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Until recently, many retirees have been able to rely upon the three-legged stool of retirement income sources: A defined benefit pension plan that guarantees a lifetime income, their own savings, and Social Security. Within the last couple of decades, the first leg of the stool has all but disappeared as many defined benefit plans have been replaced with defined contribution plans such as a 401(k) plan. This has shifted the responsibility for creating a retirement income source to the individual. With expanding life spans and increasing retirement costs, it will require serious retirement planning to ensure that your income will last a lifetime. Here are the four essential elements of a sound retirement plan:

Set Clearly Defined Goals

With an increasing life expectancy, it’s no longer enough to simply state, “I want to retire at age 65” as a goal. In order to inspire a well-conceived plan and the will to faithfully execute it, you need a clear vision of your life in retirement.

• Do you plan on actually retiring; or would you like to work in some other field?
• How will you live in retirement?
• Where will you live?
• What would you like to accomplish?

As you get closer to your retirement goal, your vision will become clearer and more focused. Along the way, your retirement goal becomes your investment benchmark, guiding your investment decisions based on where you are in relation to your goal.

Calculate Your Retirement Costs

One of the more popular rules suggests that retirees will need just 70% to 80% of their pre-retirement income to maintain their standard of living. The major flaw with this rule is it doesn’t account for the true cost of aging. In calculating the cost of retirement, the equation has become more difficult due to the new reality of expanding life spans which can also mean higher health care costs. The cost of your retirement needs to factor realistic spending assumptions based on your goals and desired lifestyle with contingencies for health care costs and unexpected expenses.

Once you know the cost or your retirement you can calculate how much you will need at retirement which becomes your accumulation goal.

Long-Term Investment Strategy

Accumulating enough capital to provide lifetime income sufficiency is a daunting task, made more difficult in an environment of low returns on savings and increased stock market volatility. It requires a serious long-term investment strategy with the confidence and discipline to follow it. It starts with a specific [investment objective], which can be stated as the return on investment that must be achieved to meet your capital need.

The next step is to develop a risk profile that will enable you to match your tolerance for risk with a portfolio of investments that can reasonably expect to achieve your objective.  This is done by developing an asset allocation plan that mixes different types of investments with varying correlation to one another.  Then, through broad diversification within the asset classes, you can reduce portfolio volatility and achieve more stable long-term returns.

Tax-Diversification

For decades we have been told that the best way to accumulate capital for retirement is through tax deferred savings vehicles, such as a 401(k) plan or an IRA. Although it still makes sense for accumulating capital, it doesn’t take into account the tax consequences of income withdrawals and its impact on the total spendable income available in retirement.  Retirement planning used to be almost entirely about capital accumulation; however, with the possibility of living 30 years or more in retirement, the emphasis is now on [managing your income during retirement].  If your only income source is a 401(k) plan, your income will be taxed as ordinary income.  With diversified income sources that include a Roth IRA for tax free income, or a non-qualified investment portfolio for long term capital gains, you can minimize your taxes in retirement which will help make your income last longer.

*This content is developed from sources believed to be providing accurate information. The information provided is not written or intended as tax or legal advice and may not be relied on for purposes of avoiding any Federal tax penalties. Individuals are encouraged to seek advice from their own tax or legal counsel. Individuals involved in the estate planning process should work with an estate planning team, including their own personal legal or tax counsel. Neither the information presented nor any opinion expressed constitutes a representation by us of a specific investment or the purchase or sale of any securities. Asset allocation and diversification do not ensure a profit or protect against loss in declining markets. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. Copyright 2014-2015 Advisor Websites.

It’s tax season again, and a question we get from a number of clients after receiving their yearend statements is, “Are my investment advisory fees tax deductible?” And the answer is an equivocal, “It depends.”

Congress did grant a tax deduction for certain investment expenses, but with anything to do with the tax code, the devil’s is in the details. Not to worry though, we’ll use this opportunity to settle the issue no matter your situation.

