Recession and Retirement
There has been a lot of chatter recently by economists and news outlets using the word “recession”. Understanding that it could happen and understanding how to handle it are different matters. If you are one of those nearing retirement or in retirement that has no strategy, you may be right to worry. Planning for a recession involves making a plan for other financial eventualities. If you prepare, you can face the future with more confidence. When the threat of a recession exists, recall there are two retirement variables within our control. How long we work and how much we save. Within this framework, there are several other things to consider about recessions and retirement.
The first point to remember is to live within your means. Depending upon your lifestyle going into the recession, it might require preparation and practice. Spending as much as your income needs to stop. This may require figuring out exactly where your money goes. When you know this, easier to trim your budget. Less spending might not be fun, but spending is always in your control. This is important as you head into a recession and your income will be less.
A second element is to potentially reduce your budget. Once you have trimmed the obvious low hanging fruit, you can focus on bigger ways to reduce your spending if need be. You need not make these bigger cuts now. For instance, could you cut out your Starbucks excursions once per week? Twice per week? Could you also cut other nonessential services such as eating out or buying that new television or entertainment center? Could you lower transportation expenses? These will no doubt require sacrifice. Ensure that your spouse or other partner agrees and will work with you.
A third item to remember during or to prepare for a recession is to devise a plan to accumulate cash reserves. The point of building up cash reserves is to keep you from having to liquidate your stocks. I am sure we can all recall the advice of well-meaning investment planners: have an emergency stash with several months of expenses. This stash should carry us through losing our job or another financial emergency. In retirement, more cash reserves are necessary to ensure against an economic downturn. Remember that regardless of what financial markets do, you still have the responsibility of food, housing, transportation, and healthcare. You do not want to decrease your savings and outlive your money.
A fourth point to remember is to be patient with the market. It is tough to see losses on paper. But, remember that the loss is only on paper and that it is not gone until you withdraw it. Realize that the market comes back, so if you sell, you will not see the benefits of the recovery. Know the market is cyclical and will (eventually) recover.
A fifth factor to consider is to work a few extra years before retirement or work a part-time position during retirement. Crunch the numbers and determine what benefits you could receive if you worked a year or two longer. Consider that any work you do before/in retirement increases your retirement money.
Last, consider that an annuity combats recession. Annuities are referred to as “protected lifetime income”. Annuities are insurance that pays a set amount regardless of the market’s performance. Annuities can also give comfort because one can keep his/her current lifestyle through their life expectancy.
We are here to help you plan for your retirement, regardless of the market or economy. Let’s focus on your savings and your goals.
How To Handle Market Volatility
Looking back at the past few weeks, the market has made some investors nervous. Market volatility can lead to some serious stress but what are the best ways to respond to this uneasy feeling? When dealing with market volatility, it's important to keep several things in mind to avoid making major mistakes.
Have a Plan
It's frequently said that those who fail to plan are planning to fail. When investing, it's important to have a plan. If your plan is to put $1,000 or $5,000 into an index fund each month, it's important to keep it up whether the market is up or down. Slow and steady wins the race. Sticking with your plan will allow you to take advantage of the periods when the stock market is down.
Dividends and interest tend to keep coming whether the Dow Jones Industrial Average is down 500 points or it's up 300 on a given day. It's true that there are situations that will lead some companies to cut or suspend their dividends. However, most companies will keep paying out dividends as long as possible because a cut is a sure-fire way to lose investors and see the price of your company's stock drop like a rock. Dividends from stocks and interest from bonds are two of the best ways to deal with volatility. You should keep reinvesting the capital your investments throw off. When the market is down, you'll be able to buy more shares, and this will add to your flow of dividends and interest. By reinvesting during periods of volatility, you'll be able to increase the power of compounding greatly.
Many financial professionals will tell you to avoid selling your investments at the worst possible time is a part of sticking with your plan. Often times, this is an ideal strategy. It can be tempting to sell when the market is down 10% so that you can avoid the next 20% loss. This is generally a bad idea. Time in the market will usually beat attempts to time the market. Although, one exception would be drawing down some money strategically during your golden years. You'll probably want to make quarterly or annual withdrawals regardless of what the market is doing in that case so that you can fund your living expenses.
Another important step to take when the market is showing extreme volatility is remembering to rebalance your portfolio periodically. You may have a strategy of rebalancing quarterly, semiannually or yearly. If you have a target allocation of 75% of your portfolio in stocks and 25% in bonds, a major drop in stocks could leave you with 65% in stocks and 35% in bonds. In this instance, you'd sell a chunk of your bonds and move the money into stocks. If you're still in the accumulation phase, you could stop contributing to bonds and put all of your money in stocks until you reach your targeted balance. This will keep you from becoming too overweight in one area and allow you to maintain the proper level of diversification.
One big piece of advice that's important to remember during market volatility is to stay the course. If you have a plan, stick to it. This includes making periodic investments as you would if the market were at record highs. Real money is made during market downturns. If your portfolio gets out of balance, it's a good idea to rebalance it in the event of a major market downturn to take advantage of the sale price on stocks. If you have cash sitting on the sidelines, volatility to the down side can be a great time to put that money to work.
Planning your retirement means diversifying to reduce the risk to your overall retirement plan. We are here to help guide you to and through a successful retirement.
The Unexpected Can Occur At Any Age
This topic is not comfortable for everyone to talk about but planning now can make a world of difference later. More than a third of long-term care residents are younger than 65 years of age. This statistic reminds us that we should prepare for the future, and the earlier you start preparing, the better. Here are some steps you should take to prepare for your golden years.
Draw up a Will
You'll want to decide how your estate gets divided up. If you don't decide while you're alive, the state will do it for you. That's why it's important to draw up a will. It's estimated that only 40% of Americans have a will or estate plan set up. Not only will you avoid having the state decide how your estate is divided up, your family will not have to worry as much if you've given them clear instructions as to what should happen when you die.
Draw up a Living Will
Another issue that the state or your family could decide is how to administer your end-of-life care. A living will gives directions as to how much medical care you'll receive beforehand. You might not want to deal with heroic medical care if you've passed 80 years of age. You can let your family and medical providers know your wishes. Absent such a directive, doctors will frequently administer expensive and invasive treatments that are not likely to work on elderly patients.
Buy Life Insurance
As noted above, no one knows when he or she will die. That's why it's important to buy life insurance. This insurance will provide a death benefit, and it can also build cash value over time. The presence of cash value associated with life insurance can be a tax-efficient way to build wealth over time. Additionally, if you die with dependents at home, you'll be able to provide money to care for them in your absence.
Buy Long-Term Care Insurance
Another option for avoiding major costs in your later years is the purchase of long-term care insurance. About one in eight Americans will wind up in a nursing home at some point. This cost can impact even fairly wealthy families. Long-term care insurance can take care of some of the expense that comes from staying in a nursing home or extended care facility. Medicare does not pay for long-term care, and these costs can definitely add up over time.
Staying healthy can be a good way to increase the likelihood you live to old age and avoid some of the costs that are common with aging. Maintaining your health will be easier if you eat well and exercise. Those who take care of themselves are able to stay in their homes longer and are less likely to die young. Also, because you'll be able to hold off on many of the health issues that lead to long-term care, more of your nest egg will be available for your heirs.
Plan now, your spouse or your executor will be happy you took the time to prepare for your end-of-life details. Additionally, your heirs will be happy you took care of yourself because you can leave more of your nest egg for them.
Baby Boomers Bomb This Question
With all of the day-to-day demands on your finances, sometimes it is difficult to have a strong grasp on what your overall financial picture really looks like. While many people may be very in tune with one segment of their financial life, you may be inadvertently neglecting other parts. One often-overlooked financial aspect is retirement savings. In fact, you may be surprised to know that according to the Motley Fool, 42% of baby boomers cannot answer the question of "How much have you saved for retirement?". While this revelation may seem shocking, it is a reality that, for many, immediate financial needs tend to take priority and retirement savings get put on the back burner.
One reason for this may be that saving for retirement is complex. Many people know that they have spent their work life contributing to an employer-sponsored plan and/or IRAs, but they may set their monthly and quarterly statements aside, never really looking at how much their account has grown to. Others may have multiple 401(k)s and other plans with previous employers that they have never combined into a rollover IRA, or that they have lost track of. For this reason, it is imperative that those who are approaching retirement start taking control of their retirement savings by working to create a definitive retirement plan.
Retirement planning allows you to dig deep into what you have saved and calculate your total amount of retirement savings. It also allows you to get an educated estimate of what your expenses in retirement may be, as it would be impossible to know if you have saved enough if you don't know what you will be spending. If you are an organized, motivated person, you may be able to easily calculate this information on your own using an online retirement calculator. If you need more assistance, or have a complicated financial picture that requires in-depth expertise, then working with a personal financial planner may be more appropriate for you.
Once you have an estimate of what you currently have in retirement savings and what your projected spending during retirement may look like, you will be able to determine if you are ahead of the game or far behind when it comes to additional savings required. You may see that the only way to retire on time is to start contributing more to a retirement plan now and cut back on some unnecessary expenditures. You may also find that you will need to stay in the work force longer than you had wanted or anticipated. Whatever your situation is, starting to work on your retirement plan earlier will give you more time to make up the difference that you need.
