Harnessing the Power of Step-Up in Basis

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Step-up in basis is something that the average person only needs to deal with once or twice in their lifetime. If you’re not sure what this means or how it relates to retirement planning, don’t worry: we’ll explain in detail.

There are two main scenarios in step-up in basis you may want to focus on:

  1. You inherited property or stock.
  2. You own a highly appreciated asset and want tax efficiency on the future disposal of the asset

What is Basis?

Basis is a tax term that the IRS and tax professionals assume everyone understands, but many don’t. “Basis” is your original purchase price of an asset. Let’s say you purchased a stock for $100. Your basis is $100.

If you purchase a real estate property for $300,000, this initial purchase price is your basis. Real estate does have a few additional nuances to determining cost basis, but for simplicity, this example works.

Cost basis is required when determining the gain or loss of a stock or other security; the difference between the sale price of an asset and the basis, or purchase price, of an asset is your gain.

Understanding your basis is crucial when talking about a “step-up.”

What is Step-up?

Let’s say that you purchased a property for $100,000 and have owned it for quite some time. Then in today’s market, you sell the property for $500,000. The difference between the purchase price and sale price means that you have a $400,000 gain.

If, instead of selling that same property, you decide to gift the property to your child (or anyone else), your child’s basis will be the same $100,000 basis that you had before you gifted the property. If your child decides to sell that property, they will have to pay taxes on the property’s appreciation in value beyond the $100,000 basis.

If you keep the property rather than selling or gifting it during your lifetime, and then your child inherits that property after you pass away, that is when a step-up in basis occurs. Instead of your original $100,000 basis carrying over to your child, their basis in the property will now “step-up” to the current market value of the property at the time of your death. Thus, if the value of the property at the time of your death is $400,000, your child (or whoever inherits the property) will have a basis of $400,000.

This difference matters. In the scenario where your child receives the property as a gift and later sells it for, let’s say $425,000, they will owe tax on the difference between their $100,000 basis and the $425,000 sale price which is a $325,000 gain. In a scenario where your child inherits the property and later sells it for $425,000, they could owe tax on the difference between their stepped-up basis of $400,0000 and the $425,000 sale price which is a $25,000 gain. The table below shows a side-by-side comparison of the example numbers in these scenarios.

Gifted Property Inherited Property
Basis $100,000 $400,000
Market Value at Sale $425,000 $425,000
Taxable Gain $325,000 $25,000

 

The more the property appreciates in value beyond the time of a gift or inheritance, the higher the potential taxable gain will be. But an inherited property with a stepped-up basis is more favorable as it will likely reduce what the potential taxable gain could be compared to a gifted property with a carryover, or transferred, basis.

Put simply, a step-up in basis helps relieve inheritors of what could otherwise be massive capital gains taxes.

Example of Step-up in Basis and Stock

Many people hold Tesla, Apple, NVIDIA, and other stock as part of their portfolio. For this example, you purchased $100,000 worth of stock many years ago, and today it’s worth $500,000. You might be receiving dividends, and this may be all you really need in terms of income from the stock.

If you were to sell all the stock today at a $400,000 gain, this would trigger substantial capital gains tax. Another option aside from selling could be to hold onto that stock with the plan to pass it onto your beneficiaries as their inheritance. With this intention, you do need to have faith in the company for it to at least maintain its stock value or ideally continue to increase in value; be aware of the risk that the stock’s value may decline by the time your beneficiary does inherit it.

Let’s say you choose the second option to continue holding the stock, and by the time your heirs receive the stock, it is worth $1 million. By doing so, you avoid the capital gains tax that you would have paid if you liquidated the stock during your lifetime. And your heirs inherit the stock with a stepped-up basis of $1 million.

Your heirs could sell the $1 million in stock at the time they inherit it without a capital gains tax.  If they hold the stock in their own portfolio, they will not owe tax until the stock appreciates above their $1 million basis.

Dividend Reinvesting

Dividend reinvestment is one strategy that we see a lot of people engage in. What this means is that if you buy a dividend-paying stock, each dividend you receive will purchase more of that same stock. Each dividend purchase creates basis in that stock.

To correctly calculate the gain at the time the stock is liquidated (sold), you need to know the basis on each of these buys. Currently, most custodians do keep a record of basis for you that can be viewed on most statements or online in your account. As long as the custodian has a record of the basis, it will also be reported on the tax form generated for that account.

In contrast, when your children or someone else inherits the stock from you, your basis is no longer relevant because the inheritor’s basis will be the stock’s value at the time it is received.