In general, the tax code allows for the deduction of expenses incurred in the production of income. With regards to investment income expenses, there are essentially two types:

1. Any expense incurred in the purchase or sale of a security, such a commission or a sales load on a mutual fund. These expenses are not tax deductible. Rather, they are applied against the cost basis in the purchase or sale of the security.
2. Expenses incurred in the production of income are tax deductible on line 23 of your Schedule A above the 2 percent of AGI threshold (investment expense deductions cannot be taken on the 1040 short form). Examples of expenses that can be deducted are:
   • Investment advisory fees
   • Maintenance fees
   • Distribution fees
   • Subscriptions for investment newsletters, magazines and services
   • Investment or financial planning software or online services
   • Depreciation on a computer used exclusively for managing investments

Contrary to what may be advertised, the cost of attending seminars, on land or on water, is not deductible. Also, expenses incurred in the production of income through tax exempt investments (municipal bonds) are not deductible.

There are two main requirements for taking a deduction for taking a tax deduction for investment expenses:

1. You must pay for the expense from your own pocket. Essentially, that means you have to write a check for the expense or from an account that you actually own. This distinction is important because you don’t actually own your IRA. If you have fees and expenses deducted from your IRA balance, you are not allowed to deduct the expenses; but, you can if you write a check. Generally, you have to arrange with your custodian for this option.
2. Expenses are only allowed if they are “ordinary and necessary” and the amount of the expense in relation to the income produced should be “reasonable and proximate.”

For many investors, investment advisory fees represent their biggest deductible investment expense, but all expenses related to generating investment income can quickly add up. So it would be important to ensure you realize the full benefit of all eligible deductions. Our services include an audit of your investment expenses and we can help you maximize your deductions. However, it is always advisable to seek the guidance of a qualified tax professional for final determination of what is and what isn’t tax deductible.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

Perhaps the most important factor in formulating your investment plan is your risk tolerance; that is, the amount of risk you’re willing to assume in order to achieve your most important objectives. More precisely, your risk tolerance is based on the your financial and emotional ability to withstand negative returns on your investment portfolio.  Before embarking on any investment strategy it is important to know your risk tolerance to ensure that you select the right kind of investments and you are able to set clear objectives. More importantly, when your investments are aligned with the proper risk-reward continuum, you’re assured of many more restful nights.  So, how do you go about determining your risk tolerance?

Look at Your Time Horizon

The most important determinant is time; that is, how much time you have before you will need to access the money being invested. Younger people, those with more than 30 years before retirement, are more able to withstand the swings and the cycles of the stock market because of the tendency for the market to increase over time. When the stock market declines by 20% or more in one year, as it has a few times over the last couple of decades, a younger investor has the time to allow the market to recoup its losses and forge ahead for a couple of years. Therefore, they could take a more aggressive posture towards investing by increasing their exposure to stocks.

An older investor with less than 15 years before retirement has less time and, therefore, fewer opportunities for the market to recover from multiple down years or extreme volatility. While it is still important for investors in the pre-retirement phase of life to maintain a growth orientation on their investments, their portfolios need to be stabilized with investments that produce less volatile or more predictable returns.

The Impact on Your Current Financial Situation

Using the same stock market decline of 20%, you need to simply ask yourself, if I lost 20% of my wealth this year, would it materially change my financial position?  The real question is whether your current financial position, based on the amount of wealth you have, your income, and your time horizon, could absorb the loss and still allow you to achieve your financial goals. A younger investor has time. A high earning investor has excess cash flow to invest. A high net worth investor has assets that can be rebalanced. Their answer to the question might be that such a loss would not materially affect their financial position.  If all of their money was invested in the stock market, they may be able to withstand the loss and live to see future positive returns.

For an older investor, or one with minimal assets or cash flow capacity, the impact could be more significant. If they could not withstand the 20% loss, their investment portfolio would need to consist of investments with limited downside risk and limited upside return potential, such as bonds or fixed yield investments.  By allocating a larger percentage of their portfolio to more stable investments, they are not likely to experience such a big decline in the overall value of their portfolio.

Digging Deeper for Answers

Then you need to ask yourself some questions to gauge your general attitude about risk. For instance, when you make decision about your money, such as making an investment, borrowing money, or making a big purchase, do usually feel a) anxious, b) satisfied, c) hopeful, or d) invigorated?  Or, how would you describe your pursuit of life’s dreams: a) cautious, b) measured, c) strategic, or d) fearless?  Generally, your answers will correlate with your tolerance for risk, from risk adverse to highly risk tolerant.