If you find yourself in the category of someone who responds with "Um.." or "I'm not sure" when asked how much you have saved for retirement, know that you aren't alone. Many other people are in the same boat. Luckily, you can start taking control over your retirement savings today by beginning the retirement planning process and getting yourself on track to meet your retirement goals. We are here to help!
Avoid New Retirement Over Spending
You’ve put your time in and the day you’ve been waiting for has finally come. It’s time to retire! You’re done working 40+ hours a week and ready to enjoy the money you’ve been saving for years. Slow down for a minute, though. It can be tempting after working for so many years to start checking off all the items you’ve been adding to your bucket list throughout the years, but this can lead to some severe overspending. It’s a nice gesture to invite your entire extended family on vacation or help your children pay off some of their debt, but you need to focus on the future.
When you work, you have a steady stream of income along with a healthy savings account to fall back on when unexpected expenses pop up. When you retire, it’s like someone just threw a few hundred thousand or million dollars at your feet and said “have fun!
You can avoid overspending by cutting back on certain luxuries you’re used to having. The balance comes with developing a smart financial plan to ensure you live within your means while still enjoying the quality of life you’re used to. Here are some essential tips to get you started on the right path.
Create a Budget
You should be no stranger to a budget by the time you retire, but you’ll need to start tweaking it to adjust to your new financial circumstances. Know how much money you’ll have coming in between social security, pensions, and your retirement plans such as a 401k. Split your expenses into those that are required, such as housing, food, and vehicle maintenance, and another category for discretionary purchases like vacations.
Develop a Withdrawal Strategy
Once you know how much you need to live comfortably every month, you can determine how much you need to take from your retirement every month. A standard 4% withdrawal rate should tentatively last 30 years, but this can vary based on your savings, the financial market, interest, and hefty expenses such as healthcare.
Cut Back on Expenses
Cutting back on spending is painful if you’re used to getting what you want when you want it, but it’s a necessary part of smart financial planning. Evaluate whether you can make changes to the two highest expenses: housing and health care costs.
Healthcare: Retirees spend roughly 11.4% of all income on medical care because Medicare only covers 80% of costs. That 20% responsibility can swallow up your income. It also fails to include eye exams, orthotics, and dental care. Find a supplement plan to help ease your financial burden.
Housing: The average retiree 75 or older spends 43% of income on housing and related expenses. It’s beneficial for many to downsize to a smaller home or move to an area which a lower cost of living than where you currently are. The adjustment can free up income for discretionary purposes.
Other basic actions such as not eating out as often or capitalizing on discounts and specials for seniors can also keep your wallet a bit thicker.
Hire a Financial Advisor
Seeing a financial advisor can put financial responsibility in someone else’s hands. They can look at your investments, determine an acceptable withdrawal schedule, and examine your current and past spending to give you helpful tips and advice. It’s smart to fix an overspending problem sooner rather than later, which financial advisors recognize and work quickly to remedy. Their goal should be to help you have the most money to enjoy the golden years that you’ve worked so long for.
We are here to help, contact us, today.
Think Before You Build Your Retirement Dream Home
Building your dream home for retirement is not an uncommon goal many Americans have. However, just because it's a common dream doesn't mean it's an appropriate dream for a large portion of the population. Sure, you may have several hundred thousand or a couple million in your retirement accounts. You'll still want to think before you build your retirement dream home.
Three of the most important considerations to take into account before building a dream home are location, location and location. You'll want to ask whether the location you're looking to build on is an up-and-coming destination or one that's had a downturn for several years. No one knows what the future will hold, but a home in a desirable location is more likely to sell than one in a depressed area.
If your chosen destination, even if it's near a beach or ski resort, has had stagnant or declining home prices for years, it's a sign that it might not be a good place to build a home. Another concern would be the average length of time properties stay on the market in a given community. If there's a low supply of houses and a short turnaround when they go on the market, your chosen location might be a good fit. If houses stay on the market for a year or more, it might be a good idea to look elsewhere.
Think About the Kids
Most people who retire want to spend time with their kids and grandchildren. This might make it seem like buying or building a dream home near the kids would be a good idea. Think again. People move for jobs every day. Sometimes, that move will be from one building across the street to another. Other job moves will require a move across a state or across the country.
Building a dream home close to your kids today does not guarantee it will be close to your kids five years from now. Additionally, dream homes tend to be on the upper end of the price scale, and this can mean they'll sell less quickly than more affordable homes. Therefore, if your main reason for building a dream home is to be close to your children, it might pay to ponder the decision a bit longer.
Think About Cash Flow
No matter how big your nest egg happens to be, you always need to think about cash flow. This goes if you're 30 years old or 60 years old. Overspending on a home is bad for cash flow whether you're making $50,000 a year with no money in your nest egg or making $150,000 a year with $750,000 in your nest egg. If you have a nice chunk rolling in from a pension or Social Security, this might work in your favor for building your dream home. Keep in mind that you might want to downsize your dream home a bit to keep more cash working in your favor regardless of your current financial situation.
It's also a good idea to remember that most people decline physically over time. This means that a multistory dream home will be less accessible in a few years. If you need to hire some help, that will put additional strain on your cash flow as well.
There's nothing inherently wrong with building a dream home as long as you can afford it. However, there can be some pitfalls that come from building one for retirement. Most people will eventually have to downsize, and having too much equity tied up in a home can make it more difficult to do so quickly. Taking all facets of building a new home into account is an important step to take before you ever sign on the dotted line to start your build.
Remember, we are here to help you with all aspects of planning your retirement. Contact us, today.
Your 2019 IRA Guide
When it comes to retirement savings, one of the best options available to those who don't have a workplace retirement plan is an IRA. These savings vehicles allow for future retirees to save up to $6,000 per year in a tax-advantaged manner as of 2019. Those who have reached age 50 can add another $1,000 to their accounts each year.
Types of IRAs
There are two main types of IRAs. The first is the traditional IRA, and it allows individuals to save on a tax-deferred basis. Effectively, a traditional IRA allows account holders to cut their adjusted gross income by the amount of their savings. This will cut a retirement saver's taxes in the year the money gets saved. The second is the Roth IRA, and this account allows people to save after-tax income while allowing for tax-free growth and withdrawals as long as certain conditions are met.
When Are Taxes Due?
The tax advantages of IRA accounts are their strongest characteristic. In a taxable account, savers would have to pay taxes on any dividends or capital gains earned within a given year. Within an IRA, those taxes are deferred in the case of a traditional IRA or nonexistent in the case of a Roth. Those who have a Roth IRA pay their tax bill up front, and the government will never tax the contributions or the withdrawals as long as the withdrawal of any gains comes after age 59.5.
On the other hand, those who save in a traditional IRA will have to pay taxes when they withdraw the money. The effective rate could be 0% as long as the taxpayer has enough deductions to avoid exceeding the standard deduction or any itemized deductions. Most people will not find themselves in this situation. The rate could theoretically go up to the top marginal rate the IRS charges at any given time. As of 2019, that rate is 37%, but a retiree would have to have an income of more than $500,000 to hit that rate.
With a Roth IRA, it's possible to take out the contributions without penalty at any time as long as the account is at least five years old. This is not possible with a traditional account. Any withdrawal from a traditional IRA will be taxable because of the up-front tax deduction. The government wants the tax revenue at some point. Any withdrawals of contributions or growth from a traditional IRA would incur an early withdrawal penalty of 10% if the account holder is not yet 59.5 years old. Only the growth would see the early withdrawal penalty with a Roth.
Which Is Better?
Like many personal finance decisions, the answer to the question of which IRA is better depends upon a person's individual situation. Those who have higher incomes can lose the tax benefit on a traditional IRA if they have a workplace retirement plan like a 401(k). The ability to contribute to a Roth IRA phases out if a worker makes $137,000 as of 2019. Couples can make up to $203,000 and still contribute to a Roth. Those who are married with children and have a relatively low income would likely do better with a Roth because they would pay little in taxes even before any IRA savings. Those with a higher income can take advantage of the tax-deferred benefit of the traditional IRA.
It's also possible to contribute to a "backdoor" Roth account. Families with higher incomes could transfer money from a traditional IRA to a Roth in years they have a low adjusted gross income due to deductions from business losses or other reasons. This allows for the tax-deferred deduction up front and the benefits of tax-free withdrawals from a Roth while minimizing taxable income throughout the process.
Another consideration when it comes to IRAs are the required minimum distributions, commonly known as RMDs. There are no RMDs with a Roth IRA, which could leave the money to compound for decades after retirement. Those who invest in a traditional IRA will have to take out a growing percentage of their accounts each year after hitting 70.5 years of age. The percentage grows each year based upon expected mortality rates. Again, the government wants the tax revenue at some point. Regardless, of which account a person decides to use, deciding to save for retirement is an important step to take to ensure financial stability in old age.
Take a Summer vacation... for your mental health!
The Forty-hour work week paired with a busy schedule tends to be a recipe for stress and burn out. While practicing daily self-care in small increments is an important piece to preventing burn out, periodically taking a prolonged break from our responsibilities and stressors is equally as important. According to Dr. Krauss of Psychology Today, a vacation well-done can inspire self-reflection and rejuvenation, allowing us to seize the day upon return to our regular lives.