How to Determine Basis at Inheritance

The IRS is easy to work with when dealing with step-up in basis. Your basis is the value of the inherited asset on the day of death. For stock or other securities, you can use historical values and all the data that is available on stock price value for a given day.

Real estate will need to be appraised for value at the time of death.

Should You Hold Something for Step-up in Basis or Diversify Because of Risk?

You may or may not want to hold an asset for the purpose of step-up in basis. Perhaps you need the money and want to sell the investment. You may also see that the investment’s value is likely to decrease soon, so you decide selling while the price is high is optimal.

Ideally, you should speak to financial professionals to understand the risks and benefits of selling versus holding.

You may have a $1 million portfolio and the stock in question is worth 10% of your total portfolio. If the stock has a good run and now accounts for 20% or 30% of your total portfolio value, you’re increasing your concentration risk by continuing to hold it. A significant decline in the value of that particular stock can negatively impact a substantial part of your portfolio, so it’s something to think through.

Diversifying by selling some or all that concentrated stock will likely require you to pay taxes, but it may be a better option long-term because it allows you to safeguard your total portfolio by spreading your dollars out. Speaking to your financial professional(s) on this topic can help with your decision, because your situation is unique, and you may not want to carry such a high risk.

If you want to talk to us and have us evaluate your situation, we’re more than happy to schedule a call with you.

Click here to schedule a call with us to discuss your step-up in basis situation.

February 20, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 20, 2024

CLICK HERE TO WATCH THE UPDATE

Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs have Shawn Southard, our in-house Medicare expert, talk about Medicare’s doughnut hole. Learn about the four stages of how Medicare Part D works, plus strategies you can take yourself to avoid the doughnut hole.
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole in Retirement

A doughnut hole is part of Medicare prescription drug plans. It is found in either standalone Medicare Part D plans or Part D plans that are bundled within Medicare Advantage plans. The doughnut hole is a temporary limit on what the plan will pay for the cost of the drugs. Technically, the doughnut hole the “coverage gap” stage of Part D plans.
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Closing the Gap Strategies for Coping with Medicare’s Doughnut Hole

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Shawn Southard, our in-house Medicare specialist, joined us on our latest podcast to discuss Medicare’s Doughnut Hole. If you don’t know what this means or how it relates to you, don’t worry – we’ll explain everything.

What is Medicare’s Doughnut Hole?

A doughnut hole is part of Medicare prescription drug plans. It is found in either standalone Medicare Part D plans or Part D plans that are bundled within Medicare Advantage plans. The doughnut hole is a temporary limit on what the plan will pay for the cost of the drugs. Technically, the doughnut hole the “coverage gap” stage of Part D plans.

What is Part D?

Medicare started in 1966, and up until 2003, there was no prescription coverage until Congress passed the Medicare Prescription Drug, Improvement, and Modernization Act. Basically, the Act went into effect in 2006 to help beneficiaries cover the cost of prescription drugs.

As part of the Act, there is a penalty if you don’t enroll in a prescription drug plan when you turn 65 or retire.

There is a 1% penalty for every month that you didn’t enroll when you were supposed to be enrolled. The penalty is monthly for as long as you are enrolled in a Part D plan, which could be the rest of your life. For example, if you don’t enroll in a Part D drug plan for 2 years (when you were first eligible to enroll), you will have a 20% Part D late enrollment penalty. This penalty is monthly and will be in effect for as long as you are enrolled in a Part D plan. The 24% late enrollment penalty is based on the national average Part D premium, which in 2024, is $34.70. This penalty is added to your drug plan premium automatically by Medicare. 

Even if you don’t take prescription drugs, be sure to enroll in a Part D prescription drug plan to avoid the late enrollment penalty. 

Medicare Part D plans have 4 stages. Theses stages are the same for standalone Part D plans and Part D plans that are bundled into Medicare Advantage prescription drugs plans.

