Retirement Planning is a Game of Chess

Keep Retirement Strategy in Mind This Holiday Season

With the holidays rapidly approaching, a goal often set during these times is to diversify your retirement funds. With retirement investment there are two main focuses: investing/saving and distribution. During retirement you are at your most vulnerable financially because a regular paycheck is not coming in. It is the longest self-imposed period of unemployment most folks face. The following is fantastic advice for when you are trying to invest.

Your retirement planned around living and may seem expensive to support. Remember, roughly 55% of folk live beyond their life expectancy. So, it is important to plan for the long haul. A long-term investment sustains a better savings, but there are risks being found there. Short-term investments usually have higher yields. It is important to balance these.

Spending now can save more money for the long road. An example of this is withdrawing properly to avoid provisional income.

Be reasonable when it comes to expectations. Historical returns may not be what your portfolio does. Returns typically fall below the average. However, this can be balance with a diversification of accounts. Though we have historically low interest rates, this means bond returns will not impact retirement much. This will affect those who have retired most.

Heedless of where you are at in retirement planning, relying solely on plans that require higher returns is dangerous. If you expect to make more in the future, that means spending much more upfront. Stocks carry a higher risk than bonds, so they will yield higher return rates. Simply put: Spending more today and expecting higher returns in the future is risky business. The risks and consequences must be evaluated on a case-by-case basis.

Strategy should always be a top priority. Diversifying your retirement portfolio is just a start. Considering all the risks you will face in retirement is the next stop. Putting all your funds in one bucket will expose you to much more risk—taxable, tax-deferred, and tax-free. Integrate different approaches and accounts to combat inflation, tax rates, rate of return, and even long-term care.

READ MORE
Crafty holidays savings to think about when retirement planning

Crafty Savings as You Plan for Retirement this Holiday Season

As retirement approaches, learning ways to spend less during the holidays is helpful! Shifting focus to doing so before retirement can also prepare you for when you’re living in the longest, self-imposed period of unemployment—heedless of what your retirement portfolio may look like!

Rethinking budget is a great first step. If you already have holiday decorations, don’t buy more; especially if they’re still in mint condition. This way it is one less expense on the holiday budget. Decide how much you want to spend on gifts overall and allocate so much to food. Remembering, be strict about your budget limits. If you can spend even less, do it!

For gifts, decide for who and how much per person. If you are able, shop in-stores versus online. This will save you shipping costs. If you want to gift a lot of people, consider doing smaller gifts for everyone. If there are couples on your holiday gift list, provide them with a gift card for a date night. The best gifts are also gifts homemade. Mass bake cookies or bread and give those out! You could always get crafty if you are able and make ornaments or simple photos collages. Lastly, another great idea would be the gift experiences. Much like giving a couple a gift card for a night out, take the grandkids together for a fun day to a public place such as a trampoline activity center or take your kids out of dinner once the holiday season calms down.

Meals, small or big, should be evaluated. If you are typically the one to hold a large family dinner in your home, see if family members can split making sides and desserts. Do a potluck. If you have done bigger family holiday dinners and are not feeling up to it, be honest with you family. Tell them you wish to not host the holiday this year or limit how many people you have over. This way the cost is either split up or at least reduced.

Take advantage of gift bundles and sales. A lot of places do gift bundles for things such as sample sizes for lotions or mini candle sets. Look into places that do gift card/certificate deals. Some food chain restaurants will give a packet of coupons if $50, for example, is spent on gift cards. Sometimes places will event gift “free” gift card money for a set amount on gift cards—buy $25, get $5 included.

READ MORE
planning to age in place

When Planning to Age in Place

Trying to plan may be hard since you never know exactly what your needs will be. But thinking of what may happen and those what ifs are great places to start. Consider your family medical history and your personal medical history. Think of your living situation, too. Have you lived alone or close by to family your entire life? Do you and your spouse both have long life expectancies?

Begin by talking with your doctor about your family and personal medical history and see how specific diseases and disorders may affect your mobility, mentality, and daily living. Read up on and discuss with other retirees their experiences, too.

