Evolution of the Retirement Plan: 1750: Death 1875: Pension 1935: Social Security 1978: 401(k) 1997: Roth IRA 2009: Bitcoin 2021: NFTs
Grad students should start financial planning for retirement as soon as possible (opinion) | Inside Higher Ed
24 August, 2021 - 02:10pm
For Ph.D. students in particular, the opportunity cost of brushing retirement planning under the rug can be colossal in the long run, Fahad Sajid warns.
Allow me to explain. Depending on one’s field of study, Ph.D. programs can take anywhere from five to 10 years. But -- and here’s the rub -- these aren’t just any years. From the standpoint of retirement planning, there is hardly a better time to begin building one’s nest egg.
We can illustrate this point with an example. Say a student who hopes to retire at 67 puts away $6,000 at age 25. Assuming an average yearly rate of return of 10 percent -- the average yearly S&P 500 return since its inception in 1926 -- that $6,000 becomes a whopping $328,582 after 42 years.
But what if she decides instead to wait until after graduation at, for instance, age 32, to begin making contributions? Growing at the same average yearly rate of 10 percent, that same $6,000 leaves her with only $168,615 at 67. That’s roughly half of what it could have been had the student invested the principal amount a mere seven years sooner.
The lesson here is simple but powerful: all things being equal, more time in the market means exponentially greater returns. (I hasten to add the usual disclaimer that past performance is no guarantee of future returns.) That is why it’s so important for graduate students to begin saving for retirement as early as possible.
Now, in this hypothetical, we were simply comparing a one-time contribution of $6,000 at age 25 to a one-time contribution of the same amount at 32. But what if this student were to put away $6,000 in each of her seven years as a Ph.D. student? Assuming, for simplicity, that growth compounds once every year, here’s the arithmetic:
Summing these amounts up, we find that by not starting earlier, this student is potentially leaving more than $1.7 million in retirement savings on the table. Of course, this example is for illustration purposes only. Apart from there being no guarantees with respect to market performance, investors are usually advised to rebalance their portfolios as they age, which means that the rate of return typically decreases over time as the aim shifts from wealth generation to wealth preservation. But the broader point still stands: we’re talking about a decent amount of money.
My advice to graduate students, then, is to start as soon as possible. When it comes to saving, it’s never too late. And even if you can’t max out your Roth IRA every year, just do what you can, because every little bit matters.
But why $6,000 in particular? And what in the world is a Roth IRA? The details can be found elsewhere, but stripped to its basic elements, the Roth IRA is a special type of individual retirement account that, in 2021, had a maximum contribution limit of $6,000, or $7,000 for individuals over age 50 to help them “catch up.” Contributions grow tax-free and, more important, gains aren’t taxed when account holders begin taking distributions once they become eligible to do so after age 59½. Those features make the Roth IRA one of the best retirement-saving vehicles around, especially for those who expect to be in a higher tax bracket in retirement than when they made their contributions. Here’s hoping that’s true for all of us.
Planning for retirement is an imperative for everyone. But it is especially important for Ph.D. students, who are likely to spend many of their most consequential years, from a returns standpoint, without access to tax-advantaged employer-sponsored retirement plans like the 401(k) or the 403(b). Fortunately, the U. S. Congress recently took action to remedy this situation, and graduate students can now contribute income from their fellowship stipends to tax-advantaged retirement accounts like the Roth IRA.
My hope, then, is that graduate life offices will consider developing resources to help students plan and save for retirement or, at the very least, understand the stakes involved. If administrators don’t feel comfortable tackling this topic themselves, they can bring in financial professionals who can. They could even offer a whole personal finance series on information about related topics, such as how to balance saving for retirement with paying down debt while managing current expenses. Funds from student life fees could be allocated for programming of this kind.
Fahad Sajid is assistant director of graduate employer relations at the University of Chicago, where he received his Ph.D. in political science.
Have $500? 3 Absurdly Cheap Healthcare Stocks Long-Term Investors Should Consider Buying Right Now | The Motley Fool
24 August, 2021 - 05:45am
Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services.
It has been said that the stock market may be the only place where buyers get cold feet when the prices drop. It's funny to think about. Shouldn't you want to buy stocks when they are cheaper?
We asked three Fool contributors what stocks they think are cheap right now. They came up with Healthcare Services Group (NASDAQ:HCSG), Pfizer (NYSE:PFE), and Fulgent Genetics (NASDAQ:FLGT). Here's why.
