Estate planning is key to ensuring the security of your finances and personal assets in the future. It allows you to feel comfortable about what would happen to your estate at the time of your death or incapacitation. 

Estate planning lets you outline how you would like your assets managed and loved ones cared for. With the help of an attorney, you have the power to designate who controls your finances and who makes medical decisions if you become injured or ill.

It’s not uncommon to have an attorney guide you through the details of the estate planning process, but there are some basic things you can do on your own to safeguard your estate. 

An estate plan gives you peace of mind that you always have control over your assets — even after your death. It removes the stress on your family and gives them a roadmap for dividing your assets. An estate plan is designed by you to guide your loved ones through the process of what to do when you pass away. It honors your memory and continues traditions or legacies that are important to you. 

It can also help prevent family feuding over inheritance and bequeathments after your passing.

When Is a Good Time to Start an Estate Plan? 

There is a preconceived notion that estate planning is only for those who might be getting closer to retirement or the end of their life. The truth is anyone can draft their estate plan no matter their financial situation or how old they are. 

Estate planning lays out what happens to your money, belongings, kids, house, car, pets, digital assets and accounts. Some estate planning tools can even potentially be used to reduce your current tax burden. 

It’s okay to take time and think about what is important to you and how you would prefer your assets to be distributed after you pass. 

Does an Estate Plan Ever Need to Be Updated? 

An estate plan is intended to be altered and adjusted as you grow older and circumstances change. A good rule of thumb is to review your estate plan every few years or whenever there’s a material change in your family or financial situation. It’s also important to note any amendments to state or tax laws and how those changes might affect your plan. Meeting with a financial advisor and estate planner may help you decide whether it’s necessary to update your documents. 

What Documents Does an Estate Plan Require? 

An attorney, paralegal, or estate tax professional can help you determine which documents you need to establish a comprehensive estate plan. 

While estate planning and retirement planning aren’t necessarily the same, they do go hand in hand. Fullerton Financial Planning helps those who are thinking about retirement. We gladly offer estate planning to ensure our clients and their families are protected as much as possible from probate. Call us at 623-974-0300 to 

 Why You’re Never Too Young to Start Thinking About Estate Planning 

A 529 plan lets you invest post-tax dollars into an investment account where it can grow and be withdrawn for education expenses without paying taxes on the original contributions or any gains. Money in the 529 plan can be invested like other brokerage accounts or a retirement savings account.

People may enjoy better returns by investing funds for a child’s education into a brokerage account where it can be grown and nurtured in markets instead of low-interest savings accounts.

Funds from a 529 plan can be spent on any items approved by the plan, including K-12 educational expenses. If the child doesn’t end up going to college or doesn’t use all the funds, you may be forced to withdraw the remaining funds and incur a penalty.

Being taxed on capital gains can be unpleasant. Fortunately, the gains made in a 529 plan can be withdrawn tax free if they’re spent on approved educational expenses. Some taxpayers may also qualify for state tax deductions for their 529 plan contributions. This usually requires the 529 plan to be in the state in which you currently pay taxes. For example, you would need to have an Arizona 529 plan to enjoy the Arizona state tax deductions.

As of September 29, 2021, Arizona allows married joint filers to 

 per 529 plan beneficiary and single tax filers to deduct up to $2,000 per beneficiary.

Money wisely invested in equities or investment opportunities instead of low-risk bank products may lead to better long-term returns for investors.

Of course, market and investment growth are never guaranteed, and you should do your own research and weigh your options carefully before making investment decisions. An 

 at Fullerton Financial Planning can help you understand the benefits and risks of a 529 plan for your children or grandchildren.

You don’t have to make permanent decisions when you first open a 529 plan. If you have additional children, and one of your children decides they don’t want to go to private school anymore or they want to forego a traditional university education, you can change the 529 plan beneficiary.

Many Education Expenses Are Eligible for 529 Plan Funds

You can use 529 plan funds to pay for primary school, middle school or high school educations in addition to higher edtuition. This may be a great option for grandparents, aunts or uncles who want to help pay for their grandchildren or niece/nephew’s education but don’t necessarily want to cut their adult children or siblings a check every month. Contributions to a 529 plan can be used as needed.

