Alphabet Soup: Financial Designations

Last week, we went over some of the acronyms that make up the alphabet soup of retirement planning. This week, we decided to cover some of the certifications that make up the alphabet soup of financial professionals.

This is not a comprehensive list by any means, and you may find people with more than one of these acronyms on a business card, but of one thing you can be certain: the people who have earned these designations underwent a thorough curriculum to earn the letters after their name, and most must complete continuing education in order to maintain them, meaning their knowledge is kept in check over time.

CFP® – A Certified Financial Planner® is an individual who has undergone rigorous testing and experience requirements in order to gain this certification. They are tested in detail on all facets of financial planning including investments, retirement planning, education planning, life insurance, property and casualty insurance, estate law, income taxes, etc. A CFP® is a similar certification to the CPA (Certified Public Accountant) of the accounting world. These people know a lot about a lot of different topics.

CPA PFS – This is a Certified Public Accountant who has gone beyond the CPA designation to become a Personal Financial Specialist, learning more about financial planning in order to assist their clients.

CFA – A Chartered Financial Analyst has spent a lot of time studying, gaining work experience, and taking 3 difficult examinations to become an demonstrate their knowledge in professional and ethical standards, investment analysis, and portfolio management – among other topics. Generally, these professionals work in institutional money management providing stock analysis, but your financial planning professional may very well carry this charter or work with someone who does.

CLU – Chartered Life Underwriters are insurance professionals who have completed coursework and examinations to demonstrate their knowledge in insurance planning, life and health insurance, insurance law, estate planning, business insurance, and risk management.

As always, if you have any questions about any of these designations or any that I didn’t mention, please feel free to email us at

Alphabet Soup: Retirement Accounts

Alphabet Soup

Personal finance is difficult enough as it is, but then throw in a bunch of acronyms, odd terms, and number-letter combinations and you have no idea what anyone is talking about when it comes to your investments, retirement, and future.

We want to give you a list of a few acronyms and their meanings so that you have a little bit of a better understanding when it comes to all of these fancy words people are throwing around; today, we are going to focus retirement accounts.

IRA – When it comes to retirement, IRA doesn’t stand for Irish Republican Army, but is instead of Individual Retirement Account/Annuity. An IRA is a retirement account that you open independently through an investment company. Individuals can save $5,500/year into one of these babies (subject to a few tax rules that you can read here), and if you are over age 50, you can save an extra $1,000.

A traditional IRA is tax deferred (you don’t pay taxes on the incomes you use for contributions this year, and must pay taxes on both contributions and earnings when you take money from the account) and a Roth IRA is not tax deferred (you pay taxes on the income you use to make contributions this year, and taxes are not due when money is withdrawn on both contributions and earnings).

myRA – This is a new one that you may hear pronounced as either Myra (like the name) or My-R-A; the “RA” again stands for retirement account. The myRA was first described in President Obama’s Address to the Nation in early 2014. The myRA is for individuals who do not have a retirement plan available through their employer; contributions are made to the account through direct deposit from the individual’s paycheck. The account follows the same contribution and taxation rules as a Roth IRA, but the account can only be used until the balance reaches $15,000 (including both contributions and earnings) or the account has been opened for 30 years, whichever comes first.

Maybe the most important thing to note about the myRA is that contributions can only made to a fund consisting of Treasury Bonds (much like the G Fund for those of you who know the TSP).

401(k), 403(b), 457 – Retirement accounts sponsored by a company or government organization for its employees. The letter-number combinations refer to the section of the IRS code that created these specific types of accounts. Through their paycheck, individuals can save a maximum of $18,000 (plus $6,000 if over age 50) pre-tax (similar to a traditional IRA).

These accounts are basically the same, with a few specific nuances that you can delve into further detail here, but the basic difference between them is that 401(k)’s are offered by private companies, 403(b)’s are operated by non-profits, school systems, and hospitals, and 457 plans are sponsored by local and state governments (including school systems) and the federal government (the TSP – or Thrift Savings Plan – is the federal government’s 457 plan).

Your employer may offer a matching contribution to encourage you to save into the plan, but it is not mandatory, and it is up to them to decide the how the match works (a match of 50% of all contributions up to 6% of salary or a 100% match of all contributions up to 3% of salary seem to be popular – or you can be complicated, like the federal government).

Now, the one note I absolutely have to make when it comes to contributing to these accounts is that annual contributions to all IRA accounts (including the myRA) are cumulative. This means that if you were to contribute to one or more of these accounts, you can only contribute a total of $5,500 (in 2015, $6,500 if over age 50). This only applies to IRA accounts and not to employer provided accounts (401(k), 403(b), etc.)

Wasn’t that taste of Retirement Account Alphabet Soup great? I know that you had so much fun that you can’t wait to check us out next week when we go through some acronyms that the financial professionals use!

Time is of the Essence


The average lifespan of today’s American citizen is a little under age 80. Gallup recently reported that the current average age at which American’s retire is 62, the highest age since Gallup started asking this question in 1991.