Jason Hawthorne (Healthcare Services Group): Not every company in the healthcare industry is exciting. Far from the boom or bust world of biotechnology and the innovation of robotic surgeries and gene sequencing is Healthcare Services Group. The company provides laundry and linen services, facility maintenance, and dietary services to healthcare facilities. It serves customers from hospitals to retirement complexes. Housekeeping contributes a little more than half of the company's revenue. But business hasn't been great.
Overall, revenue fell 4.4% in 2020. The decline was due to COVID-19 -- both directly and indirectly. The stock has been beaten up over the last few years, falling 52% since the beginning of 2018. Management expects growth to return beginning next quarter. But investors aren't counting their chickens before they hatch. When Wall Street looks at the company it sees two black eyes that keep the negative sentiment in place, and it has pushed the stock to near its lowest price-to-sales ratio in a decade.
Perhaps the biggest mark against the company is an ongoing investigation by the Securities and Exchange Commission into how it calculated its earnings per share for years. The company received a subpoena in November 2017, but didn't disclose it until March the following year. The company's own internal audit was completed a year after that. Management has said it has been discussing a final resolution to the issue with the agency.
Another concern is its dependence on its largest customer -- a struggling operator of skilled nursing facilities. In the past three years beginning in 2018, that account represented 19.3%, 15.6%, and 14.7% of Healthcare Services' revenue, respectively. In the recently reported second quarter, Healthcare Services Group modified its agreement with the customer. The amended contract reduced revenue but helps keep the customer afloat as it restructures.
On the positive side, Healthcare Services Group offers a steady dividend. The stock currently yields 3.3%. Management has raised the distribution for 72 consecutive quarters. The increases aren't large, but the consistency is nice. What began as a $0.01 payout in the third quarter of 2003 is now almost $0.21 per share. Overall, the dividend has climbed nearly 14% over the past five years.
Investors picking up shares today aren't likely to get rich anytime soon. But Healthcare Services Group is one of the cheapest healthcare stocks in the market. If it can manage through the current uncertainty, it should offer a healthy return for shareholders who can stomach the risk.
Rachel Warren (Pfizer): In a market period where many top stocks continue to be woefully overpriced, it's refreshing to find quality companies still trading at reasonable valuations. Pharmaceutical giant Pfizer is one of them, trading at just around $50 per share at the time of this writing.
This is quite remarkable, given that Pfizer has been the subject of tremendous headline hype since the pandemic began due to its highly successful collaboration with BioNTech, which produced the blockbuster coronavirus vaccine Comirnaty. The vaccine partners have inked a long list of global supply deals which will rake in many billions of dollars for Pfizer not just in 2021 but over the next few years at least.
And with the recent news that recipients of the Pfizer/BioNTech vaccine will likely need a booster shot, these supply deals are almost certain to be expanded and extended further into the decade. In Pfizer's most recent quarterly report, management said it expects Comirnaty to amass revenue of nearly $34 billion this year alone, way up from the company's previous projection of $26 billion. On Aug. 23, Comirnaty received the landmark distinction of being the first COVID-19 vaccine approved by the FDA.
While shares of Pfizer haven't jumped by newsworthy levels over the past year, it's still delivered steady gains for long-term investors. The stock is currently trading about 30% higher than it was at the beginning of this year. Shareholders can also glean sustained portfolio growth from Pfizer in the form of its robust dividend. Yielding 3.2% based on current share prices, it definitely outpaces the yield of the average company trading on the S&P 500, which is approximately 2%.
The commercial gold mine that is Comirnaty has certainly provided a massive boost to Pfizer's balance sheet. In its second-quarter earnings release, Pfizer reported its revenue surged 86% from the year-ago period. But even if you were to leave Comirnaty out of its financials for the quarter, Pfizer still generated a healthy 10% rate of year-over-year revenue growth. The company has a diverse collection of fast-growing business segments that cover pharmaceutical areas ranging from oncology to rare diseases and include blockbuster products like Eliquis (a blood thinner), Prevnar 13 (a pneumococcal vaccine), and Ibrance (an oral treatment for metastatic breast cancer).
From its strong track record of revenue growth to its attractive dividend to its robust lineup of in-demand products, Pfizer is a fantastic stock you can buy and hold for many years to come.
Steve Ditto (Fulgent Genetics): In 2020, Fulgent Genetics was a key provider of COVID-19 testing and saw its revenue increase by almost 1,300% over the prior year. Few companies benefited more during the pandemic and few have a bigger cloud of uncertainty hanging over them as investors try to figure out what the future holds.
Fulgent stock hit an all-time high of $189.89 in February and since then has fallen more than 52% as COVID-19 testing has declined precipitously. The market doesn't like uncertainty but for long-term investors, the real question is what comes next.