Some States Offer Two Options: Education Savings and Prepaid Tuition

The education savings plan is likely what most people think of when they read about 529 plans. It’s simply a tax advantaged investment account that allows the proceeds and contributions to be spent on all types of education expenses, including room and board, ancillary expenses and tuition.

Prepaid tuition may be a particularly attractive option for parents concerned about their ability to pay for tuition in the future if the cost of college credits keeps increasing. Prepaid tuition plans allow you to essentially buy future college credits at today’s tuition prices.

Unfortunately, the number of states that offer prepaid tuition has shrunk in recent years. Arizona does not offer prepaid tuition plans.

Funds in a 529 plan aren’t exclusively reserved for future education-related expenditures. They can also be used to pay student loan debt thanks to the SECURE Act, which was passed in 2019. Beneficiaries of a 529 plan can use the funds to pay off up to $10,000 of student debt.  

Is an Arizona 529 Plan Right for Your Family?

Do you want to make sure your children or grandchildren have a chance to go to a private school or university without incurring significant debt? Investing in a 529 plan might be a good way to save for those future costs. Before making a decision, it may be in your best interest to speak with a 

 at Fullerton Financial Planning. Call us today at (623) 974-0300 and come visit one of our two locations in Peoria and Tempe, AZ.

 What Are the Benefits of a 529 Account? 

Equities and bonds can both be traded in essentially the same way, but ownership of each entitles investors to do different things. A bond is a loan that you can trade. The valuation is based on the eventual repayment of the bond at maturity.

Equities are little slices of ownership in a company. As a stockholder, you’re part owner.

Many large companies have hundreds of millions of outstanding shares of stock, so the piece you own for each stock is exceedingly tiny. However, that share still entitles you to some rights. Common shareholders (which are most average shareholders) have several rights as investors:

This is entirely different from a bond, in which you own some debt and not a piece of the company. Ownership of a corporate bond doesn’t entitle you to any say in how that corporation is run.

Equities are also not loans. The company doesn’t have to pay you back with interest for your stock purchase. You are assuming the risk of ownership with your purchase.  

From an investor’s perspective, the tradability of bonds and equities isn’t all that dissimilar. Both can be bought through brokerage accounts. Both might be held in funds that you can buy into.  

Maybe the most important difference between the equities market (stocks) and fixed-income markets (bonds) is their risk and growth potential.

Bonds are loans issued by either a government or a company. Although the world is an unpredictable place, bond repayment is quite reliable. U.S. treasury bonds are backed by “the full faith and credit” of the federal government, which is why many domestic and foreign investors consider them to be virtually risk free.

 found the average default rate in the corporate bond market over the past 32 years was just 1.47 percent. Bond default risk isn’t the same across the board. AAA-rated bonds had a 31-year average zero percent default rate, while AA-rated bonds had just a 0.2 percent default rate.

Equities are an entirely different beast in terms of risk and reward. Bonds offer predictable but modest returns while equities have dramatic growth potential. At the market’s pandemic low point, the S&P 500 closed at 2,304.92 (March 20, 2020). On March 20, 2021, the S&P 500 closed at 3,881.74. That’s a 68.4 percent growth over one year.

Equities also have equally dramatic loss potential. As of May 20, 2022, the current 52-week high of the S&P 500 is 4,818.62 and the 52-week low is 3,858.87. That type of volatility makes equities inherently risky.

Trading equities can also be far more confusing than bond trading. Experts rarely agree across the board on the future of the market. Equity markets can be upset by tangible domestic struggles (like extraordinarily high inflation) and geopolitical upheaval. While many people do their best to predict which equity investments are winners and losers, no person has a crystal ball or fool-proof algorithm to eliminate risk.  

What’s Right for Your Retirement Investments?

There is no simple answer for most retirement investors. Variables like current interest rates, market volatility and national and global economic wellness will likely impact your investment portfolio. More importantly, your own life and risk preferences should dictate your choices. As a rule of thumb, young retirement investors can more easily weather equity downturns and recessions because they won’t begin withdrawing their retirement savings dollars for several decades.

The risk calculation is entirely different for current retirees or soon-to-be-retirees who will need to begin withdrawing funds from their retirement savings accounts within the next few years.