If we assume that the majority of college educated young adults begin their careers right after graduation by age 23 and retire at age 62, we have around 40 years to save for the last 20 years of our life. This may feel like a long time, and in this society of “gotta have it now,” saving for retirement is not in the forefront of our minds.

Time catches up with many of us, and 46% of Americans have less than $10,000 saved for retirement, and today’s workers are overall less likely to say they have saved for retirement than they did 10 years ago, and those age 25 to 34 have shown the largest drop (Employee Benefits Research Institute).

Navigating the retirement savings landscape is not easy for most of us, but the most important thing we can do as Millennials is develop the habit of saving. Make saving automatic and you may not even miss the dollars from your paycheck. And besides, isn’t it better to miss a few dollars now rather than miss them in retirement?

Financial Stress

Stress is one of the greatest influences in our lives. It can come from a myriad of places (school, work, home, friends, etc.) and has an impact on our daily lives and long-term health. Today, I want to discuss stress as it relates to finances.

When it comes to finances and money, there are plenty of things people stress about:

- Can I pay my bills this month?
– Am I saving too little?
– Am I saving too much?
– What is the stock market doing? Is it going too high and is it going to crash?
– Will I have enough money in retirement?
– Budgets are scary! Making one and sticking to it makes me anxious.

A 2014 study by Financial Finesse found that those individuals with the highest reported levels of financial stress were women under the age of 30 who had minor children and earned under $60,000 annually with 58% reporting high or overwhelming financial stress.

In order to help manage financial stress, we have come up with a few tips and tricks:

Use a secure budgeting and personal finance software: As we said before, budgets are scary! They make you face how much you are really spending and where you are spending it. Budgeting and personal finance software (such as those offered by Learnvest and, to name only a few) help you to track your spending by accessing your bank, loan, and credit card accounts and categorizing what you spent each month. If you aren’t comfortable using one of these services, there are spreadsheet templates online that you can use to help organize your own budget.

Plan in advance: Planning in advance can apply to many things. Mainly, we are discussing planning for a goal and planning for the unexpected. Want to go on vacation in a few months? It is probably in your best interest to start saving ahead for the trip rather than charging your card to the limits.

In terms of planning for the unexpected, life is a spectacular journey, and no one truly knows what could happen. Recently, I encountered someone who had all of their tires slashed by local hoodlums and did not have the money to pay to have them replaced. If an emergency fund had been prudently prepared, they would have been able to purchase new tires.

Live within your means: Not everyone can drive a Maserati, live in a million dollar mansion, or take annual vacations overseas. Keeping up with the Jonses doesn’t mean you’ll be as happy as they are, and who says they’re happy anyway? Stretching yourself too thin can bring stress with it that could quash any joy that your expensive toys or home brought with them in the first place.

Work with a financial advisor: Working with a financial planner can help you to create a plan for overall financial success. They have the knowledge and the tools to help you succeed. If you can find someone that you trust and enjoy working with, you will develop a fruitful relationship that reduce the stress that finances bring during all phases of your working life and retirement.

Do you have tips for managing financial stress in your life? Share in the comments below.

Saving for Retirement the Ronco Way

Who can forget the Ronco infomercials from our childhood? The ones where Ron Popeil would stick four chickens in a countertop rotisserie cooker and the audience would shout “SET IT AND FORGET IT!” with so much enthusiasm that you knew they must have been getting some kind of compensation other than a perfectly done chicken.

I can see you sitting here reading this saying “What in the world does this have to do with retirement?” It’s simple, actually. I want you to think about saving for retirement the Ronco Way – to “SET IT AND FORGET IT!”

Now, there are many things I can mean by this, but here is just a sample:

Automate your savings: Whether it is enrolling in your employer’s retirement plan and having a certain percentage of your salary withheld each paycheck or setting up an auto-draft from your bank account into an IRA, creating an automatic savings plan is great way to ensure that you don’t forget to make contributions to your retirement accounts.

The only thing that you don’t want to forget here is to check your level of savings at least once a year. If you think you can save a little more, up your 401(k) contribution by a percentage or two or add $50 a month to your IRA contribution. I also advise the same in reverse – if you can’t maintain your savings rate, don’t stop all together, but pull back just a little.

Choose an investment portfolio and stick with it: If you aren’t confident when it comes to picking a portfolio for your accounts, don’t be afraid to consult a financial advisor. Another option, especially if your account balance is small or you are just starting to save, is to select a “lifecycle fund.” These are the ones that have a year listed somewhere in the title that will correspond your prospective retirement date. Lifecycle funds are comprised of different types of funds including bonds, stocks, and international investments. The main idea behind this type of fund is that the farther you are from retirement, the more risk you can handle in your portfolio. As you get closer to retirement, the fund managers will adjust the portfolio so that it is less risky.

The reason I say to stick with it is that research has proven that maintaining an investment within a portfolio over time results in greater gains than adjusting the portfolio based on where you think the market is headed.

