Financial Engines Market Watch Q4: 2014 Was an Unusual Year

chris-jonesThe year ended on a high note for U.S. equity markets, but not for the rest of the world. Global equity markets tend to move together, but in 2014 world equity markets went their separate ways. Propelled by strong economic growth in the U.S., the S&P 500 set new all-time highs, ending up 4.9% for the quarter and gaining 13.7% for the year. Stocks in the S&P Small Cap 600 index had a great fourth quarter, rising 9.9%. However, for the year, small cap stocks posted a gain of only 5.8%.

Anemic growth and high unemployment in Europe, combined with plunging oil prices dampened foreign stock returns. The MSCI Europe, Australasia, and Far East (EAFE) index lost 3.6% in the fourth quarter. For the year, foreign stocks were down 4.9% in striking contrast to the strong positive returns in the U.S.

Interest rates generally declined during the fourth quarter. The Barclays Capital U.S. Aggregate Bond index gained 1.8% in Q4, bringing the year-to-date gain to 6.0%. Once again, the Fed indicated it would let short-term rates remain low for the foreseeable future.

The Financial Engines Perspective

As we look back on 2014, it might be difficult to make sense of an unpredictable year in world financial markets. You might ask, if the S&P 500 did so well, why it makes sense to diversify into foreign equities?

The answer lies in the unpredictable nature of financial markets. It is remarkably hard to guess which asset classes will do best in the months ahead. Time and experience have shown the best strategy is to diversify your portfolio to cushion the impact of unexpected market shifts. We will continue to closely monitor markets to keep your portfolio on track.

Financial Engines investment advisors are available to answer any questions about your retirement strategy. If you are a Financial Engines customer, you can call an Advisor Representative at (888) 443-8577.

Five Ways to Kick Off Your Retirement Savings in 2015

American football player attempting to kick field goalIt’s a new year and you’ve decided to get your financial house in order. If you’re wondering how you can make your money work harder for you, you’ve come to the right place.

Start small or go big; the financial decisions you make now can make a huge difference for your future. We’ve put together some simple steps you can take to build your wealth.

  1. Start saving now for retirement. Whether you are just starting your career, been at it for a few years or have decades of experience, it’s time to start saving for your retirement. Because the choices you make today – even if you are young – can have a big impact on your life when you stop working.
  1. Save at least enough to get the full employer 401(k) match. Many employers match your 401(k) contributions dollar for dollar. That means that for every dollar you put into your 401(k), your employer will typically contribute another dollar – some put in even more. This is essentially “free” money, and if you’re not saving enough to get the full match, you’re missing out. Ask your company’s HR representative about your plan details to make sure you are taking full advantage of the savings options available to you.
  1. Make saving automatic.You won’t miss what you don’t see. Look into setting up automatic deposit plans – for your 401(k) and your savings. If you start saving automatically early in your career, your savings can add up quickly and painlessly. Talk to your employer for your 401(k) savings and your bank for personal savings to find out how you can set up an automatic deposit plan today.
  1. Rethink spending and saving.For many people, the hardest part about saving is being mindful about expenditures. When is it okay to splurge? When is it not? Should you use credit? If you’re making an hourly wage, try thinking about your larger purchases in terms of how many hours of work it took to pay for them. A $500 handbag, for instance, might be worth an entire week of work. Then again, it might not. Getting clear on your priorities can help you spend (and save) in a way that makes sense for you.
  1. Start a Roth 401(k).*Unlike a traditional 401(k), the money that goes into a Roth 401(k) is taxable in the year it is earned, while the money that goes into a traditional 401(k) is taxable in the year it is withdrawn.

If you are just starting out, chances are, you are in a lower tax bracket now and will likely be in a higher tax bracket at retirement, so a Roth 401(k) could help you save more money on taxes. For example, even if you contribute only $1,000 per year from the time you’re 25, you could have more than $200,000 by the time you’re 65.

*The tax information provided is general in nature, is for informational purposes only, and should not be construed as legal or tax advice. Financial Engines does not provide legal or tax advice. Financial Engines cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Financial Engines makes no warranties with regard to such information or results obtained by its use. Company disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation. Example shown for illustrative purposes only.

Infographic – Women are Anxious about Retirement

FE_infog_Brkouts_AnxiousDespite a greater optimism surrounding retirement, one in four women has legitimate fears about planning for their financial future, according to our recent survey.

Continue reading Infographic – Women are Anxious about Retirement

5 New Tax Rules That Will Help You Save More in 2015

tax-formsWe’ve put a handy list together to help you quickly understand what you need to know for 2015.

  1. More of your paycheck can be put toward retirement savings

Last year, the salary limit for contributions to qualified retirement plans was $260,000. In 2015, the limit is now $265,000. If your company offers qualified retirement plans such as 401(k), 403(b), and profit sharing plans, this increase means you can contribute more of your salary to that plan.

  1. Changes in qualifying for the Retirement Savings Contribution Credit

In 2014, if your AGI (adjusted gross income) was less than $60,000, and you were married filing jointly, you could receive a tax credit for IRA contributions up to $4,000. In 2015, that limit has increased to $61,000, which means a few more folks could be eligible to take advantage of the tax credit this year. Check to see if you can claim the tax deduction on your taxes..

  1. Update in the annual elective contribution limit to your 401(k) or 457 plan account

The elective deferral contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has now been increased from $17,500 to $18,000 this year.

  1. Increase in Social Security tax

According to the Social Security Administration, the maximum amount of earnings subject to the Social Security tax (taxable maximum) will increase from $117,000 to $118,500 this year.

  1. New limits on IRA Rollovers

Starting this month, IRA holders who want to withdraw funds from one IRA and deposit them into another IRA account can do so only once in a 12-month period. Rolling over an IRA more than once in 2015 will result in it being taxed at the regular rate, and the subsequent rollovers will be treated as an additional IRA contribution, which will be taxed at 6%.