Experiencing high levels of stress on a daily basis can diminish a person's physical, mental, and emotional health. Dr. Krauss points out that consequences include depression and a weakened immune system. Balancing our lives and setting boundaries for ourselves is important. Additionally, taking time off to simply enjoy life, explore, and step outside our comfort zones, are all crucial to staying healthy. Planning a successful vacation takes time, energy, and focus, but the reward is priceless. And, if you are taking a family trip then there is no better way to strengthen bonds than sharing time abroad or on a great American road trip.
Preparation is everything!
No one wants to find themselves scrambling for answers and information after their trip has begun. So prepare yourself by reviewing helpful information prior to starting your travels. This may include looking into air carrier rules if you are flying or checking your travel route for road work and tolls if you are driving.
Let go of the guilt!
Dr. Krauss sheds her wisdom when she points out that we need to let ourselves off the hook about feeling guilty about going vacation just because other people we care about aren't going on their own vacation. Remember that you are autonomous from family, friends, or coworkers that won't be traveling and it is more than okay for you to enjoy your vacation.
Staying connected is okay
Yes, you are on vacation to step away from your daily life. However, for everyone back home, life is not on hold. So, if you need to check in with the sitter or review a flight notification on your email then do so. Psychology Today supports taking this peace of mind.
There is a time when you are on vacation to sit back and relax. However, there is also a time to take a leap of faith and venture outside of what is easy. Challenge yourself to try new things and make an effort to have experiences that you may not usually pursue. Within these unexpected moments and unforeseen plans, an opportunity to truly experience being alive arises. So, if you really want to turn off auto-pilot, take this approach by getting in touch with the local scenery of your destination or booking an activity that you find slightly intimidating. This approach is an excellent way to build your confidence and prove to yourself that you may be capable of more than you ever realized.
Make lists and check those lists off when packing for your vacation. Wasting spending money on things that you forgot at home or didn't foresee needing is not a smart way to travel. To help keep organized, try categorizing your lists. Also, remember what you may need that is specific to your travel destination. Additionally, pack for unexpected events like losing your passport or catching a cold. Anything can happen while traveling and being prepared for the unexpected is the difference between being inconvenienced or put in a crisis. While no amount of planning or preparing can prevent the inevitable, it can make life easier if things turn sour. Additionally, pack a list of emergency phone numbers and resources.
Is Your Pension at Risk?
Everyone faces the concept of retirement at some point. The closer an individual gets to retirement age, the more concerned he may become about his ability to live comfortably after retirement. It may also make him wonder whether his retirement benefits will be available when he is ready to collect.
The Future of Pensions
Those who expect to collect a pension when they reach retirement age may have become concerned about recent reports regarding pension-fund growth. Recent issues regarding pension fund investments such as:
• Modest economic growth
• Low interest rates
• Rich stock valuations
These factors have caused some economic experts to begin reevaluating previous assumptions they had concerning returns on pension funds. Keeping the above factors in mind, anyone whose retirement income includes a pension is encouraged to speak to a financial adviser to assess the effects these projections may have on his financial plans.
One problem is the benefits many state and local governments are committed to paying cost more than the availability of funds. This shortage of funds could result in decreased pensions for retirees, increases in taxes or decreases in other programs funded by various governmental agencies; this may be necessary to cover the deficit in the pension funds.
According to the National Association of State Retirement Administrators, the low interest rates that have been consistently in effect since 2009 has led to a re-evaluation of many public pension plans. This has been necessary for these entities to project potential long-term investment returns. In addition, they have been forced to reduce previous assumptions regarding plan investments This has been necessary to allow these entities to project potential long-term investment returns.
Public Pension Funding
Government-funded pension plans reported assets of $4.41 trillion during the period ending September 30, 2018. How are the assets used to fund the pensions? They are held in trust and invested so that they will be available to fund the cost of pension benefits. The return on those investments is essential since the earnings from those investments provide most of the financing for public pensions. Any shortage in projected long-term earnings from those investments must be replaced through increases in contributions or reductions in benefits.
Projections are necessary to fund a pension benefit and make assumptions concerning future events. Public pension plans typically consist of two components: the real return rate and inflation. When these two components are added together, the result is what is called the nominal rate of return, the most common rate used in the industry.
The real rate of return is the second component of the return on investment projection. This component consists of the actual return on the investment after it is adjusted for inflation. The purpose of knowing the real rate of return is so those in charge of monitoring the pension funds know the return that the investment generated for the fund. This allows them to better assess the future of the fund and plans for future investments.
The risk an individual pension may face is contingent upon several factors: inflation, return on investments and rate of return. While currently corporate pension funds are doing better than government-funded pension funds, this continued growth could change at any time. Pension funding always carries an element of risk; the future retirees need to follow the news in order to make plans for their future income.
Probate & Your Retirement Accounts
Planning for retirement allows for many considerations and avoiding Probate is one of them. The good news is if own a retirement account and have named beneficiaries, the account does not have to go through the probate process in most cases. Avoiding probate should be one of the goals of proper estate and retirement planning. While probate is a good fail-safe to ensure the property of a deceased owner is distributed fairly, probate also introduces delays, expenses, and headaches that are not usually necessary.
What Is Probate?
Probate is the judicial process in which the property of the deceased is fairly distributed to creditors and heirs. In the United States, probate is based on the wishes of the deceased as laid out in a document called a will. The probate court will ignore any instruction in the will that is not legally binding. If no will exists, state laws of inheritance are followed.
As probate is a judicial process, there will be court fees and lawyer fees paid out from the holdings of the estate. Some lawyers base their fees on the value of the estate in probate, so minimizing the value of the estate will save money which can be distributed to the heirs. The probate process also takes time – for a non-contested will, probate typically takes from six to eighteen months to complete.
Why are Retirement Accounts Different?
A will cannot supersede instructions in other legally binding documents or contracts. In the case of retirement accounts, there is an agreement on how the money will be distributed to beneficiaries after the owner's death. If valid beneficiaries are named on the retirement accounts, those beneficiaries will be entitled to the portion of the account as named. If the will directs how the retirement accounts should be settled, the court will ignore that part of the will during probate as long as the beneficiaries are valid
Under What Circumstances Do Retirement Accounts Go Through Probate?
There are a few circumstances in which retirement accounts will go through probate. If the retirement account owner has named his or her estate as the beneficiary, the retirement account will go through probate. If the beneficiaries are not valid – such as a deceased person or a minor – the account will go through probate.
In some rare cases, a retirement account owner may want their retirement accounts to go through probate. If the owner has outlived everyone he or she would care to name as a beneficiary, the owner may wish to pass the account through probate. A more common reason why retirement accounts pass through probate is because the account owner did not keep the beneficiary list up to date. If the owner started a job before starting a family, it would make sense to name the estate as the beneficiary. The accounts would go through the probate process if the owner did not change the beneficiary list as his or her life circumstances changed.
In the community property states, a living spouse is entitled to at least half of the value of retirement accounts. If the spouse is not named as a 50% or greater beneficiary for the retirement account, the spouse can claim their share in probate court. In other states, surviving spouses are guaranteed something from the deceased's estate. If there is no or little remaining value beyond retirement accounts, the probate court will consider retirement account money even if the spouse was not a named beneficiary.
When planning an estate, it is essential to know how property will be distributed upon the owner's death. Different rules and laws apply to different assets. In general, it is best to avoid probate whenever possible. For retirement accounts, the time and expense of probate can be avoided by naming valid beneficiaries on the retirement account. Be sure to check your beneficiary designations every few years to make sure the money is distributed according to your wishes.
Bill on Big Changes to U.S. Retirement System Moves to Senate
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) recently passed in the House of Representatives by a margin of 417-3 last Thursday. The bill is slated to be successfully ratified into law by the U.S. Senate later in the year in a rare moment of bipartisanship.
The SECURE Act marks the most momentous legislative change in retirement planning since the Pension Protection Act of 2006. That said, the SECURE Act that passed in the House of Representatives recently is a necessary and expected change to the U.S. retirement system.
Why? Because the Tax Cuts and Jobs Act passed in President Trump's first year in office effectively punted on retirement reform. The SECURE Act, by contrast, would allow for 29 fresh provisions or groundbreaking changes to existing retirement protocol.
The way that all of this will play out legislatively is fairly predictable. The Senate has a sister bill called the Retirement Enhancement Securities Act (RESA), which will interplay with the U.S. House of Representatives SECURE Act. Aspects of the Senate bill will make their way into, and be modified by, the House bill and vice versa over the coming weeks.
This reconciliation process is needed to harmonize the bills with each other and with what average Americans want out of their retirement plans. The bill that makes it out of reconciliation is expected to remove IRA age limits, expand the start of required minimum distributions (RMDs), and enhance the possibility that more employers set money aside for retirement plans.
Both the SECURE Act and RESA are meant to address social security funding issues and out-of-control pharmaceutical costs in particular and healthcare expenses more generally. The Medicare system is thought to be under serious strain at present since about a third of Americans don't set anything aside for retirement and rely on the system to the exclusion of everything else.
So, how can the SECURE Act and RESA make things better? The first salient aspect of both of these plans is that each enhances the ability of small employers to create retirement plans for their employees. The bills make multi-employer plans easier to undertake, and each plan allows smaller employers the opportunity to create 401(k) retirement plans with fewer worries about fiduciary oversight.