Speak With an Investment Manager or Retirement Advisor in Phoenix

Economic uncertainty and bear markets can be extraordinarily stressful for people of all ages, but the anxiety can be especially acute if you’re nearing retirement or are retired. The team at 

 is here to help you make informed decisions. Contact us at (623) 974-0300 to speak with an 

 today. You may also visit one of our two locations: Tempe and Peoria, AZ.

 What Are Differences Between Equity Trading and Bond Trading? 

There are many people who don’t make six figures who can still retire a millionaire if they begin investing at a young age, maximize employer match contributions on their 401(k) and set aside additional money in an IRA. This is especially true if young investors in their 20s and 30s can maintain a modest annual return on their accounts. 

Compound growth is an incredibly powerful tool, but it works best over the long haul. It’s far easier to reach your retirement savings goals if you have the wherewithal in your 20s to sacrifice some of your disposable income for retirement. 

That doesn’t mean older people who are starting late are in hopeless situations. You should strongly consider speaking with a 

 advisor at Fullerton Financial Planning. There may be ways for you to catch up by maxing your 401(k) contributions, tapping your home equity, making full use of tax deductions and more. 

The sooner you get started, the better your odds for retiring as a millionaire. 

If you’re like most Americans, you’ve had to work to get where you are. Retiring as a millionaire is a dream that’s likely shared by millions of other workers – but a lot of them won’t make it. 

Reaching your goal isn’t just about sacrificing a few creature comforts and vacations – it also means doing more than just enough to make ends meet. Working overtime, climbing the corporate ladder and pursuing wise educational opportunities that enhance your earning potential aren’t easy things to do. They take effort – but it’ll be worth it if you can retire relatively young and healthy with more than a million dollars in your accounts. 

Put at Least 15 Percent of Your Gross Income Toward Retirement 

The federal government worries a lot about what the average person does with their income, and not just because they want to maximize their tax revenues. The government would prefer not to pick up the tab for retirement when Social Security is already stretched dangerously thin. 

Recent analysis of April 2022 spending habits found the average household had a personal 

. The personal saving rate is a measure of how much of a household’s disposable income is saved for retirement or a rainy day. 

For many households, that rate is nowhere near adequate. Many financial experts encourage households to save 20 percent of their gross income to cover both their retirement savings and a rainy-day fund. The average household is falling far short. 

One of the biggest challenges for young adults and even middle-aged workers is resisting the urge to overindulge in the fruits of their labor. Fancy cars, big houses, the latest electronics, expensive furniture and clothes or lavish vacations are all understandably tempting diversions that may be within your reach. Unfortunately, those luxury expenses may stand between you and your retirement savings goal. 

Smart budgeting and investing are often the answer. Many families can walk a line between extreme austerity and the high life. You don’t have to forego every material good or exciting experience just to save, but you can also find fulfillment and happiness in moderation and self-control. 

There’s no rule that you must stick with a single investment plan. Different types of retirement investment accounts have their own caps, and you might benefit from changing the plans you use and your investment strategies as your income and life changes. 

For example, 401(k)s have higher caps than traditional IRAs. A young retirement saver (under 50 years of age) can contribute up to $20,500 into their 401(k) per year as of 2022, while an older retirement saver can invest up to $27,000 per year. 

Both Roth IRAs and traditional IRAs have a lower cap of just $6,000 for people under 50 and $7,000 for those older than 50. 

There’s nothing to stop you from using both options and capping out your contributions each year if you have the income to do so. You also have the option to invest additional funds through a brokerage account or an investment manager, although those funds may be subject to regular income or capital gains taxes depending on how you’re investing. 

Should You Pursue an Education or Get a Second Job? 

These are tough questions for a lot of people. Getting an education can put you in debt, which means interest and potentially years or decades of student loan payments. If you’re confident a graduate education will result in income growth that exceeds those costs, it may be the right path for you. Alternatively, workers can consider seeking pay increases or promotions, shopping their skills and experience to competitors who will pay them more or finding a second job. 

Get Help With Your Retirement Planning in Phoenix 

Figuring out exactly how much you need to save to reach millionaire status by retirement age requires some serious number crunching and financial planning. You don’t need to do all the math and strategizing on your own. Fullerton Financial Planning is always ready to help retirement savers develop a plan and reach their goals. Call us at (623) 974-0300 to get started. 