Another great aspect in planning to age at home is the accessibility to help and care. Though it will sometimes come at a cost for services, there usually are many local and states offices that offer help to elders. Care options you may want to consider and plan for:

Personal care – Such as bathing, hairstyling, and even dressing, a family member or a trained aide could come in for your morning routine if you need.

Household care – Grocery shopping, lawncare, and even cleaning. Many groceries stores will do over the phone or online orders and deliver them to your home post-pandemic. Hiring help for housework and lawncare will be easier since these services are always available through various companies, large and small. If you already know someone who has a lawncare specialist or housekeeper, you may be able to hire them, too.

Cooking and meals – Meals are a good time to stay social. Perhaps each week host some friends or family and have a little potluck. Not only will there be leftovers for yourself and the others, but you can spend time catching up with family or friends. Eating out may even be an option. There are meal delivery programs that are low-cost or even free.

Financial care – The biggest worry for retirees is money management. Ranging from paying bills on time to medical bills and health insurance, depending on where you live, there are resources you have access to. Having a conversation with a trusted family member like a child or niece or nephew about your finances is an excellent first step. If you are able, hire a financial advisor to make sure everything looks good. Paying bills online and setting up autopay will ensure that utility bills and monthly premiums are paid on time. Some banks even offer financial services for seniors for free if you have been banking with them for a while.

The trick with financial care in retirement, especially as you age, is to make sure you do not fall victim to scams. Never give sensitive information like your Social Security number or banking information to someone unless you placed the call. Regularly check (or have someone do so) bills to make sure there are not unusual charges.

Health care – Often a tricky category, making sure you are covered here ranges from taking your medicine on time to hospital stays and aftercare. For medicines, there are special pill boxes that allow you to set out an entire week’s worth of medicine at once. If you have recently had a hospital stay and need to arrange aftercare such as temporary assisted living or rehabilitation, if your family is unable to, discharge planners at most hospitals can plan with you. Some insurance, even Medicare plans, may cover all or a portion of a home health aide. And lastly, if you need the doctor’s recommendations and directions written, your doctor or nurse can make sure those are in the summary for you. Or a family member or friend can help with those during your stay.

READ MORE
Social Security Benefit increase for 2023

What the Social Security 2023 Increase Means for You Now and Later

The Social Security Administration announced that there will be an 8.7% cost-of-living-adjustment (COLA) beginning January 2023. Overall, this means benefits will increase an average of $140 a month.

The COLA rate is determined by the consumer price index (CPI) which relies on the U.S. inflation rate. While many thought 2022 COLA increase (5.9%) was large, the 2023 increase of 8.7% is the largest since 1981. Here is a quick breakdown of how Social Security benefits will change: For the average Social Security recipient an extra $1752 will be seen yearly, increasing benefits on average from $1681 to $1827. The average couple receiving benefits will see a yearly increase of $2856.

However, this increase does not factor in taxes. The one who giveth will also taketh. Under current law, if you are a single taxpayer, you will be taxed 0% on your Social Security benefits if you have provisional income under $25,000. Your Social Security benefits can be taxed up to 50% if your provisional income is between $25,000-34,000; and up to 85% can be taxed if your provisional income is over $34,000.

For those married and filing jointly, provisional income less than $32,000 results in zero taxation on your Social Security benefits. Between $25,000-44,000 your benefits can be taxed up to 50%; and from provisional income over $44,000 up to 85% of your benefits can be taxed.

Today, the Social Security Administration reports that roughly half of Social Security beneficiaries pay taxes on their benefits. With the COLA increase of 8.7%, more could be paying taxes in 2023. And depending on which state you live in, you may be paying more tax at both the federal and state level when it comes to taxes on your Social Security benefits.

COLA increases are always giving long-term. Once you reach 62, the increases are automatically included into your benefits. Heedless of when you take them, the increases are cumulative meaning the next COLA increase is determined off the new “base” Social Security benefits. This means even for spousal, survivor, or divorce benefits, you will still receive the COLA increases no matter when you enroll.

READ MORE
Medicare 2023

2023 Means Savings on Medicare

Medicare beneficiaries will pay lower Part B premiums for coverage come 2023. Those who are paying these premiums need to be aware of two major changes.

For this upcoming year, the premium for Part B will decrease by 3% to $164.90. The annual deductible will also decrease from $233 to $226 for 2023.