Finally, your response to risk may be the most telling indicator of your tolerance for risk. Using the stock market crash of 2008 as recent point of reference, your response, either hypothetically or in reality based on your actual response, may say the most about your risk tolerance going forward. During the stock market crash of 2008 did you (or would you have) a) cash out all of your equities, b) reduce your equity exposure substantially, c) hold firm to most of your equity positions, or d) start adding to your equity positions.

It is very important to be mindful of the fact that your risk tolerance will evolve over time. This personal assessment should be conducted periodically to ensure that your current asset allocation reflects both your emotional and financial ability to tolerate risk.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

The need for retirement planning didn’t really exist until well into the 1970s. Up to that point, people worked until age 65, spent a few years in leisure through their life expectancy which was about 69. Many retirees of that era were able to coast into retirement with a cushy pension plan. Over the next few decades, as life expectancy continued to expand, as did the number of years in retirement, financial planners came up with simple rules of thumb for determining how much a person would need at retirement in order to maintain his or her lifestyle.

That’s where the 70 percent rule came from. People were told that they would only need 70 to 80 percent of their pre-retirement income to preserve their lifestyle throughout their golden years. While that may have worked for retirees back in the 1970s and 80s, it could spell disaster for today’s retirees.

It’s not your Grandfather’s Retirement Anymore

Today’s retirees face a whole new set of financial challenges. Many are carrying mortgages and other debt into retirement. Health costs have increased nearly ten-fold. And, because we are living longer these days, health care costs will consume an increasing piece of the retirement budget. About 50 percent of today’s retirees find themselves sandwiched between their own kids, who may still be in college, or struggling to break free of the nest – and their aging parents who may require assistance in their daily living. Some retirees are actually finding that their retirement income needs may be as much as 110 percent of their pre-retirement needs. So much for the rules-of-thumb.

Better to Manage your Risks than your Investments

Today’s retirement savers are finding that there are no certainties in the markets, or in the economy. The only certainties that do exist are the risks they face leading up to and all the way through retirement. The two biggest risks all retirees must confront are longevity risk and inflation risk. Unlike market risk, which can be avoided by simply taking your money out of the market, these two risks are inescapable. And, most people are either unaware of these risks, or have not fully grasped their significance in planning. It seems like decades ago that we experienced any real inflation. And, it has only been in the last couple of decades that the life expectancy rates have been accelerating.

For today’s retirees, longevity risk is a new phenomenon. While people may understand that they can expect to live longer, few realize that age longevity is constantly expanding, meaning that the higher your attainted age, the greater your life expectancy. The risk of longevity is further compounded by the risk of inflation. Even at an average inflation rate of 3 percent, the cost of living will double in 20 years which could put many retirees’ life style in jeopardy.

Retirement as a New Life Cycle

For this reason, most retirees are viewing their golden years not as retirement, but as a new life phase in which earnings from some form of employment or a business may be a necessity. But, who says that is a bad thing. Many people can’t imagine themselves coasting through 30 years of life without being able to apply their skills or knowledge in a meaningful way. For many, it is an opportunity to regenerate themselves through new opportunities and new knowledge. Instead of an ending phase of life, retirement will be looked upon as a new life cycle in and of itself.

The prevailing attitude among a growing number of pre-retirees is that they aren’t going to limit themselves by trading a life of work for a life of leisure; rather they are going to take control and trade in work that they no longer want to do, for work they will really like to do.

Today’s retirees are finding that retirement requires at least as much psychological and emotional preparation as it does financial preparation. So, retirement planning needs to include a thorough assessment of human assets and liabilities along with an assessment of financial assets and liabilities. It is no longer enough for retirees to know how much money they will need to live; they need to know how they will be able to make the most of this new life stage.

By focusing primarily on financial issues, traditional planning reduces retirement to an economic event with its financial objectives marked by a finish line. The dangerous misconception it perpetuates is that, if you hit the finish line, on time and on goal, your planning is done and you’ll have a successful retirement. While it may address the financial goal of creating a sufficient standard of living, it doesn’t address the larger, more important issue of the quality of life.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

If you listen to any of the world’s leading investors they will tell you that nothing is more important to long-term investment success than a clear investment philosophy. More important than a sound investment strategy? Yes, they will tell you, because strategy, while important, is nothing more than a manifestation of an investment philosophy. Strategy can evolve as circumstances might warrant; however, an investment philosophy is based on the intractable belief you have in the principles and practices that guide your decision-making. In times of market upheaval and through the dark of uncertainty, your investment philosophy enables you to control your emotions, shut out the noise and focus on the things that really matter over the long term.