The SECURE Act will also delay the RMD (minimum distribution) requirement to at least 72 years of age. The current RMD cutoff is 70.5 years of age. The surprising thing about these upcoming retirement changes is that the Senate is attempting to push the RMD requirement to beyond the House's ambitious uptick and set the RMD requirement to 75 years of age.
Another positive aspect of these upcoming changes to retirement planning in the United States is a removal of age limits on IRA contributions. Previously, retirement savings were effectively discouraged insofar as individuals who continued to work into their seventies had a harder time making contributions. In the old system, once you hit the age of 70.5 years old you were disallowed any contribution to an IRA, though you could still contribute to a Roth IRA past this arbitrary cutoff. Section 114 of the House's SECURE Act would shore up older workers' ability to make regular IRA contributions by axing the aforementioned age limitation.
But since every new piece of legislation has to include both a stick and a carrot in order to correctly balance incentives that Americans will face when planning for retirement, both the SECURE Act and Resa feature some kind of tax credit for automatic enrollment. These tax credits will redound to small employers. The aim is greater accessibility.
Top 10 Important Ages for Retirement Planning
It is never too early to begin thinking about retirement. Even if that season of life is decades away for you, the financial decisions that you make now can have a significant impact on your quality of life later down the road. As you begin planning for your future, it is important to have a guideline for each age in life. Here are ten stages of life and what you need to be doing at each age to best prepare your finances for life after retirement:
UNDER AGE 49: Now is the time to be aggressive with funding your retirement accounts. Leverage the power of compounding interest when you are young and you will be set in the later years. In 2019, the federal 401(k) contribution limit is $19,000. You can add an additional $6,000 in an individual retirement account (IRA) to bring the total contribution to $25,000.
AGE 50: Once you hit age 50, you can add an additional $6,000 to your 401(k) per year. Take advantage of this increased limit to ramp up the savings during your prime earning years. You can also boost the IRA contribution by another $1,000. This puts your contribution maximum at $32,000.
AGE 55: Now is when you can begin withdrawing retirement funds without penalties from a past employer. This allowance can be beneficial if you are simply cutting back hours and need funds to bridge the gap.
AGE 59 1/2: This is the magic age in which you can begin taking out money from your IRA and other retirement accounts without accruing the standard ten percent withdraw penalty.
AGE 62: Age 62 is when you become eligible to receive social security payments. However, it is important to proceed with caution, as monthly payments are reduced for the remainder of your life if you begin withdrawing early. By choosing to begin taking out funds at this age, your monthly allowance is reduced by 30 percent. This amount decreases the longer you wait.
AGE 65: As the benchmark standard retirement age, 65 is when you become eligible for Medicare. Even if you are not withdrawing on your retirement funds, it is important to sign up for this service three months prior to turning 65 so that you do not incur costly additions to your monthly premiums.
AGE 66: Depending on when you were born, this is the age when you may receive the full benefit of your social security payment. Those people born between the years 1943 and 1954 qualify for the entire benefit at age 66. If you were born between 1954 and 1959, the age in which you receive your full benefit kicks in at different intervals during the year that you are 66.
AGE 67: For those people born after 1960, 67 is the age in which the full social security benefit is realized.
AGE 70: Once you hit age 70, it is no longer beneficial to delay receiving social security benefits. If you have not already done so, now is the time to begin receiving these benefits.
AGE 70 1/2: Anyone over the age of 70 1/2 is no longer allowed to receive a tax deduction for IRA contributions. Likewise, you are now mandated to begin withdrawing funds from your 401(k) and IRA accounts and pay the income tax on these withdraws. The only exception to this rule is if you are still working and have a 401(k) account with that current company.
Preparing For Incapacity & Long Term Care
Individuals working for years and planning for retirement ultimately lead to be dynamic go-getters who don't want to think about the limitations and possible incapacitations of old age. However, with smart planning in your 50's and 60's, you can protect your heirs from financial risk and even protect a business from a crippling lack of leadership.
Costs of Long Term Care
Depending on where you live, long term care can cost you anything from $54,800 to $150,200 per year. While nearly half of all those who use a long term care facility are there for more than a year, this expense can be covered by a long term care policy.
Average costs on long term care policies run approximately $2,700 per year, though significant discounts are available for couples. Depending on when you buy, you can lock in a low rate that will protect you from the expense of a long stay in an assisted care facility.
If a great deal of your assets are tied up in a business, work with your attorney and business partners to make sure that your assets and legacy will be protect in the event of a catastrophic health challenge.
Make your intentions and goals known. Take care that any personal savings would be readily accessible to your spouse or heirs as you intend in the event you can no longer authorize withdrawals or sign checks. Consider setting up a trust to divert your assets into a tax protected vehicle in the event of your incapacitation.
It's important to note that the majority of those currently receiving daily assistance are still living at home. In terms of budget, this makes good sense. While the average cost of a semi-private room is more than $80,000 in the United States, a full-time health aide will cost less than $50,000.
In the event of a catastrophic health event that requires skilled nursing care, a long term care policy can provide substantial protection for your remaining assets. For example, should your resources be exhausted and you need to rely on Medicaid due to lack of insurance, your spouse would be able to keep slightly more than $100,000.
With a long term care policy that offers asset protection for your partner, your partner will be able to keep more. The amount of protected coverage will be determined by the policy.
Also be aware that Medicaid rules vary from state to state, so don't rely on this protection without a careful review by your insurance agent and attorney.
Long term care insurance can also be provided with a hybrid policy that offers whole life coverage. If you never need long term care, your whole life policy will benefit your heirs as any life insurance policy would. However, this policy is generally more than twice the price of a long term care policy, so consider this investment carefully.
Consider Touring Local Facilities
One of the greatest challenges in choosing long term care is finding a bed in an emergency. If your health history demonstrates that you may need long term care, consider finding a facility with a feeder facility, such as apartments or condos. You would likely have closer access to long term care when you need it, and you can use the features at the feeder facility to improve your health and put off long term care as long as possible.
The best time to make plans for long term care is long before you need it. With the right policy, you can protect your assets, guard your heirs and shield your partner from great worry and expense.
Top Asked Social Security Benefit Questions
Social Security is one of the main benefit programs for workers in the United States. At some point, almost everyone will collect something from Social Security. If you are getting close to collecting from Social Security, you might be wondering how the program works and what to expect. Here are some of the most commonly asked questions about Social Security benefits.
How Old Do You Have to Be to Collect?
The short answer is that it depends on when you were born. Also, you can decide if you want to start collecting benefits earlier and take a smaller amount, or if you want to wait for a higher amount.
The soonest you can start receiving benefits is at age 62. If you do that, your monthly payment will be smaller. You can delay the payment each year and it will keep increasing until you're 70 years old. So it's really up to you how you want to handle it. The "full retirement age" is considered 65 for those born before 1938. If you were born after that, there's a sliding scale up to 66 years and 4 months to reach retirement age.
How Much Can I Get?
The amount you get from Social Security varies depending on when you retire and when you were born. How much you earned over your career also plays into the calculation. To give you an idea, the average benefit for someone on Social Security as of January 2019 was $1464 per month. On the high end of the spectrum, you could earn as much as $2861 per month if you waited as long as possible to retire and were in the highest bracket. Your spouse can also receive a benefit of roughly half of your benefit. If you pass away, your spouse can also keep receiving spousal benefits from Social Security.
When Do I Get My Social Security Check?
The short answer is, you won't actually get a check. Social Security doesn't mail physical checks, but you can sign up for direct deposit. In that case you'll get an automatic deposit into your account. Another option is to receive a prepaid debit card with your benefits on it. If you do automatic deposit like most people, the day that the deposit arrives varies depending on when your birthday is.
If your birthday is in the first 10 days of the month, your payment will arrive on the second Wednesday of the month. If your birthday falls in the range of the 11th through the 20th of the month, then you'll get your payment on the third Wednesday of the month. If your birthday is after the 20th, you'll get the payment on the fourth Wednesday.
How Do I Apply for Social Security benefits?
The easiest way to apply for Social Security benefits is online at SSA.gov. Another option is to go to the local Social Security office and apply in person. You can start this process when you're 61 years and 9 months old. You can receive your first benefits when you turn 62 if you wish to start as early as possible.
Remember, Social Security benefits should only account for a portion of your retirement income. A retirement plan with other sources of income is ideal and we are here to help you plan for the retirement road ahead.
Naming Guardians For Your Minor Children
One of the crucial decisions in life if you have minor children is to make arrangements for the guardian or guardians who will finish raising your children if you and your spouse should happen to die in a common accident or weather disaster.
A will likely find that a lot of thought and planning have to go into that decision, and you need to give it a great deal of consideration.
The first step is to have a complete discussion with the person or people that you have considered for this very important family event. There are a multitude of factors that enter into this designation, some of which are the following:
* Does the person really want that responsibility? Will there be passion in performing the “duties” and the financial ability to do so?
* Does that person have the same parenting methods, discipline ideas, lifestyle, finances, religious beliefs, medical decisions, motivation, and future plans for the children's education that you do?
* Although you may think your parents are the perfect answer, would they be capable of assuming that role if many years go by and they have medical or age related restrictions if the time ever came?
