to help manage investment risk. And although asset allocation and diversification do not guarantee a profit or protect against a loss, it can help cushion the blow when one asset class drops in value.

You may protect your portfolio from a major loss from a single asset and ride out market fluctuations by dividing your assets this way. It is also important to understand the risk versus the return trade off—the greater the potential return, the greater the risk.

As a result, your portfolio should be based on your risk tolerance. Generally, you should not place all your assets in those categories that have the highest potential for gain if you are concerned about the prospect of a loss. It is essential to find a balance of asset classes with the highest potential return for your risk profile.

Other important factors to consider creating an asset allocation strategy are investment goals and time horizon. Ask yourself: what do I want to accomplish? Do you want to buy a new house or car soon? Do you want to pay for your children’s college education? When you retire, do you aspire to travel or buy a vacation home? You should consider all your aspirations when outlining an asset allocation strategy.

If you would like to learn more about asset allocation, click here, or for a more personal assessment to see what’s best for you, call our office at 201-342-3300. One of our associates will be happy to take your