Too often investors want to focus on the short-term outcome of their decisions when, in reality, it has very little impact on the long-term results of a well-conceived investment strategy. A random 300 point drop in the market in reaction to the news of some calamitous event, while entertaining and maybe a little disconcerting, will be nothing more than a microscopic blip along the way in a long-term time horizon. Your investment philosophy is in place to remind you of that. It can also remind you that short-term results are random and fleeting, which means you have absolutely no control over them.

Instead, your investment philosophy keeps you focused on the process which is your investment strategy. If mistakes are made, you have a rational process for uncovering and learning by them. No panic reactions or second guessing, just a clear assessment of where you are today in relation to where you want to be, and whether the current strategy is the one to get you there. At worst, you adjust the strategy. At best, you leave it alone because it still supports your core beliefs about the market.

Keep it Short, but Pointed

An investment philosophy doesn’t have to be elaborate or eloquent. Most successful investors keep their investment philosophies short and pithy while expressing their core belief. For example, the greatest investor of them all, Warren Buffet has an investment philosophy that consists of just one sentence: “Buy wonderful businesses at a fair price with the intention of holding them forever.” You obviously have to know something about Buffet to know how that translates. Essentially, he believes in buying companies at a price at or near their intrinsic values that can consistently increase their intrinsic values over a long period of time. While many people may not grasp the meaning of his investment philosophy, all that matters is that Buffet does.

A quote by John Bogle, named by Fortune Magazine as one of the Investment Giants of the twentieth century and who is credited with creating the world’s first index fund, has been adopted by many “Bogleheads”(followers of John Bogle) as their investment philosophy:

Buy-and-hold, long-term, all market-index strategies, implemented at rock bottom cost, are the surest of all routes to the accumulation of wealth.

Other examples of brief but all encompassing philosophy statements:

Diversify widely, rebalance regularly, minimize costs; rinse, repeat.

Anything is possible, and the unexpected is inevitable. Proceed accordingly.

Risk means more things can happen than will happen.

Of course, it does require at least some knowledge of how the markets work and some familiarity with investment principles and practices to develop an enduring investment philosophy. But, more important, it requires a deep understanding of your own values and beliefs about money, as well as sensitivity to your comfort level with risk over a long period of time.

A good financial advisor, who also functions as an investment coach – willing to educate and counsel you – will be able to help you ferret out the elements of an investment philosophy that fit your investment profile like a glove and is one whom you will be able to entrust with your utmost confidence. Be wary of a financial advisor who doesn’t bother to ask you what your investment policy is; and be especially wary of a financial advisor who can’t describe his or her investment philosophy succinctly and with conviction.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

This isn’t our parents’ or grandparents’ retirement anymore. Just a few decades ago, many retirees enjoyed the full benefits of the “three-legged stool” of retirement provide by guaranteed pension payments, savings, and Social Security. In addition, they didn’t have to be very concerned with how much of their income translated into actual purchasing power because, except for the mid to late seventies, inflation was not a big factor for several reasons. Today, the three-legged stool is barely standing on two legs and inflation, even at the lowest levels, can wreak havoc on our lifestyles due to the fact we are living 12 to 15 years longer.

Financial Challenges Then and Now

The first reason why past generations were largely immune from inflation creep on their lifestyles was due to shorter life spans. A male retiring at age 65 in 1970 was expected to live 10 years into retirement – a female 12 years, so there was less time for inflation to have an impact. Secondly, nearly 75 percent of retirees received a guaranteed lifetime income from pension plans and many plans included a cost-of-living adjustment. For them, any retirement savings could be used as surplus. Third, back then the yield on savings vehicles were more closely linked to the rate of inflation so their future purchasing power was not impacted as much.

When we fast forward to the year 2013 we find that most people have never even heard of pension plans, and the vast majority of retirees have only their defined contribution plans (401ks and IRAs) to rely upon for their future income needs. And, it has only become apparent in the last several years that many have come up well short of the capital needed to sustain their lifestyle for a lifetime. While much of this can be attributed to over-consumption and the recent market crashes in stocks and real estate, we can also point to the lowest savings rate by a generation in our history. Add to that the current interest rate environment in which low savings yields have turned negative when factored for inflation, and we have a real savings crisis which will affect the next few generations and their ability to meet their retirement income needs.