* Where is the guardian located? Would it mean an upsetting move for your children into a totally new area without friends? Will they perhaps be put into a large family and are used to a small one?
Guardianship provisions are an integral part of your estate planning, as follows:
* You must deliberately and carefully spell out the guardian or guardians that you have chosen in your will or living trust or in a proper separate document where parents can designate a guardian. A qualified family law or estate attorney will provide all the necessary language and the required documents for your state and will even ensure that future children born or adopted would be included in the guardianship designation. The legal guardianship of minor children is regulated by each individual state, which has its own unique requirements, rules, and obligations.
* It is considered good practice to name at least one alternate guardian in case circumstances change.
* You may think that if you do not specify a guardian, one of the children's closest relatives will be appointed. Realize that the person may not want or is not prepared to take on that role, and it would be up to the court to decide who to appoint. You might not agree with that decision.
* In the future, whenever you review your will to see if it is up-to-date, remember to also review your guardian choice to make sure it still is appropriate.
How do guardianships and adoptions differ?
A guardianship of minors is a legal relationship between the guardian and a minor child where the guardian has certain obligations and rights regarding that child. A guardianship does not sever the legal relationship between the biological parents and the child, and they co-exist.
An adoption permanently alters the legal relationship between biological parents and a child. The adopted parents become the legal parents, and the biological parents give up their parental rights and obligations.
You may hope and pray that the day will never come when a guardianship would be necessary, but you will have peace of mind if you have provided for your children in the event that such an event ever occurs.
Your Tax Return & Your Retirement
This years tax deadline is behind us. If you received a refund, what’s your plan?
Some taxpayers choose to spend the entire check on clothing, shoes, and their appearance. They never look into investing their money for their own personal future. In a sense, you may be temporarily happy about your purchases or your new hairstyle, but in the future, you might regret not investing some of the money for your retirement.
There are many ways to put your tax refund to work, such as:
• Invest in a healthcare savings account
• Paying off school loans
• Emergency savings account
• Start an IRA
These options will help you with lowering your debt and being prepared for those unexpected situations. If have a high deductible health care plan at work, you can open a healthcare savings account or HSA. These funds are used in case you have a medical emergency that needs to be taken care of right away, such as a broken bone, a fractured ankle, or a broken hand.
If your health insurance doesn't cover the cost of the procedure, you can use your healthcare savings account. The greatest advantage to this type of account is that you won't be taxed when using it for healthcare.
If you reach retirement age, you can use the money for glasses or hearing aids and even medical premiums. You can use it towards your out-of-pocket expenses as well.
Let’s take a look with those that have a 401k plan.
While contributions to a 401k plan must come from your paycheck, you can divide your refund by the number of remaining paychecks for the year and thus use it to contribute towards your 401k. According to the Internal Revenue Service, the average tax refund is over $3000. If there are 16 more paychecks this year, you could increase your contribution by an extra $187.50 per paycheck to use your refund by the end of the year. Additionally, many plans have a matching contribution by employers which is a a great incentive for you to start investing if you’re not already doing so.
Did you know?
If you’re self-employed without a 401k, you can open your own 401k plan and lower your taxes by “putting away” up to $56,000 a year. Unlike a regular 401k which can be costly endeavor, a solo or individual 401k can be set up for free and operated with little ongoing administrative paperwork. If you are in a position to open an Individual 401k, you don't have to have a certain amount to open it. An Individual 401k is great for single people who have no children. In case there is an emergency that takes place in their life, they can have the option of using an Individual 401k.
The best way to prepare for a worry-free retirement is by preparing for it.
Whether you decide to use your refund for investing towards the retirement or paying down debt, you have made a step towards having the best future. That's truly a lot to be proud of.
We are here to help you plan for your retirement years, contact us today to see what plan we can create for you.
Copyright, 2019, https://money.usnews.com/money/retirement/iras/articles/how-to-use-your-tax-refund-toward-retirement, US News and World Report
Retirement Reform in 2019
Two years ago, the current government built their own mark on the United States with what some call the most necessary and important tax reform. The retirement reform that they are planning might be the long shot of 2019 since there are four important pieces of retirement reform in legislation before Congress. Every single piece tends to have been supported by both sides in their latest drafts, on the other hand there are various regulatory advancements and state level when it comes to retirement savings that are also moving onward and upward.
The Four Extensive Retirement Acts
Retirement Enhancement and Savings Act
Retirement Parity for Student Loans Act of 2018
Retirement Security and Savings Act of 2019
Social Security 2100 Act
The RESA or the Retirement Enhancement and Savings Act was originally introduced almost four years ago, however, it was reintroduced once again this year. The Director of Economic Policy at the Bipartisan Policy Center, Shai Akbas, said this bill has been the primary objective in Congress for years. He also said that Washington has been expecting the bill to move on at a binary level and basis. The current Congress simply thinks that this bill has the capacity to create numerous changes to the current retirement system by making it more accessible to workers in various employer contribution plans, eliminating the limitation of age on their Individual Retirement Account for contributions, eliminating several restrictions on the enrollment for 401k plans, and making it easier for them to acquire the available options of lifetime income from their retirement plan that has been qualified and accepted.
The Retirement Party for Student Loans Act of 2018 (or the RPSLA) was originally introduced last year and was referred to the Finance Committee of the Senate. In relation to the Retirement Security and Savings Act, the introduction of this act also requires to be reintroduced. The RPSLA has the ability to allow 403b and 401k plans (and other straightforward retirement plans) to build contributions that match the retirement account of an employee by dealing with student loan payments just like salary deferral contributions. An employee would focus on paying off any student debts while having their current employer contribute to the retirement plan that they selected. The strategy of the bill tends to be wide and strong in support but it is still not clear whether or not the bill can proceed as a stand-alone since it has the possibility to become attached as a provision or to combine with another retirement bill.
On the other hand, the Retirement Security and Savings Act of 2019 was initially introduced to the Senate of the United States during their final session last December. The RSSA or the Retirement Security and Savings Act is a bill that currently has some controversial factors such as increasing the savings in 401k plans and Individual Retirement Account. This would assist with a small employer coverage for those who work part-time, a change in required minimum distribution laws for individuals who are planning to work after the age of 71, and eliminating the hurdles for the inclusion of lifetime income options when it comes to retirement plans.
Last but not least, the Social Security 2100 Act was first introduced in the Senate this year and the Act currently has more than two hundred cosponsors in the House. Shai Akabas stated that the Act has the power to increase benefits in Social Security and to resolve the issues in funding and the affected system through an increase in taxes.
2019 could be quite a year for current and future retirees. We are here to help you navigate through your journey.
Could Your Retirement Be Delayed?
Many people spend years dreaming about the day they will retire. They envision spending time in their vacation home’s with their family and friends at their sides. However, for some, this vision doesn’t become reality. Instead, they spend their golden years working instead of at the golf course or having coffee with friends. If you have a sneaking suspicion that you may be a person who needs to delay retirement, then here’s what you need to know. Many factors contribute to a delayed retirement. Here are three of the most common ones.
1. You Have Too Little Money Saved
If you retire at age 67 and live until age 95, then you’ll need roughly 28 to 30 years’ worth of income saved up in order to retire. So, assuming this is true, just how much money would you need to have saved if you do live that long? According to CNBC, a 30-year retirement requires at least a million dollars to fund it.
Most Americans do not have that much money in their retirement accounts, not by a long shot. The median savings amount among Baby Boomers is only $200,000. For those who do not have enough saved for retirement, the solution may be to work longer and to save more in the process.
In order to get ahead of this trend, it’s necessary to create a plan for the retirement years. It’s impossible to hit a target that you don’t have.
2. The Amount of Education You Have Plays a Role
Retirement is delayed among those who have advanced degrees. The reasons behind this are at least two-fold. For one thing, those who took the 10 or 12 years necessary to get advanced degrees stay in school longer and therefore, join the workforce later in life. This delays their ability to contribute to retirement savings accounts and to save the money necessary to retire.
The kind of work that people in this demographic do also contributes to their decision to stay in the workforce for a longer amount of time. The work isn’t physically demanding and often pays a higher salary. As a side benefit (and another related contributing factor), this demographic of workers usually work at jobs that they actually like. For them, retirement isn’t much of a motivation. They like what they do, so they stay in the workforce for a longer time. Thus, they choose to delay their own retirement.
3. You Have Too Much Debt
According to Market Watch, having too much debt can take a big bite out of your retirement savings. The more debt you have to pay down, the less money you have to contribute to your retirement savings.
The sad reality is that many of us will contribute the majority of the funds in our 401(k) accounts. But that isn’t the only challenge facing future retirees. The amount of social security that they can expect is going down and the age at which they can take from their social security accounts keeps getting pushed back. Due to all of these challenges, most people aged 50 or over only have about $10,000 saved.
One of the biggest contributors to debt during a person’s retirement years is the cost of healthcare. Healthcare costs eat up over a quarter of a million dollars on average during a person’s retirement years. Some of this debt comes from illnesses, like diabetes or cancer. Some of the expense comes from having to pay for healthcare out of pocket. If those healthcare costs come before retirement, say in the case of a catastrophic illness, then retirement will be delayed for an indeterminate amount of time.