 Spending Habits to Retire as a Millionaire 

The best retirement savings account for you is highly dependent on your unique situation. Certain people may be better served by one option based on their income, age or when they prefer to pay taxes. If you’re not sure whether you should be saving money in a Roth IRA or a traditional IRA, consider scheduling a consultation with a 

The Differences Between a Roth IRA and a Traditional IRA 

Both types of IRAs offer tax advantages. The main difference is when that advantage is gained. Traditional IRAs use “pre-tax” dollars, which means those dollars can be deducted from your income. Roth IRAs are funded with post-tax dollars.

When you withdraw funds from a Roth IRA, you don’t have to pay taxes on them – or the gains you’ve made on those funds over the years. Dollars dispersed from a traditional IRA are taxed like income. 

For some savers, the choice comes down to their pre-retirement and post-retirement tax bracket. If you’re in a higher tax bracket now than you will be after you retire and start withdrawing from your retirement savings accounts, it may make sense to pay taxes when you’re in a lower income bracket. 

On the other hand, young workers might be in a lower bracket today than they will be in 40 years when they retire. For them, it may make more sense to pay taxes on those dollars today and then withdraw them tax free once they retire. 

How Are Traditional IRA Contributions Reported? 

The IRS and state treasuries allow taxpayers to deduct their traditional IRA contributions from both federal and state tax returns. You can lower your adjusted gross income (AGI) by however much you deposit into your traditional IRA each year. 

This deduction may be another reason some taxpayers choose traditional IRAs. It’s possible the drop in your AGI may allow you to qualify for certain programs, like a student loan interest deduction or child tax credits for your family. It’s important to note your tax bracket is determined by your taxable income, not your AGI, so you cannot get into a lower tax bracket through traditional IRA deductions. 

As with 401(k)s, there are some circumstances where you may be able to withdraw money from a traditional IRA early. However, any money you withdraw will be taxed as income, even if your early withdrawal justification exempts you from the 10 percent penalty. 

No, Roth IRA contributions are not tax deductible. 

Are Roth IRAs Better for Low Income People? 

You may want to speak with a financial advisor or tax planner before deciding if a Roth IRA is the better option for you, since each person’s financial situation is unique. However, Roth IRAs simply can’t be used by most high-income people due to the income restrictions. 

As of 2022, single filers with an AGI over $144,000 or married couples filing jointly with an AGI over $214,000 are not eligible to invest in a Roth IRA. 

There are a couple other unique features of Roth IRAs that make them desirable for some people. For example, there’s no minimum distribution requirement once the owner of the Roth IRA turns 59 ½. It can also be passed on to a beneficiary tax-free. The beneficiary must either take the money or roll it into their own IRA. 

You can also withdraw money from a Roth IRA at any age (up to what you’ve contributed) without penalties or taxes. Savers have already paid taxes on every dollar they have contributed into their traditional IRA, so they’re never taxed a second time. 

It’s a good idea to speak with a retirement investment advisor if you’re at a point in your life where you have the option of contributing to either a traditional IRA or a Roth IRA and you aren’t sure which to choose. Using a retirement investment advisor for investment guidance at Fullerton Financial Planning can help you weigh the pros and cons of each and may help you discover financial factors or tax implications you haven’t previously considered.

 at (623) 974-0300 to speak with a financial advisor for more information. 

 Is a Roth IRA or a Traditional IRA Better? 

At a very superficial level, growth stocks have greater tax advantages than dividend stocks in that you only pay capital gains tax once you sell the stock. Capital gains taxes are lower than ordinary income tax rates. Ordinary dividends are considered income, so you are expected to pay income taxes for them, even if you sell all your dividends to reinvest. 

However, that simplistic overview doesn’t tell the full story. For example, there are potential workarounds for dividend taxes, and there are qualified dividends that are taxed at the capital gains rate. Depending on your income in retirement, you may be able to minimize or even eliminate your capital gains taxes as well. 

For the 2022 tax year, single filers making $41,675 or less or joint filers who make less than $83,350 will be exempt from capital gains. Some retirees can make use of investment and tax planning strategies that allow them to stay below those income thresholds. 