Time to Get “Real” on Inflation

Speaking of inflation, today’s pre-retirees and retirement savers may not even remember the double-digit inflation that spiraled out of control from the late 1970s to the mid 1980s. While the “official” inflation rate of the last couple of decades has been miniscule by comparison, as measured by the Consumer Price Index (CPI), most people don’t realize that we are still experiencing double-digit inflation which is seriously eroding their purchasing power today and will make it very difficult to retire into a sustainable lifestyle long into the future. That’s because, following the sky high inflation rates of the 1970s and 1980’s, the government removed two of the biggest inflationary triggers – food and energy – from the basket of goods used to calculate the CPI.

So, their prices, which have been increasing the fastest over the last decade, aren’t even reflected in the official inflation rate, which is currently still hovering below 3 percent. When food and energy prices are added back in, the “real” inflation rate is closer to 11 percent; and that is the real impact on incomes today and in the future.

The High Cost of Living Longer

It wasn’t until just recently, when we had to confront our longevity. While most people are aware that we are living 12 to 15 years longer than our grandparents, what they haven’t firmly grasped is that longevity is not measured in static terms which says that, a person born today can expect to live until age 79. Rather, longevity, or life expectancy, continues to expand with each year we age. So, for example, while a 60-year old male can expect to live until age 81, that same male at age 65 can be expected to live until age 84. At age 70, depending on your health and family history, you have a 20 percent chance of living to age 90, and a ten percent chance of living to 100.

Now layer inflation risk onto longevity risk, which is really the risk of outliving your income, and suddenly they are compounded. Our grandparents only had to contend with inflation for 10 to 12 years. Their parents weren’t expected to live much beyond retirement (which is why Social Security seemed like such a good idea back in the 1930s). We need to contend with a “real” rate of inflation for as many as 25 to 30 years. At 3 percent inflation, we lose half our purchasing over 23 years. At 10 percent our purchasing power is cut in half in just 7 years.

Retirement Planning in “Real” Terms

Although we may have painted a rather bleak picture of the retirement outlook, there is really no reason for panic or despair. While the numbers and the realities may appear daunting, the fact is that the sooner your focus on retirement planning in real terms – that is using real assumptions base on your actual income and investment returns factoring inflation, along with a realistic measure of your potential life expectancy – the sooner you can have your retirement plan back on track. The key to mitigating the risk of longevity is to not minimize the effects of inflation compounded over your lifetime.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

The decision to go forward with your plans to start a family is a joyous one, but it can also lead to increased stress especially if your financial house has not been child-proofed. Considering that, on average, the cost of raising a child now exceeds $300,000, there’s little margin for error for most young families that have other important financial goals to achieve. There’s no reason why you should get caught off guard or caught in cash crunch as long as you plan ahead. The following family planning checklist contains what is deemed by most new parents as being the most essential steps in preparing for a new arrival:

• What is the cost for baby-proofing everything? You need to take a complete inventory of the requirements needed for you house, your yard, and your cars to bring them up to baby standards.
• In addition to another mouth to feed your newborn will require a constant stream of supplies. Can you afford a warehouse club membership?
• Expect an increase in your electric and water bill (you’ll be doing several extra loads of laundry a week).
• Is your health coverage up to snuff? Obviously you will need to add your child to your policy, but have you reviewed it recently to determine if it has the right coverage for a family?
• What are your child care needs? If you’re both going to be working, the average child care costs can run as high as $800 a month, almost the size of a small mortgage. Have you looked into alternatives such as employer daycare, nanny-sharing, reducing work hours?
• Will you require parental leave from work? What does your employer provide in terms of time and paid leave? Beyond that, what can you afford in time off? You will need some savings to offset any reduction in income.
• Are your papers in order? You need a will that includes guardianship arrangements.
• You need a life insurance plan that will fully cover your family’s needs – enough to provide for a surviving parent and child, payoff debt, and fund a college education. Don’t wait until after the baby has arrived to secure proper life insurance coverage.
• Have you paid down your debt? It’s tough to cover the additional expenses of a new family while still paying costly interest charges. Debt elimination should be a priority.