Create A Plan For YOU
If you’re one of those lucky people who love what you do, then you may not care that your retirement gets delayed by 10, 20, 30 years or more. However, if you count yourself among those who either has not saved enough or who has too much debt, then you need to take a serious look at your finances. The only way you will be able to retirement is to take control of your finances and to create a plan for retirement. If you find yourself in that boat, then your best bet may be to talk to a financial planner about what you can do to turn the tide of your finances.
At 59 ½ – You Can Take Control!
Before you turn 60 years old, your 401k plan has a set up that you may want to take advantage of. In the past, there has been a lot of middle-aged taxpayers who were scared to open certain bank accounts. Nowadays, those thoughts of being financially taken advantage of are not what investors are thinking about. In fact, if you have contributed to a 401k plan, you can have in-service withdrawals happen before you turn 60. Primarily, these withdrawals are those who are still employed at that age.
Whenever you are starting a 401k plan, it's best to ask about all of the benefits of having the account before starting your investing process. There are some advantages and disadvantages that you would have to think about. For instance, the advantages of taking charge of your 401k through in-service withdrawals are:
- greater flexibility
- benefits for beneficiaries
- exceptions on certain penalties
- protection of the money you have invested or earned over the account
- if you have stock in your company, this could be a great retirement plan
- early retirement could be an option
- 401k plans will move to another employer when you turn 55 or older with no penalty
When choosing to find out about the disadvantages that an in-service withdrawal contains, you may run into the following issues:
- If you have an IRA, your penalties will take place if you are under 60 years old
- moving your money from a 401k plan to an IRA changes the rules for your account
- 401k protects you from creditors that would want to be paid through your account
There are different employers that will offer in-service withdrawal plans. On the other hand, there are employers that don't offer this valuable money-making tool. For advice on investing, you can speak to someone in the administrative department at your job. From there, you should be guided to the right solution. For more information, you can research 401k plans at contolling your assets.
When an employee qualifies for an in-service withdrawal, it can be looked at as an early retirement contribution to themselves. In fact, you can use that money to vacation and travel without worrying about penalties at all. Additionally, you don't have to worry about tax laws diminishing what you've earned. Each employer that offers this in-service withdrawal plan has ordering rules. If you want to read about in-service withdrawal plans a little more, you can research the topic at in-service withdrawl.
Believe it or not, your employer will start helping you plan an in-service withdrawal through your 401k at 59½ years old. You could feel your best days once you plan the withdrawals. For affluent individuals, a 401k plan could be the very reason why you start a new adventure or look for a new trade. Moreover, there could be a new lease on life for you as well as your family.
Your Retirement Paycheck Matters
Retirement income is not a one size fits all calculation as wants and needs vary significantly from one person to the next. Several factors such as life expectancy inflation, and balances do play a huge part but considering your retirement expectations for the "golden years" will help in the planning process to make the most of your retirement.
Remember your first payday? How excited were you to get that hard-earned cash in your hands? You opened the envelope and found all sorts of deductions from your pay, federal taxes, social security, and healthcare expenses. You officially started paying bills and contributing to your retirement years with that first paycheck. You continued to work hard and grew in your career, you were given opportunities for employee stock purchase plans, profit sharing, and retirement plans, including pensions and 401Ks. You on your way and building your nest egg.
As you get closer to the retirement years, you need to start making plans. Whether it be traveling, a summer home purchase, or just relaxing with family, your plans are important to your retirement income needs. Some people retire right at 62 when they can collect social security benefits. Did you know if you continue to work till 66 you will receive the full benefit payout? And if you work till 70, you will receive a 32% bonus!
Sadly, but understandably, many new retirees worry they haven’t saved enough. Sometimes life happens and plans become changed. You may hesitate and not do the things you looked forward to during your working years due to fear of over spending or running out of money. When this happens, retirees often realize they had enough funds for their plans when it’s too late. Their health deteriorated, and that can make it hard for us to enjoy the things we were looking most forward to in our retirement years.
How can we prevent emotions from controlling our spending? By planning. Part of your retirement plan should include setting an amount for your retirement paycheck. Much like the paycheck received from work, a retirement paycheck is an amount you set to cover all monthly expenses and include the costs of your retirement activities, like traveling or moving.
It’s generally safe to assume you will need 80% of your current salary. This should serve as a good starting point. Then, you can look at your plans. Is there a big wedding or healthcare costs that may incur a large payment? Where will you be living? Many retirees may move into a retirement community while others may just downsize their home or stay put where they are.
As you look at your plans, be flexible but realistic. Your income needs may vary from year to year. You may buy a new car ever 5 years or so and vacations may be every other year. Some people will continue to work after retiring. Adjust accordingly. There is no need to take more money than out of your retirement vehicles than required. Allow those long-term savings to grow until it’s necessary to retrieve them. You will find confidence in knowing you have a steady income stream with consistent retirement paychecks to meet your spending needs.
If you’re looking for planning help, we are here to guide you to and through your retirement years.
How Does Your Retirement Income Compare?
With each passing year, more baby boomers are reaching retirement age. There is a lot of discussion surrounding the management of retirement savings and how to turn this money into an income stream. This conversation is becoming increasingly important as pensions are obsolete for many and the Medicare system is being squeezed for all it is worth.
According to the U.S. Census Bureau, the median retirement income for household age in 2019 is as follows:
AGE OF HOUSEHOLD MEDIAN INCOME
Households Aged 55-59 $73,645
Households Aged 60-64 $63,919
Households Aged 65-69 $54,124
Households Aged 70-74 $46,797
Households Aged 75 and Older: $31,893
Whether you fall below or above these average numbers, it is important to overview your potential or current retirement income. Here are the five areas from which retirees see the most income. We will also be discussing ways in which to boost your income from each.
1. Average Social Security Income:
Over 85% of retirees age 65 and older receive Social Security income. In 2019, these monthly payments were increased by 2.9% to adjust for the increased cost of living. The average monthly income was raised from $1,422 in 2018 to $1,461 in 2019. Other than occasional adjustments for inflation, the monthly payments from Social Security remain quite constant. The only way to receive more money is to postpone the time you start collecting the payments.
2. Average Asset Income:
Surveys and studies show that retirees in 2019 only receive an average of $164,000 from their assets such as 401(k)s and IRAs. Although this number is up from previous years, it is still not enough money to survive. The best way for a retiree to make this money last is by spending less money. Individuals who are younger should continue investing into their IRAs and other retirement funds.
3. Average Pension Income:
Pensions are quickly becoming obsolete, as only 31% of retirees track income from this source. Those retirees who do have pensions often have double the amount of income than their non-pensioned counterparts. While it is nearly impossible to increase the income of a pension, you can be diligent about taking out monthly payments versus a lump sum.
4. Average Work Income:
The percentage of elderly individuals in the workforce is expected to rise to 32% by 2020. Transamerica predicts that two-thirds of all baby boomers will be working past retirement age. Retirees can actually experience some social, financial and mental benefits by joining the workforce. It is recommendable to find a job you love doing or to find streams of passive income.
5. Veteran's Benefits or Public Assistance:
According to the Pensions Rights Center, about 7% of all retirees are receiving financial help from the government. This public assistance ranges between $5,866 and $6,542 in median benefit. Low-income seniors can conduct research on all of the organizations that are willing to aid retirees in need. Veterans should also contact their local VA office for more information about the available benefits.
Important Trends for Retirees to Follow in 2019
The median income for retirees today was decided in part by the behavior of retirees in the past. However, there are also factors happening today that contribute to these averages.
Focus on De-accumulation: In retirement age, individuals should be focusing on how to spend their money wisely. The goal should be on de-accumulation, not on creating more income.
Rising Interest Rates: Interest rates are on a steady rise after some historic lows. This is bad news for people starting to pay back loans.
Stock Market and Home Prices: Both the stock and housing markets are experiencing a plateauing effect after years of great returns.
Avoid Tax Season Scams
Tax season is once again in full swing. While many concerned taxpayers file tax returns to meet the required deadline, criminals work harder to cash in taking advantage of the hectic tax season. Tax fraud remains a growing concern nationally, and counterfeit scams cost millions of dollars. Individuals who take a proactive approach can deter fraud and protect their identity, information and their finances. Here are a few recent scams catching the watchful eye of the IRS.
TAX PREPARATION SCAMS
The IRS just released notice IR-2019-09 to alert taxpayers of unscrupulous tax preparers. Deceitful tax preparers file erroneous tax returns for many unknown taxpayers. The law requires all preparers who receive payment for preparation of federal tax returns to have a valid Preparer Tax Identification Number (PTIN). The tax preparer must include their PTIN and sign the return. For e-filed tax returns, a dishonest preparer will omit his electronic signature. Additionally, they may falsify tax information to increase the refund, while directing the refund into their bank account. Tax payers must review their tax returns for accuracy of income and deductions. Ensure the tax preparer signs the return and includes their PTIN. Make sure the bank account and routing numbers are correct. The IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications provides an excellent resource to locate established tax preparers with the IRS.