The length of time you hold an equity before selling will also affect the tax rate you are required to pay. Short-term gains, or gains from stocks sold within the first year of ownership, are separate from long-term capital gains, or gains made from the sale of stocks you’ve held for more than a year.  

Long-term capital gains rates are 0 percent, 15 percent, or 20 percent, while short-term capital gains are taxed like regular income. 

Retirement Savings Accounts or Other Tax Advantaged Investment Plans 

One way you can avoid taxes on either the sale of growth stocks or dividend stocks is with certain tax advantaged investment accounts, like Roth IRAs or 529 Plans. In both cases, you can trade and reinvest equities in the accounts, and reinvest dividends, without being taxed. 

Investors using either Roth IRAs or 529 Plans should educate themselves on the rules governing each. You’ll only enjoy the tax advantages of a 529 Plan if you spend the funds on qualified education expenses, and disbursement rules must still be followed to avoid additional taxes on Roth IRA gains. However, with Roth IRAs, your contributions have already been taxed, which means they can be withdrawn at any time without additional taxes or penalties. 

Qualified Dividends vs. Ordinary Dividends

Ordinary dividends are essentially considered ordinary income by the IRS and are taxed at your ordinary income tax rate. A qualified dividend is taxed at your capital gains rate. The ordinary income tax rate is higher than the long-term capital gains tax rate, so it’s preferable to pay the long-term capital gains rate if possible. Some people, especially retirees who are living on a reduced income, can completely avoid capital gains taxes and therefore don’t pay taxes on qualified dividend income. 

Whether dividends are qualified or ordinary may also be affected by the short-term and long-term gains rule, although the timelines are a bit complicated. For example, dividends may be considered qualified if you’ve owned a domestic common stock for at least 60 days during a 121-day period beginning at least 60 days prior to the ex-dividend date. The timeline is slightly more stringent for preferred shares (held 90 days during the 181 days beginning 90 days prior to the ex-dividend date.) 

Essentially, you can’t buy a stock right before the ex-dividend date and expect the dividend to be qualified. 

There are also different rules for different types of investments. REIT (Real Estate Investment Trust) dividends tend to always be classified as ordinary regardless of how long you’ve invested in the fund. 

Several other types of dividends are almost always considered “ordinary,” including things like foreign equities, employee stock ownership plans, money market funds and interest-paying bank and savings accounts. 

Not Sure Which Investment Options Can Best Help You Maintain Supplemental Income in Retirement While Minimizing Your Tax Burden? 

, estate planning and taxes to develop comprehensive plans for our clients. You should consider speaking with an experienced investment advisor before making potentially life-altering decisions about your retirement investment portfolio.

. We have two locations: Tempe and Peoria, AZ.

 The Comparative Tax Advantages of Growth Stocks and Dividend Stocks 

Tactical asset allocation (TAA) is the act of balancing a portfolio’s mix of stocks, bonds and cash in order to maximize returns within a particular risk tolerance. TAA is more focused on what percentage of a portfolio is in equities, bonds and cash instead of the specific securities held. 

Tactical asset allocation is more active than traditional buy and hold in that, traditionally, tactical asset allocation necessitates monitoring the performance of an asset mix and adjusting the proportions to maintain a particular balance of risk and returns. The method is sometimes referred to as market timing and may be viewed as an alternative to strategic asset allocation. 

, as well as comparisons between these funds and balanced index portfolios and passive investing strategies. Tactical allocation funds tend to have high expense ratios due to the frequency of trades for rebalancing. They also have a history of 

Questions can also arise over when and how decisions regarding asset mixes are made. Some investors may question decisions made by fund managers who are basing asset allocation decisions on their own predictive interpretation of quantitative metrics. Those formulae and the resulting predictions aren’t necessarily infallible.

Despite frequent criticism of tactical asset allocation funds, there are many investors who value risk avoidance over the potential gains represented by more traditional equity indexes.

Strategic Asset Allocation Versus Tactical Asset Allocation 

Strategic asset allocation is the more traditional approach often exemplified by the basic options in a 401(k). Investors pick their asset and fund allocations and generally stick with that allocation. They then rebalance periodically when differing rates of return result in deviations from their preferred allocation. 