Don’t touch it: This relates to the “FORGET IT” part of the mantra. You have put the money aside for retirement – leave it there until that time of your life. If you need the money for an emergency, try not to take it from your retirement accounts as robbing the accounts can create tax implications, including a 10% penalty for taking an early distribution.

So, what are you waiting for (aside from that rotisserie chicken to finish)? Set and forget your retirement savings plan as soon as you can!

Let’s Hear it for Income Tax Season!

It’s that time of year again – time to file our income taxes. As a shout out to all of tax accountant friends and the hard work they do at this time of year, please watch the short video below:

Wasn’t that fun? Do you now want to enlist yourself as a CPA combating your clients’ tax issues?

What I actually want to talk about today is tax refunds: those little checks that everyone direly hopes for the first half of each year. Tax refunds actually happen when you have overpaid taxes and the government owes you the overpayment. It sounds like a pretty good deal, but consider that you could have used that money for something during the course of the previous year. Think of a tax refund as a loan repayment by the federal government on a loan you provided to them at 0% interest. The best thing for each of us to try to do is to meet equilibrium where we neither need to make an additional income tax payment nor receive a refund.

However, I think it is safe to say that we would all rather receive a refund rather than pay additional taxes. What’s the best thing to do with our refund when we receive it? I think you know iOme’s favorite answer to that question: save it in a retirement account!

But we also know that putting your tax refund aside for the future isn’t always feasible. While saving for retirement may be preferred to splurging on a vacation or buying a new Fendi bag, it may be a better decision to use the refund to pay off outstanding bills or reduce your student loan principal.

What do you plan to do with your refund? Save? Splurge? Pay bills or loans?

Does feeling powerful influence the way we save money?

A recent study conducted by The Stanford School of Business shows that feeling powerful has an effect on the way we save money. Their findings, outlined in Money in the Bank: Feeling Powerful Increases Savings, illustrates that “…individuals who feel powerful save more because it enables them to maintain their current state.”

The research also suggests that those who feel powerful are more likely to save while those who feel powerless are more apt to spend, rather than save, as they feel that spending on goods will improve the way society perceives them. However, when it comes to saving toward a goal of spending (a new car, for example) rather than saving for the sake of accumulating assets, people who feel powerless increase their savings.

While those who feel powerful save as a way to maintain their current power in the future, their level of savings will decrease once they feel that their power is secure.

How about you? Do powerful people put more aside for the future? Do those who spend on consumer goods rather than saving for the future have feelings of powerlessness?

Millennials: Our Minds on Our Money and Our Money on Our Minds

What are the top money concerns of Millennials?

According to Gallup’s most recent Economy and Personal Finance poll, the number one financial concern of young adults age 18 to 29 is paying college expenses and repaying college loans. The remaining top 5 concerns are lack of money/low wages, housing, paying off bills/credit cards/debt, and lack of employment.

Where do retirement savings rank on the list for this age group? All the way at number 9! Retirement savings does not even make the top 5 until the 50 to 64 year-old age group. Even then, it is still listed as the number 5 concern.

Why focus on retirement as a Millennial?

As a Millennial with many immediate wants and needs competing for your dollars, you may be wondering why retirement savings at this age could be so important. The answer is simple: compound interest.

Consider this scenario: three Millennials, all the same age, have not yet begun saving for retirement. As they progress through life, they begin contributing to a retirement plan at age 25, 35, and 45, respectively. Let’s say that they each are able to save $500/month until they retire in a portfolio averaging a return of 7%/year and that they each want to retire at age 65:

The chart says it all: saving earlier for retirement gives a clear and definite advantage over delaying. If the people who began saving at 35 and 45 wanted to have the same amount banked for retirement at 65 as the Millennial who began saving at 25, they would have needed to save about $1,070/month and $2,500/month, respectively. What a difference!

Welcome to Know Your Dough

Welcome to the iOme Challenge Blog: Know Your Dough! Here at iOme, we know that financial security and retirement aren’t generally exciting topics because of their complexity. We have decided to clear up the confusion and get you excited about your financial future by writing pieces that review the most recent research on retirement, discuss current retirement legislation, offer tips and tricks on saving for retirement, voice opinions of The Millennial Generation, and spark discussion on retirement topics all while keeping the information concise and understandable.

What do we ask of you? Take a read through. Respond to our posts. Start a discussion. Tell your friends! If you have any questions, have an idea for a topic, or would like to contribute a piece, send Allison an email at Financial security in retirement is an ever growing problem, but it can be resolved through shared knowledge and understanding. That being said, we encourage questions! Chances are, if you have a question, someone else has the same one and your courage in asking will help them, too!

Disclaimer: Our bloggers and contributors are not your personal financial advisors. Each person has different financial needs which require personal advice. We ask that you consult your financial advisors with questions that directly relate to your personal financial situation. Opinions represented in this blog do not represent the opinions of the members of the iOme Challenge board or our Blue Ribbon Panel.