CHARITABLE GIVING SCAMS
In the fall of 2018, the IRS posted notice IR-2018-188 to inform individuals of charitable giving scams. The 2018 hurricane season ended with Hurricane Florence and Michael wreaking destruction in its pathway, destroying homes and causing millions of dollars in damages. Natural disasters bring out the best in generous individuals seeking to aid donations to humanity in times of a national emergency. Sadly, criminals take advantage of benevolent individuals who desire to financially aid their fellow man in dire need. Counterfeit websites disguise themselves as other well-known established charities to deceive generous individuals to donate money to a dire cause. Additionally, some individuals receive solicitations from fraudulent charities, promising a nice tax deduction in return for your donation. Don’t fall victim to their schemes. Donors can prevent thousands of dollars from falling into the wrong hands. The IRS provides a tool to help prevent against charitable giving scams. Donors can verify if a charity is legitimate by utilizing the IRS search tool, Tax Exempt Organization Search. Never give to a charity who solicits a donation without first verifying the authenticity of their organization.
EMAIL PHISHING SCAMS
In IRS notice IR-2018-226, the IRS alerts taxpayers to a recent spike in email phishing scams. While fraudulent emails and phishing scams have been around awhile, data thieves continue working diligently to improve new tactics to steal valuable information. Emotet is the infected malware of choice in many email scams, and Emotet remains well-known as the most damaging and expensive to fix. Many of these scam emails display tax account transcript in the subject line of the email and include infected attachments with similar wording. These emails appear legitimate. They often disguise themselves as representatives with banks, financial institutions and the IRS. The IRS logo and other well-known bank logos appear real, and many unsuspecting individuals open the infected email attachment. The IRS does not contact individuals through email. The IRS warns individuals to not open suspecting emails. The IRS remains diligent to combat against fraud. If you suspect a suspicious email, you can also forward the email to firstname.lastname@example.org.
What is the Social Security 2100 Act?
Democratic Congressman John B. Larson introduced the Social Security 2100 Act on January 30, 2019. The proposed legislation seeks to raise payroll taxes to keep Social Security solvent and expand benefits.
Payroll Tax Increases
Some say that Social Security is in crisis. The program has had a deficit every year since 2010. If Congress does not act, the Social Security Trust Fund is forecast to become insolvent by 2034. The Social Security 2100 Act would address that problem by raising the 12.4 percent payroll tax by 0.1 percent annually until the tax reaches 14.8 percent.
The bill increases payroll taxes in another way. Today, the Social Security payroll tax is levied on all earned income up to $132,900. The new legislation would subject earned income over $400,000 to the payroll tax. Initially, earned income between $132,900 to $400,000 would be exempt from the payroll tax. This exemption gradually would be phased out as long as the cost of living adjustment is going up. All of the bills combined tax increases are projected to keep the Social Security solvent for 75 years.
In addition to addressing the insolvency crisis, the other goal of the proposed bill is to expand Social Security benefits. The key measures to increase benefits follow.
- All recipients would see their benefits rise by about two percent.
- To accomplish this, the primary insurance amount factor would move from 90 percent to 93 percent starting in 2020.
- The cost of living adjustment would increase.
- Currently, the cost of living adjustment is calculated using the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Although the Social Security cost of living adjustment has been tied to CPI-W since 1975, the index doesn't reflect the spending habits of the Social Security's primary demographic group, the elderly. The Social Security 2100 Act would base the cost of living adjustment on the Consumer Price Index for the Elderly, which takes into account that the elderly spend more in certain categories such as healthcare.
- The minimum benefit would increase.
- Today's benefit is below the poverty level. Starting in 2020, the bill would raise the minimum benefit to reduce poverty among new retirees and the newly disabled.
- Federal income tax would be reduced or eliminated on Social Security benefits for select recipients.
- Currently, Social Security benefits are taxed if the recipient's overall income reaches certain income tiers. For example, single tax filers who have an adjusted gross income (AGI) plus one half of benefits of greater than $25,000 can have up to 50 percent of their Social Security benefit taxed. However, at greater than $34,000 of AGI plus one half of benefits, up to 85 percent of Social Security benefits are taxed. The Social Security 2100 Act would simplify taxation by eliminating the tiers and create one income threshold for each taxpayer filing status. The new threshold is up to 85 percent of benefits are taxed for single filers with an AGI over $50,000 and an AGI over $100,000 for joint filers.
Planning for your own retirement income will likely provide you with peace of mind. Let us know, we can help.
Buying A Vacation Home In Retirement
If your retirement dream includes bouncing around between a beachfront condo in the winter and a mountain retreat in the summer, you are in good company. Perhaps you want to keep a small condo close to the kids while also maintaining a home in an area more conducive to how you plan to spend many of your weeks throughout the year. These are only a few of the many reasons why retirees often maintain a primary home as well as a secondary home. While this may seem like an idyllic retirement experience, understand that there are numerous factors to consider before you sign a contract on a second home.
The Financial Impact
One of the most significant factors that you need to review upfront is the financial impact that a second home will have. You may need to take on another mortgage payment. If not, paying cash for the full sales price may impact your ability to draw dividends or to generate other investment income from that money. You also must pay for repairs, utilities, maintenance, taxes, insurance and decorating costs for two homes rather than one. Because you may plan to spend ample time in both locations, your travel expenses should also be accounted for.
On the other hand, you may be able to use your properties to generate side income. For example, you can rent whichever home you are not currently in out to travelers as a furnished vacation rental. While this may generate a profit or at least help you to cover some expenses, keep in mind that you may need to hire a property management company to decrease the hassle avoided with managing the home on your own.
The Long-Term Outlook
Before making a major purchase like a vacation home, it makes sense to think about the long-term impact that this purchase will have on your life. What is the real estate market currently like in a desired area, and what is the market outlook? Do you eventually plan to move into the vacation home full-time in a few years? Do you want to be tied to a specific vacation destination, or do you want to travel frequently and explore other interesting and beautiful areas?
More than that, think about how the real estate purchase will impact your finances. You may accumulate a nice nest egg in your vacation home, but accessing that cash at a later date may require you to refinance or sell the property. Buying real estate ties your money up in a non-liquid asset. You may need your money to grow in an investment with a guaranteed return, such as in high-yield CDs, rather than in a real estate investment that may have a riskier financial outlook.
The Lifestyle Experience
Buying a vacation home can improve your lifestyle in retirement dramatically if this is a financially-sound move for you to make. It gives you a comfortable place to live while you are away from your primary home. Because you have carefully selected the right home for your needs and decorated it with our own furnishings and other items, you can feel truly relaxed and at home while you are in tis space. More than that, you can easily float from your primary home to your secondary home without having to make reservations. You may even keep some of your clothes at each location, and this eliminates the items that you may need to pack as you prepare to transition to the other home. Altogether, life may be much more comfortable and relaxed in retirement when you have two homes to live in.
While buying a retirement vacation home is seemingly ideal at first glance, you can see that numerous factors should be considered before deciding if it is right for you. Keep in mind that the actual location where you select your new vacation home may impact your finances, your use of the home and more. Therefore, analyze all options before finalizing your plans.
Planning is what we do, we can help you achieve your goals, call us today.
Your Tax Refund & Your Retirement
The average American gets a tax refund each year. In fact, the average tax refund is more than $2,700. That's a pretty nice infusion of cash. Windfalls can lead to temptation. For example, a nice vacation is something that many people will use their tax refunds for. This is only one way to spend a refund, however. One of the better options would be to invest some of that money for retirement.
Where To Save
There are several options for saving a tax refund. First is a regular savings account. This might not help much toward retirement, but for those who have little in the way of an emergency fund set up, it could be a good idea regardless of what their income level might be. Traditional or Roth IRAs are good options for saving toward retirement with a tax refund. Additionally, those who are self employed can opt for what's called an SEP-IRA. These are quite easy to set up today. There are many online brokerages that allow for setting up retirement accounts with a few clicks of a mouse and five or 10 minutes of time. The average tax refund would go a long way toward getting into some mutual funds through Vanguard or Fidelity that charge very low management fees. From there, it's possible to start saving even very small amounts each month.
There Are Tax Breaks
Saving in a retirement account comes with some pretty nice tax breaks. Those who are don't make too much to invest in a Roth IRA pay with after-tax dollars, and there will be no taxes due on the contributions or the growth when it comes time to start withdrawing from the account. Those who decide to save with a Traditional IRA will see their tax bill go down in the contribution year. For example, investing the entire $2,700 average tax refund in a Traditional IRA would cut taxes by $594 for those who hit the very middle-class 22-percent tax bracket. The Traditional IRA allows for pre-tax savings, and those who invest in this vehicle will owe taxes when they withdraw the funds. Additionally, those who make less than $60,000 in taxable income and save within a qualified retirement plan will be able to take advantage of a special savers tax credit.
Don't Forget To Have Some Fun
For those who have a hefty return that's higher than the average, it's still possible to save for retirement while having some fun. Instead of spending $5,000 on a vacation, why not stay closer to home and invest some of the refund for retirement. Some could choose to opt for a weekend staycation depending upon where they call home. It's important to remember that every dollar that's saved today will likely be worth much more than a dollar a few decades down the road. Even those with relatively high incomes will frequently have little in savings for retirement or otherwise. A nice tax refund provides the perfect opportunity to save a bit toward retirement. It's important to keep in mind that IRAs are available to many Americans even if they have 401(k) or other similar plans available through their places of employment. Even if they are not available, it's possible to save in a taxable account.