Sometimes people do not know they are paying their Part B premiums because when you elect to enroll in Medicare, your premiums come directly out of your Social Security benefits.

Moreover, since CMS regulates Medicare Part D, even though the prescription coverage is sold by private insurances, there is a good chance that many will see a general decrease in Part D premiums, too. Unfortunately, since the private insurers set the terms and limits of these policies, there is not set amount for the decrease like Part B has. CMS is predicted that an almost 2% decrease may happen for Part D. If there is a change to your plan, you will receive a statement in the mail notifying you. If you do not receive any statement, please call your insurance directly or check online.

Lastly, another major change CMS announced were changes to income brackets and rates for the premium surtax for Medicare. This surtax is known as income-related monthly adjustment amount (IRMAA). This is in addition for higher income beneficiaries to the Part B base premium of $164.90 everyone pays. This also is an addition to Part D premiums for higher income beneficiaries.

This surtax is imposed on modified adjusted gross incomes starting at $97,000 for a single person and $194,000 for married couples who file a joint return and maxes out at $500,000 of MAGI for a single person and $750,000 for a married couple fling a joint return.  The maximum Part B premium if you hit the top income limits would be $560.50. For Part D the imposed surtax would be an additional maximum of $76.40. It is important to note that the highest bracket ($500,000/$750,000) discussed here is not adjusted for inflation, but the lower brackets are. So over time, more and more people will be moved into the top bracket and will pay the higher Medicare Part B premiums due to inflation.

READ MORE

Elder Abuse and Financial Exploitation: What Are They?

Unfortunately, financial abuse and exploitation is a reality many seniors face in their retirement. Strikingly, financial institutions have reported the number of these incidents tripling since 2017. And no matter how big or small the deception may be, it leaves elders financially and even emotionally devastated.

The question remains: how can you protect yourself and your loved ones from it? Having a solid understanding of what elder financial abuse and exploitation is, how to spot red flags, and what preventative measures can be put in place is a great place to start.

What is elder financial abuse and exploitation?

Elder financial abuse and exploitation are when someone within the elder’s life misuses or takes advantage of their assets for their own benefit. Oftentimes, it is done without the consent or knowledge of the victim and can leaves them without significant financial resources they worked hard to save. The worst part is family, friends, or even caregivers can commit elder abuse or financial exploitation. It is not uncommon for force, harassment, or threats to be involved either.

Why does elder financial abuse go unreported?

It is estimated billions of dollars per year is lost to elder abuse and financial exploitation. And sadly, financial exploitation can be even harder than physical elder abuse to detect. Circumstances vary and warning signs are not always prevalent.

There are four major reasons why the financial abuse goes unreported:

  1. A trusted family member or caregiver is the abuser
  2. Vulnerable older adult doesn’t know it happened until too late
  3. Victim experiences overwhelming shame
  4. Elder doesn’t know who to tell or where to report

The abuser may be someone the senior relies on for basic needs and care and fearing further abuse and retaliation is often part of the situation to why the abuse goes unreported. A victim’s lack of mentality or physical ability also factors into why the abuse may go unreported.

Reporting the exploitation and abuse can be a very overwhelming experience. And the process varies immensely state to state. Fortunately, your local adult protective services can help guide you through the process for you or a loved one and point you to resources you didn’t even know of.

READ MORE
Inflation Reduction Act of 2022 and retirement planning

The Inflation Reduction Act of 2022 and Its Impact on Your Retirement

As a watered-down version of the Build Back Better Act of 2021, the Inflation Reduction Act of 2022 is set to be signed by President this week. The bill is designed to reduce the deficit and lower inflation while investing in domestic energy production and lower prescription drug costs. On top of the deficit reduction projected to be more than $290 billion, this bill allows Medicare to negotiate lower drug costs and extends the Affordable Care Act program through 2025. The goal: lower consumer costs and help the nation reduce emissions long-term.

Once signed into law, how will my retirement be impacted?

Your retirement will be impact someway somehow.

The deficit reduction is intended to fight inflation by cutting the taxes Americans are paying. With the capability to reduce inflation, your retirement income will have more spending power, and we will eventually hopefully enter a period of deflation. However, there is a slim chance we will see a dent in inflation this year with this bill.