Fulgent has a growing genetic testing business for pediatric diseases, which management expects to generate revenue of $110 million in 2021, representing a 201% year-over-year increase. That's a growth story investors should be following.
In last year's fourth-quarter conference call, CEO Ming Hsieh discussed his interest in acquisitions to expand the core diagnostic business. In Q2, Fulgent management followed up on its intent with a flurry of deals. Fulgent bought CSI Laboratories for its oncology testing and molecular diagnostics, made a $20 million investment in Helio Health for early cancer detection, and increased its $19 million majority stake in Chinese joint venture FF Gene Biotech for cancer testing in China.
The potential for multi-cancer screening is mind boggling -- in both financial and human terms. Based on a single liquid biopsy (blood test), multi-cancer screening can detect dozens of early-stage cancers before they spread and become harder to treat. Pharma companies are advocating and paying for genetic cancer screening since it improves the outcomes and will drive demand for their therapies. Innovation investors like Cathie Wood, CEO of ARK Investment Management, project multi-cancer screening could become a $150 billion market and avert 66,000 cancer deaths per year in the U.S.
Fulgent has proven to be a very capable operator generating operating margin above 60% and ending Q2 with $777 million in cash on its balance sheet. The operational and financial proof points from the last year should give investors confidence Fulgent can grow profitably and use its cash to pursue strategic growth opportunities.
The good news is Fulgent isn't just a COVID-19 story. For patient long-term buy-and-hold investors with a tolerance for some uncertainty, Fulgent Genetics may actually be the best value healthcare stock out there and a great way to build your portfolio.
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24 August, 2021 - 04:30am
A. We’re glad to hear your daughter wants to save for retirement.
If she was considering the New Jersey Secure Choice savings plan, it is safe to assume there is no other company sponsored plan, so any savings would be through self-funded options.
There are two types of Individual Retirement Accounts, or IRAs, said Joseph Sarnecki, a certified financial planner with U.S. Financial Services in Fairfield.
There’s the traditional IRA and the Roth IRA.
Let’s go over the differences between the two,
A traditional IRA provides for a tax deduction today, Sarnecki said.
“The earnings grow tax-deferred, but future distributions are taxed 100% as ordinary income,” he said. “An example would be if someone earned $50,000, and contributed $5,000 to a traditional IRA, they would only be taxed on $45,000 worth of income.”
A Roth IRA does the opposite.
The contribution is made with after-tax money, and when a distribution is taken in the future, it is 100% tax-free, assuming the account was open for five years and the person was 59 1/2 years old, Sarnecki said.
In the same example as above, the individual would have the full $50,000 of earned income taxed, he said
Both come with limits regarding who can contribute, and the amount they can contribute, Sarnecki said.
For this purpose, Sarnecki said he will assume that your daughter is married, because if she is single, she has no limitations because her company does not have a plan.
So if she is married, and her spouse’s company does not have a retirement plan, income limits do not apply when contributing to a traditional IRA, he said.
Your daughter can contribute $6,000 — $7,000 if above the age of 50 — and receive a full tax deduction, he said. Her spouse can contribute as well.
“Even if her spouse does not work, they can contribute via a spousal IRA. The same contribution limits apply,” he said. “In this case they can contribute $12,000 total, or $14,000 if above age 50.”
If her spouse had a plan at work, they would be subject to certain income limits and phase-outs, he said.
· $105,000 to $125,000 – Married couples filing jointly. This applies when the spouse making the IRA contribution is covered by a workplace retirement plan.· $198,000 to $208,000 – A taxpayer not covered by a workplace retirement plan married to someone who’s covered.
For a Roth IRA, the maximum contributions are the same. The only difference is that income limits do apply. The limits and phaseouts for 2021 are as follows:
· $125,000 to $140,000 – Single taxpayers and heads of household.· $198,000 to $208,000 – Married, filing jointly.· $0 to $10,000 – Married, filing separately
Outside of a traditional or Roth IRA, one may save through an individual investment account, Sarnecki said. Keep in mind, though, these accounts are taxable and subject to interest, dividends and capital gains, unlike the IRAs which grow tax-deferred, he said.
“If she is looking to save more than the allowable contribution amounts within the IRAs and is looking for tax deferral, a non-qualified annuity could be an option,” he said. “Non-qualified annuities have several moving parts, such as surrender charges and taxation — ordinary income versus capital gains — and should be reviewed in detail to determine suitability.”
Karin Price Mueller writes the Bamboozled column for NJ Advance Media and is the founder of NJMoneyHelp.com. Follow NJMoneyHelp on Twitter @NJMoneyHelp. Find NJMoneyHelp on Facebook. Sign up for NJMoneyHelp.com’s weekly e-newsletter.
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