Few times of year provide a windfall that's as big as a tax refund. Rather than spending it all on a pricey vacation, putting some of the refund away can help toward retirement. The further away retirement is, the more the savings will pay off in the future as the funds will compound over a period of years or even decades.
If you are looking for additional guidance on your retirement plan and we have not talked with you recently or at all, give us a call. Make 2019 the year you felt confident in your retirement plan.
Seventy Percent Need Long Term Care
Millions of people in the U.S. are unable to care for themselves and need long-term care services. These people need assistance in performing one or more self-care activities of daily living such as eating, bathing, dressing, and executing basic movements like walking, sitting, or standing. Services can be provided in the patient’s home, a residential care community, nursing home, assisted living facility, adult day service center, or at a hospice. Housework, money management, shopping, organizing medication, and helping with communication are some of the other long-term care services that are provided.
The need for long-term care services has grown as the life expectancy of the U.S. population increases. There is a 70% chance a person who is 65 years of age or older will need long-term care, and women are more likely to need this care because they live longer than men on average. It’s not just the elderly who are most likely to need long-term care services. People who have been in an accident or have a chronic illness or chronic condition due to poor eating habits, lack of exercise, or family history are more prone to need long-term care services. Also, people who live alone are likely to need long-term service if they don’t have family or a partner nearby to help take care of them.
Long-term care services are expensive for most people, and the longer a person needs servicing, the more expensive it gets. Some policies for long-term care went up by 58%! The average national annual long-term care are as follows:
• Home health care: $45,760 - $46,332
• Adult day health care: $17,680
• Assisted living facility: $43,539
• Nursing home care: $82,125 - $92,378
Costs for some providers are all-inclusive, and other providers have a flat fee then add extra charges for services beyond room, food, and housekeeping.
Health insurance only provides limited coverage for specific types of long-term care medical needs, and disability insurance doesn’t provide any long-term care coverage. Health insurance, including Medicare, generally covers skilled nursing facility stays after a recent hospitalization and medically necessary skilled home care. Disability insurance is only designed to provide an income to a person when they become disabled and are unable to work.
Long-term care insurance is specifically designed to cover the cost of long-term care services that are provided in a variety of settings. This insurance is comprehensive, and it’s flexible enough to provide a person with individualized coverage. The monthly premiums for a long-term care insurance policy are based on a person’s age at the time they apply for a policy, the type of policy they apply for, and the type of coverage they select.
Long-term care is a complicated process that involves family, nursing care representatives, and in some cases, social workers, and legal counsel. It can be a delicate time for everyone involved. It’s important to take the time to make the right decision so that the person who needs these services can be satisfied with the decision.
How to Prevent Elder Financial Abuse
Elder financial abuse can be a complicated subject, but at its most basic level it involves
taking advantage of an older adult through manipulation or intimidation to steal their money or
Elderly adults are some of the most vulnerable to financial abuse. Some of the biggest risk
factors for older adults include:
Isolation can cause extreme loneliness in seniors, leaving them desperate for any sort of
social connection. Many abusers target elder adults for this reason.
Lack of knowledge of financial matters
Elder adults who don’t pay much attention to or don’t understand financial issues can be
tricked into giving over secure information.
Whether the older adult has a physical or mental disability, they are dependent on others to
take care of themselves. This leaves them vulnerable to manipulation and intimidation by
caregivers. Disability can also make an elder adult seem less likely to take action against the
Who is most likely to abuse?
Unfortunately, abusers are rarely unknown to the abused. In fact, those who are most likely to
abuse are the ones who are closest to the elder individual or someone that he or she trusts.
The most common financial abusers include:
Family members can have different motivations for committing financial abuse. They may feel
entitled to their relative’s money or property, especially if they are due to inherit from the elder
or are in a caretaking position.
A caretaker can be a family member or someone who is paid to provide care to an older adult
in the elder’s own home. As such, a caretakeristhe person who has the most access to the
Professionals are people that elder adult depends on to take care of the things he or she is
not capable of handling alone anymore. These services can range from attorneys to someone
your relative hires to take care of the lawn. Abusers can take advantage of older adults by
overcharging for services or manipulating them into signing documents that they don’t
Scammers and con artists
Some predators prey specifically on elder adults, counting on their social isolation and lack of
knowledge about financial matters to be able to gain access to their victim and their financial
What types of financial abuse exist?
Financial abuse can take different forms, depending on the relation of the abuser to the elder
adult. Common tactics include (but are not limited to):
• Theft of money or property
• Using manipulation or intimidation to force him or her to sign legal/financial documents
• Forging his or her signature
• Telemarketing and email scams
Financial abuse can take different forms, depending on the relation of the abuser to the elder
adult. Common tactics include (but are not limited to):
• Theft of money or property
• Using manipulation or intimidation to force him or her to sign legal/financial documents
• Forging his or her signature
• Telemarketing and email scams
How can you prevent financial abuse of elders?
The best thing that you can do to prevent elder financial abuse is to keep your older relative
or friend from being isolated. Check in regularly, make sure you know who has access to him
orher, and know the signs of financial abuse. Keep an eye out for suspicious signatures on
checks, suddenly unpaid bills, and new and unexplained “friends.” By knowing the signs, you
can help prevent the financial abuse of your loved one.
So You’re Retiring In A Few Years...
Congratulations you are closing in on your target retirement date! While the bulk of your retirement prep work and heavy lifting should be completed by the time you’re still a couple of years from retirement, there’s still a few boxes you’ll want to check off before finally saying adios to the workforce. Let’s go through them.
1. Social Security Decision
You should decide when to collect Social Security benefits. The earliest age is 62. Unless you’re retiring early and need the benefits to help cover expenses like health insurance, it’s advantageous to wait. At 62, your benefits would be reduced by 25% or more. You won’t collect 100% of your benefits until you’re 66 or 67, depending on what year you were born. When you wait to collect, keep in mind that benefits increase by 8 percent/per year up until you’re age 70.
2. Get Your Finances Simplified
Do you have multiple brokerage accounts, savings accounts, checking accounts, 401(k)s, IRAs, and other retirement savings accounts? Perhaps, you’ve lost track of an account?
First, simplifying and consolidating your various small financial accounts into a larger one will make it easier for your heirs to step into control if you had a medical emergency, needed long-term care, or passed away.
Second, you can reduce paperwork, possibly save some cash, and better keep track of your set income to expenses ratio by having everything neatly confined. For example, aggregation with a single provider can offer some economies of scale like cheaper expense ratios.
Lastly, if you’ve lost track of an account, then you’re missing a piece of your financial pie that could make a big change in how retirement tastes. missingmoney.org and unclaimed.org are good places to start tracking lost and unclaimed funds.
3. Give Your Portfolio A Health Checkup
Ideally, your portfolio at this point should be moderate-risk. If the stock market is causing you any worry, then talk to a Financial Advisor and be sure you are set up to protect your retirement.
4. Make A Plan With HR
Schedule a time to speak with your company’s human resources department about your retirement. Topics you’ll want to ask about include:
• Are unused vacation days paid upon retirement?
• Is receiving profit-sharing payouts, bonuses, 401(k) match, or any other income aspect impacted by your planned retirement date?
• If retiring before Medicare-age, what retiree health benefits are offered?
• If a 401(k) is left as-is verses rolling it over into an IRA, can distributions still be taken? How? Is there a fee?
• If a pension is available, what are the options for payout?
One note on lump-sum pensions to keep in mind is that extending your retirement may not increase your pension. Lump-sum pensions are calculated based on interest rates. The higher the interest rate, the lower the pension. Extending your retirement when interest rates are rising can actually result in your pension going down, not up.
5. Study Medicare Closely
Medicare is a difficult beast to navigate, and the sales pitches you get from supplement insurers only adds to the confusion. So, you’ll want to start studying now, understanding how it works, what coverage gaps exist for you, and what you need verses don’t need in supplements. Here are some highlights you’ll want to consider:
• Upon turning 65, Social Security beneficiaries are automatically enrolled in Medicare parts A (hospital care) & B (doctor and outpatient visits.) If you’re delaying your SS payment, then it’s up to you to enroll on your own.
• If delaying your SS claim and still covered by your employer’s health plan, then you’ll likely find it beneficial to go ahead and sign up for part A at age 65 since there’s usually not a premium.
• You may want to opt out of part B since it charges you a monthly premium for service.
You may also want to opt out of part D, which covers prescriptions. The caveat here is your employer’s offered insurance being as good as what Medicare offers. If not, and you select to opt out, then you’ll face penalties when you sign up in the future.
• To ensure you’re not left without coverage, plan to sign up for part B around six weeks prior to retirement. You have eight months after leaving your job to sign up for part B without penalty.
• Be deciding if you want Medicare Advantage. This is basically a combination of parts B & D with a supplemental medigap plan to cover the copayments, deductibles, and other traditional healthcare costs that Medicare doesn’t include. These plans provide private insurer medical and drug coverage within a network, meaning you’ll need to carefully research your plan options and determine if your preferred health care providers are in the offered network of a plan.
The finish line is just around the corner, but now isn’t the time to slack just yet. You’ll want to make sure these important boxes are checked so that you can retire in peace and confident you’ve worked all these years to afford. Contact us to discuss your plan.