Since Medicare will be able to negotiate drug prices with pharmaceutical companies the savings will impact retirees directly. In addition, a $2000 out-of-pocket cap for Medicare enrollees buying prescriptions comes along with preventative vaccines being free.

Moreover, since the ACA program is being extended, the Covid-19 subsidies helping make insurance more affordable for some Americans. Good news: this is most applicable to those who had to retire early and aren’t eligible for Medicare just yet.

With the focus of the Inflation Reduction Act being partially on cleaner energy investments, business and consumers can participate in clean energy investment incentives, too. Businesses themselves can receive a tax credit for clean energy manufacturing, and another tax credit for wind and solar energy production. Consumers get to enjoy the tax credit incentives for greener options for investing in renewable energy and further tax credits for buying electric cars, new and used.

READ MORE

After Taxes Now, Tax-Free Later: Roth 401(k)

Tax-advantaged has quite the ring to it, doesn’t it? Unlike the tax-advantages a traditional 401(k) offers—funded with pretax wages—a Roth 401(k) is funded with after tax wages. Income tax has already been paid so when it comes to withdrawing in retirement, your money is withdrawn tax-free.

What exactly is a Roth 401(k)? Created in 2006, Roth 401(k)s are employer-sponsored retirement savings accounts that use after-tax money.

How They Work

While employer-sponsored, enrollment and participation in Roth 401(k)s is entirely voluntary. Payroll deducts the special funds after taxes have been taken out each paycheck. Some employers may offer matches for Roth 401(k)s.

In comparison, a traditional 401(k) and a Roth 401(k) have different tax-advantages. A traditional 401(k) reduces an employee’s gross annual income, providing a tax break now. However, regular income taxes will be due upon withdrawal during retirement. A Roth 401(k) requires income tax be paid but reduces an individual’s annual net income. But after the money is placed into the Roth account, no further taxes are owed when taken during retirement—this includes profits earned.

Much like the traditional 401(k), a Roth 4010(k) is subject to contribution limits and is based off the investor’s age per guidelines of the IRS. For 2022, an individual may contribute up to $20,5000. Those over 50 are permitted a catch-up contribution of $6500. Another perk Roth 401(k)s offer is no income limit.

Withdrawal Special Considerations

Certain criteria must be met for withdrawals to be tax-free.

  • The Roth 401(k) must be at least 5 years old.
  • Withdrawals must occur when the account holder is at least 59 ½. If before, account holder must has passed or experiencing qualifying disability.

Roth 401(k)s do require required minimum distributions. Once you are 72 the first RMD from your Roth 401(k) must be taken by the first April after you turn 72. If you are still working for the company who sponsors the retirement account, you may hold off taking a distribution.

Advantages and Disadvantages Summary

Pros:

  • Helps those who may be in a higher tax bracket during retirement (which is commonly seen)
  • Distributions are tax-free.
  • Earnings grow tax-free.

Cons:

  • Uses after-tax dollars, meaning during working years you are out that money
  • Contributions do not limit taxable income

Roth 401(k)s and Market Volatility

Sadly, you can lose money since a 401(k) is an investment into the market. However, most employers offer low-risk options like government bonds. You are always welcome to work with the plan sponsor and stir up your investment yield and risk.

READ MORE
Retirement & Cryptocurrency

What You Need to Know About Cryptocurrency and Your Retirement

Started as a small project, cryptocurrency has become a large and continuously growing part of the finance industry. These blockchain tokens are making way into retirement planning slowly. Recently, some major companies have opened their doors to cryptocurrency as an investment option. If you are considering cryptocurrency for your retirement planning, you need to know the risks that come with crypto assets.

It is no secret that the crypto ecosystem is fickle, and in retirement planning it is important to monitor and reduce risk so your assets last 20-40 years. However, cryptocurrency may offer retirees a solid diversification option.

The Newest of New Paradigm

While trends have been observed, analysists are still studying the ups and downs of the cryptocurrency ecosystem. Some experts will say that it is too risky to invest while others will say by not investing you are losing out even with the rules still being written and changing often. Cryptocurrency may offer diversification to your retirement portfolio. The risk lies within your decision to invest or not.