Strategic asset allocation decisions tend to be based on risk tolerance, time until retirement or underlying investment objectives. Strategic asset allocation can be described as a traditional buy-and-hold approach to investment, while tactical asset allocation requires more active and frequent intervention. 

In many cases, investors who adhere to strategic asset allocations stick with their allocations for many years or even decades. They may only adjust their allocations when nearing certain major life changes, like retirement. 

Which Method Can the Average Retirement Saver Use? 

This is one of the key differences between tactical asset allocation and strategic asset allocation. Every investor can engage in strategic asset allocation on their own. They may even own tactical asset allocation funds in their strategic allocation mix. 

Tactical asset allocation is harder for the average investor to do because it’s not a set-it-and-forget-it strategy. TAA requires significant knowledge of the market and the current riskiness of asset classes. Implementing your own tactical asset allocation strategy is labor intensive and may generate significant brokerage fees. 

What’s an Example of a Strategic Asset Allocation? 

A young person may maintain a strategic asset allocation of: 

If their equities grow by 10 percent over a year while bonds only grow two percent, the actual allocation of their investments will become imbalanced. At that point, they might go into their investment account and rebalance their allocation to restore the 70/20/10 split. 

A person nearing retirement may have a strategic asset allocation that looks more like: 

This mix of assets reduces the risk exposure of equities, but also reduces the investor’s growth potential. 

Bonds, like government bonds and corporate bonds that pay out regular interest payments and full principal repayment at maturity, are considered fixed-income securities. An investment that pays changing returns is considered a variable-income security. 

Bonds aren’t the only example of fixed-income securities. Others include money market accounts and CDs. 

Because variable-income securities represent a greater risk to investors, they garner higher returns than safer fixed-income securities. 

What’s the Right Investment Strategy for Your Portfolio? 

Whether you’re nearing retirement or just want to know how you can invest smarter, Fullerton Financial Planning can help. Our Phoenix and Tempe 

 are committed to helping clients discover the right balance of risk mitigation and portfolio growth. 

 What Is Tactical Asset Allocation and How Does It Help Your Investment Strategy? 

Yes, gambling winnings are considered taxable income. This applies to all types of gambling winnings, including sports betting, casino gambling, betting on horse races, the lottery and even raffles. If your winnings exceed certain thresholds, the sports betting app, parlor or casino through which you’re gambling should provide you with a Form W2-G and report your winnings to the IRS.

Even if your winnings don’t exceed the relevant threshold, you still technically owe 24 percent of your winnings to the federal government and the appropriate percentage to Arizona. However, you’ll only be given the 

 if your winnings exceed those minimum amounts.

All other gambling proceeds, including gambling income below those thresholds, should technically be reported as other income on a 

The convenient thing about the W2-G is the sportsbook or casino should withhold federal income tax from your winnings. If you’re just filing a Form 1040, you could be expected to make 

Federal and Arizona State Sports Betting and Gambling Winning Taxes

The IRS taxes all gambling winnings at a flat 24 percent rate, but Arizona taxes gambling winnings based on your overall income. The rates are:

Taxes also apply to non-cash winnings from gambling, including things like trips or vehicles. You’ll be expected to report the fair cash value and pay the appropriate percentage to the IRS and Arizona.

 your losses if you itemize your deductions instead of taking the standard deduction. However, your gambling loss deduction shouldn’t exceed your winnings. For example, if you reported $6,000 of gambling income and $8,000 of losses, you’d only be able to deduct $6,000. Conversely, if you reported $12,000 of gambling income and lost $8,000, you could deduct all your losses and only pay tax on the remaining $4,000. Losses in excess of your winnings can’t be carried over to future tax years.

The IRS isn’t known for being overly trusting on claimed deductions. You should be prepared to provide records to back up your gambling loss deduction, including:

Lottery taxes can get a bit more complicated. The Arizona lottery is legally required to withhold 

24 percent for federal taxes and 4.8 percent

 for state taxes. If a group wins the lottery in Arizona, the tax burden is shared equally among them. Arizona is also one of only two states (the other being Maryland) that levies state taxes on out-of-state winners of multi-state lotteries, like Mega Millions and Powerball.  

Is Gambling and Sports Betting an Effective Way to Save for Retirement?