On the plus side, you will earn yourself a $3,950 dependent exemption which reduces your Adjusted Gross Income by that amount. To have that translate into extra monthly income you can use, you will need to adjust your W-4 withholding with your employer. Also, depending on your income, you may qualify for a Dependent Care Tax Credit. It would be worthwhile to check with a tax professional to determine what tax savings you might be able to realize once your child is born.

A Family Emergency Fund is Your Top Savings Priority

When considering all of these new family essentials, it’s easy to see how a family’s budget can increase by over $1,000 a month, and doesn’t include anything unexpected, like a medical emergency. If you’re planning to start a family you need to determine the incremental increase in your budget; and, even if you determine that you will have sufficient income to cover the increase, it is critically important to build up your emergency fund. At a minimum, your cash reserve should equal 12 months worth of living expenses, and that should be based on your new family budget. Before saving for anything else, including a bigger house or a college education, all of your savings should be allocated to an emergency fund.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.

It should not take the filing of a tax return or a death in the family to finally create order out of paper chaos so you are not forced to scramble in those critical circumstances. The chances of making costly errors are too great not to take some very simple, albeit essential, measures to get and stay organized all year long. Today you can begin a system of document disposition which will simplify your financial life for you and your family. It starts with knowing what you need to keep, for how long and where to keep them – beginning with the most disposable:

Keep for a week or less

• Bank deposit slips and ATM receipts can be trashed as soon as you record the transaction or see them recorded on your online account. You can eliminate these altogether by opting for email delivery.
• Where to keep them: Close at hand, in a dedicated drawer or file. Shred when no longer needed.

Keep for a month

• Receipts for credit card purchase and credit card statements can be tossed once you verified the purchases on your statement. The possible exception is if you need to keep a receipt for tax purposes or for a warranty. You could consider scanning your receipts so you can maintain them digitally.
• Where to keep them: In a dedicated drawer or file; Shred when no longer needed.

Keep for a year

• Pay stubs can be tossed after reconciling them with your W2 statement.
• Paper bank statements and cancelled checks if needed for tax purposes. Using paperless banking can eliminate the need to maintain paper copies.
• Investment account statements can be tossed once you receive an annual statement.
• Medical receipts can be trashed after tax filing season (sooner if you only file for the standard deduction).
• Where to keep them: In a dedicated file and/or online storage through your employer, bank or brokerage firm. Shred when no longer needed.

Keep for 7 years

• Documents that support your tax returns – 1099 statements, W2, charitable contribution receipts, and other documentation used to support deductions.
• Where to keep them: In a dedicated file, filed by tax year.

Keep forever

• Tax returns – the IRS has three years in which to conduct an audit; however if there is any chance you may have under-reported your income they can do so indefinitely.
• Annual statements for investment and retirement accounts.
• Receipts for home improvements until you sell the home and for tax documentation.
• Investment statements that support cost basis information (Post-2011 transactions are now maintained by your brokerage firm).
• Receipts for big purchases for insurance documentation until they are disposed of.
• Where to keep them: Dedicated file and/or, in the case of returns and statements online storage.

Legal documents (physical copies)

Any physical document that is evidence of a legal proceeding, activity or occurrence should be maintained in a secure location such as a fire-proof and theft-proof safe or a bank safety box. While you may find it convenient to scan copies for digital storage, a physical copy should always be maintained and accessible by family members. This includes:

• Birth certificates
• Citizenship papers
• Custody agreement
• Deeds and titles
• Divorce certificate
• Loan/mortgage paperwork
• Major debt repayment records
• Marriage license
• Military records
• Passport
• Powers of attorney
• Stock certificates
• Wills and living wills
• Anything with an original signature or a raised seal

A word about Shredding

First, not everything of financial concern needs to be shredded. Generally, if it doesn’t contain an account number or your Social Security number it doesn’t have to be shredded. Still, anything that can fall into the hands of another person can present a privacy risk. Otherwise, shredding your documents using a cross-cut shredder is a must for identity-theft protection.

A word about record-keeping in the cloud:

Depending on the type of record and the online storage used, record-keeping in the cloud can be as safe, or safer than storing a physical copy. However, any document that must be maintained for 7 years or longer should be kept in physical form in a secure location.

*This content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by Advisor Websites to provide information on a topic that may be of interest. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2014 Advisor Websites.