Market Volatility

You are likely very familiar with the success story of Bitcoin and Ethereum. Just this year alone cryptocurrencies have fluctuated significantly. In 2021, Bitcoin dropped $30,000 in value within 3-months.

New Cryptos Launched Often

There are over 13,5000 cryptocurrencies in existence. Some are considered overvalued, others undervalued, and others are predicted to be “just right” for long-term investments. But there are new cryptocurrencies added on the market daily, so when investing choose wisely.

Traditional Accounts & Crypto

Only a few plan sponsors allow for cryptocurrency to be invested in for retirement. There are options under cryptocurrency such as Bitcoin IRA or Bitcoin 401(k). You may rollover funds into a self-directed IRA that allows crypto investments if you qualify. Please note, a lot of the cryptocurrency ecosystem is not government regulated and poses greater risk than typical market stocks and investments.

Taxes & Recording

Record keeping is very important within cryptocurrency gains and losses. Within the USA, cryptocurrency is taxed the same as any other gain or losses on stock for long-term and short-term. However, the recordkeeping and reporting are not as established as with regular trade assets. It is primarily on you to keep accurate records.

The Exchanges & Brokerages

Cryptocurrency is traded on a crypto exchange mostly, but you can trade through a broker. While more expensive, brokers are often much less confusing. Purchasing directly on the exchange can get complicated fast.

At-Risk for Hacking & Theft

Unfortunately, being unregulated means cryptocurrencies are not as protected. There is a greater risk for theft and hacking. Heedless of your storage method—keep investment in the exchange, use external storage device, or store offline—there is a need to have extra precautions in place.

READ MORE

Working Smarter, Not Harder: Leveraging Your Life Insurance Policy

An unconventional strategy for retirement, to maximize your life insurance policy is premium finance. Premium finance is where policyholders will pay substantial premiums via borrowing from a third-party lender—tying up the bank’s money versus your own capital. With some premium finance loans regular payments may begin shortly after the origination of the loan. However, there is a choice to capitalize interest into the arrangement with the expectation that the cash-value growth of the life insurance will outperform the accruing loan interest.

Premium financed life insurance allows the policyholder to purchase significantly more life insurance for a fraction of what is needed to support such a massive policy. This strategy keeps the policyholder’s other assets free to perform and produces an impressively tax-free internal rate of return for seemingly nothing out-of-pocket.

Ideally, the best method for premium financed life insurance polices is to create a compounding snowball effect for the cash value growth. The policy takes on the loan using built-in features. Moreover, it is when and if, the compounding cash value overcomes the hurdle of the premium finance loan’s interest rate. Future policy distributions may become death benefits to heirs, be tax-exempt retirement income, or possibly both.

How does premium financing work?

An affluent or emerging affluent individual with generally good health and a reputable credit rating may apply for a life insurance policy—be it for estate planning or retirement planning. For premium financing to occur, most of these policies will be whole life insurance or indexed-universal due to their stability and ability to offer higher loan-to-value ratio. With strong, long-term performance, the financed insurance policy will be funded at a maximum premium allowance for the first 4-7 years.

Depending on the situation, sometimes the borrower will pay the first premium themselves to avoid the need to post collateral. Often borrowers will involve a 3rd party lender to the larger premiums with the intent to begin interest-only payments directly to the lender. However, to fully capitalize on premium financing, borrowers roll the accruing interest into the loan with the high hopes the cash growth will outdo the finance loan.

This goes to say, the policyholder should prepare for posting collateral. If designed correctly, the life insurance can serve as the collateral due to its cash value growth.

Benefits to Premium Financed Life Insurance Policies:

  1. Ability to keep other assets active and growing.
  2. Replaces need to pay insurance premiums during your high-income working years.
  3. Potential for extremely positive arbitrage between cash value growth and premium finance loan rate.
  4. Potential of tax-exempt retirement income or greater death benefit payout.
  5. More cash value that compounds for you, not against you.

For more information on premium finance benefits and qualifications, listen to The Retirement Risk Show’s “Premium Finance: A Leveraging Method of Life Insurance” episode.

READ MORE