Although a lot of Arizonans enjoy gambling more than saving for retirement, sports betting is not a feasible alternative to traditional 

 managed and administered by the fiduciaries at Fullerton Financial Planning may represent an ideal solution for Arizonans who enjoy trips to the casino or sports betting.

A well-funded nest egg allows retirees to enjoy their post-work life to the fullest. Many retirees can budget for trips to the casino and some responsible sports betting.

If you’d like to learn how Fullerton Financial Planning can make your retirement dreams a reality, call (623) 974-0300 to 

 Sports Betting Is Now Legal in Arizona. Do You Have to Pay Taxes on Gambling Winnings? 

Young people should start investing for their future as soon as possible–most likely when they get their first real job. Students working for spending money or living expenses while pursuing a degree may not be in a position to begin saving for retirement. Once you start your post-education career, it’s likely time to get started.

A person’s earliest years of investment can be the most impactful, which is good since those early investments tend to be smaller than later investments. This is primarily due to compound growth. If you start putting money into a 401(k) at 22, those initial dollars would have more than 40 years to grow by the time you (hypothetically) retire at age 67. 

For example, a $100 investment with a 10 percent rate of return would be worth $4,526 in 40 years. Even if your early years of retirement savings are modest, they will likely be significantly more than $100. Those early dollars have much more growth potential than the dollars you’re investing into your 401(k) or IRA in your 40s, 50s or 60s. 

That doesn’t mean those later dollars aren’t important, or that there’s no hope for accumulating wealth if you don’t start investing until later in your life. If you didn’t start retirement savings in earnest until your later years, there may still be strategies that can help you build up a nest egg. Alternatively, there are many strategies you can use to lower your expenses in retirement and make your money go further. 

Do You Have a Soon-to-Be or Recent College Grad in Your Life? 

Parents with young adult children may, understandably, have some healthy parental concern about their child’s savings habits. Young people, especially those with student loans or other debts, might not feel like they have the financial bandwidth to start saving. 

One of the great things about modern 401(k)s or IRAs is how hands off and unobtrusive they can be. Most people have many daily, weekly and monthly expenses they hardly even think about. They might get coffee every morning, have a few streaming services on auto renewal or go out after work for drinks with friends or brunch on the weekend. 

A conservative retirement saving deduction that’s automatically pulled out of their regular paychecks will likely be a drop in the bucket compared to all those disposable income expenses. If you’re a young person on an entry-level wage, you may want to seriously consider calculating and tracking your expenses. You may discover ways to make room for a moderate retirement savings budget. 

How Can You Invest in Stocks as a Young Person? 

There are a lot of trendy apps that allow people to buy stocks or cryptocurrencies. These apps are particularly popular among young people. Unfortunately, many of these users treat this type of investment more like gambling than actually saving for their future. 

Young professionals serious about saving for retirement should strongly consider using traditional tax-advantaged retirement saving plans, like employer-sponsored 401(k)s or self-directed IRAs. These plans can minimize the tax impact of retirement investment, which can be great for young people who are on a tight budget. 

Many 401(k) investment options are also known quantities and professionally managed. A professionally managed 401(k) has a fairly stable window of risk. There are higher risk mutual fund or ETF investment options that have the potential to offer more rapid growth than conservative alternatives, but they’re managed by reputable financial experts, not amateur investing enthusiasts on Reddit or YouTube. 

Purchasing a home in the Phoenix metropolitan area is particularly difficult for young people as of 2022. The housing market is extraordinarily tight thanks to a significant shortage of inventory. This means many homes are simply beyond the reach of first-time homebuyers. 

However, real estate is historically a good store of inflation-adjusted wealth. Building equity in property with your monthly housing expenditures is a far better move for a young person’s financial future than throwing money away on rent. 

Some parents, if they have the resources, may be inclined to help their children purchase their first home. The earlier a young person can own where they live, the better it will be for their future. Although some people may have to make some budgetary sacrifices to swing home ownership, it’s likely a good long-term choice. Plus, with the rate at which rents in Phoenix are increasing, there may not be a drastic difference between rental costs and mortgage costs for young, first-time homebuyers. 

Fullerton Financial Planning helps people who are at or near retirement manage their money. However, there are no age restrictions on our services. If you want to invest your money to ensure you’re getting the most out of it in your future, our team would be happy to help. Call us at 

 When Is the Right Age to Begin Investing in Your Future? 

 How To Keep A College Student On Budget 

Buying a bond is like issuing a loan to a government or corporation. The bond is an agreement to pay you back a specific amount at a specific date and pay you interest (usually biannually) along the way. 

If Bonds Are Guaranteed Money, Why Invest in Anything Else? 

The interest paid back on bonds is modest at best, and most bonds aren’t adjusted for inflation. With a bond you generally know exactly what you’ll make for the life of the bond, but there’s an inherent opportunity cost for that safety. 

Bonds are highly sought after for their reliability. They’re one of the lowest risk investments, but their predictable return often falls short of more risky and aggressive alternatives.

That doesn’t mean bonds are bad. For some people, bonds make a lot of sense. 

Yes–inflation-linked bonds, like Treasury Inflation-Protected Securities (TIPS) exist. Essentially, the principal of the bonds (the face value) increases when there’s inflation, and the interest payments are based on the face value. 

That’s not always a good thing when there’s deflation. The deflation risk is serious enough that the U.S. Treasury Department sets a floor on TIPS valuation (par value). The par value reduces the risk of deflation, but purchasers could still end up losing money due to inflation-adjusted interest accruals being lower. 

There are also some potential tax ramifications due to the way the valuation adjustments are calculated as income. If you have inflation-linked bonds and you have questions about how this “phantom income” can affect your taxes, you should speak with a financial planner or tax expert. 

A retirement planning advisor can help you understand whether inflation-linked bonds are a good idea for your portfolio. Year-over-year inflation hit 7.9 percent in March 2022, a 40-year high. It’s the sharpest jump since the early ‘80s. This is why many investors are giving inflation-linked bonds a second look. Whether they’re right for you or there are more advantageous alternative inflation-absorbing options for your portfolio depends on your situation.   

Are Bonds Good for Retirees and Soon-to-Be Retirees? 

Bonds are one of the investments most frequently associated with risk-adverse investors. Many people nearing retirement, as well as those who are currently retired, studiously avoid risky investments. If that’s where you’re at in your life’s journey, you likely don’t want to jeopardize the value of your nest egg. The predictability of bonds makes them a safe option. 

On the other hand, young people who are still in the early stages of retirement investing can afford to be risky. If you’re in your 20s or 30s, you likely won’t be withdrawing from your 401(k) or IRA for several decades. In that time there will likely be many ups and downs in the market, and you shouldn’t lose sleep over it because you won’t be relying on those dollars for many years to come. That’s why many young investors feel comfortable taking the riskier road with greater growth potential. 

Bonds may still be part of a young retirement investor’s diverse portfolio, but they likely won’t be the largest part.

Bonds are not traded on an exchange like equities or ETFs, but you can buy them through brokerage accounts. Investors can also buy U.S. Treasury bonds directly from the government. 

Do take note that brokerage firms may charge a fee for facilitating bond purchases, and different brokers charge different prices. You may want to research your options before purchasing. 

What Kind of Bonds Can an Investor Purchase? 

Treasury bonds, or T-bonds, are one of the more popular types of bonds because they’re backed by the U.S. government and are often considered virtually risk-free by investors. They have the added benefit of being exempt from local and state taxes (but not federal taxes). 

Investors can also purchase municipal bonds and bonds issued by companies. A company or a local government may issue bonds for a specific project, like building a new manufacturing facility or funding the construction of hospitals or schools. 

The earned interest on corporate bonds is taxable, but those costs can be offset by higher yields. 

There are two categories of municipal bonds: general obligation bonds and revenue bonds. 

General obligation bonds are backed by the “full faith and credit” of the local government issuing the bond, similar to the way the U.S. government backs Treasury bonds. 

Revenue bonds are paid back with the proceeds of the project. The simplest example is issuing a revenue bond to fund the construction of a toll road. The tolls collected would go back to bond purchasers. 

Municipal bonds have a philanthropic component for some investors. They’re a good way to support community betterment while also saving money for the future.  

Talk With a Fullerton Financial Planning Advisor About Bonds

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