  1. Deductible Stage. If your plan has a deductible, you start here. You are paying 100% of the drug cost up to your deductible amount. The maximum for Part D plans in 2024, is $545. Depending upon your zip code there could be several Part D plans that do not have a deductible.
  2. Initial coverage Stage. The initial coverage stage is reached when your deductible has been met or if your plan does not have a deductible. In this stage, you pay roughly 25% of the cost with co-pays and co-insurance. The co-pay depends on one of the five tiers in the drug plan. Tier 1, the lowest tier, are drugs that are preferred generics that either have zero ($0) or a co-pay of a few dollars. Depending on your medications and their tier, you may be paying more. The initial coverage stage starts when your out-of-pocket costs reach $546 and goes to $5,030. Note: if your plan does not have a deductible, you start at the initial coverage page. You reach the doughnut hole stage after reaching the $5,030 out- of-pocket limit.
  3. Coverage gap stage. This is the “doughnut hole”. It is reached when out-of-pocket drug costs exceed $5,031 and goes to $8,000. In this doughnut hole stage, for brand name drugs that you take, you’ll pay no more that 25% of drug costs and the drug manufacturer pays 70% of the drug costs.  This 95% (25% paid by you and 95% paid by the drug manufacturer) goes towards getting you out of the doughnut hole quicker. 95 % is True Out Of Pocket (TrOOP). If you are doughnut hole stage and taking generic drugs, you pay no more than 25% of the drug costs. NOTE: only the amount you pay (25%) goes towards TrOOP.
  4. Catastrophic Stage. This is the doughnut hole exit point. This state is reached when you have pay $8,000 out of pocket for your drugs. Moving forward, you pay $0 toward any additional prescription-related expenses. But, at the end of the plan year, out of pocket costs reset back to zero. Restarting at Stage 1 starts at the beginning of the year.

If you’re in Medicare’s doughnut hole for one year, and your drug regimen stays the same, there is a strong possibility you will be in the doughnut hole next year.

Inflation Reduction Act

Under the Inflation Reduction Act, there is some very promising news. One of the changes in 2023 was that you paid just 5% when you hit the catastrophic phase and now you pay 0% in 2024. In 2025, the next stage of the Inflation Reduction Act, it   will put a cap on TrOOP at $2,000.

If the Act remains as it is, in 2025, people will reach the catastrophic phase when they spend $2,000 out of pocket. For Medicare Beneficiaries who reach the doughnut hole each year, this is a significant change that will provide immense financial relief.

In 2026, Medicare will begin negotiating the prices of 10 brand-name drugs downward. While manufacturers are fighting back against this, many Federal judges are siding with Medicare.

Are There Other Strategies to Navigate Medicare’s Doughnut Hole?

Yes, there are generics that your doctor may be able to offer you. Generics will help you save on costs. Doctors may be able to work with you to find drug alternatives that can push your costs down.

If you’re really struggling economically, you may be able to qualify for:

  • Extra help
  • Low-income subsidies

Anyone on these programs will never go into the doughnut hole and will have their costs significantly reduced.

If you want to talk to Shawn about your Medicare, call our office at (919) 787-8866.

February 13, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 13, 2024

CLICK HERE TO WATCH THE UPDATE

Beneficiary Best Practices in Retirement – A Yearly Check-In

In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Nick discuss beneficiary best practices and what’s discussed in a typical beneficiary’s meeting. Things can change in a year, and that’s why we believe it’s important to update or change beneficiaries annually.
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

Beneficiary Best Practices in Retirement – A Yearly Check-In

Nick Hymanson, a financial planner who is also part of our team, joined us on our latest podcast to discuss something very important: beneficiary best practices. If you work with us, you know that this is something that we have covered during our financial planning strategy meeting.
CLICK HERE TO READ THE BLOG

Annual Financial Planning Strategies- Beneficiary Best Practices

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Nick Hymanson, a financial planner who is also part of our team, joined us on our latest podcast to discuss something very important: beneficiary best practices. If you work with us, you know that this is something that we have covered during our financial planning strategy meeting.

What is a Financial Planning Strategy Meeting?

In the financial planning strategy meeting, we cover:

  • How your accounts did this past year
  • Beneficiary updates
  • Daily living changes
  • Expenses and income
  • Budgets 

We look at your financial plan as a whole during the strategy meeting. A lot of people think that the most important part of retirement planning is the end goal, but if you don’t know where you are right now, it’s challenging to navigate your way to retirement.

You need to know your milestones ahead and what to do with Social Security, Medicare and your estate plan.

Your estate plan is where beneficiaries really come into the equation. If you have a “will,” you may assume that you have everything in order and you know who is getting what. The problem is that you have a variety of other accounts that have beneficiaries listed, such as your 401(k), IRA, life insurance and even your bank accounts.

When the terrible time comes and you need to put the estate in process, proper beneficiaries on your accounts will make the lives of your heirs much easier.

What We Do to Prepare Before Discussing Beneficiaries with Our Clients

Our team reviews all your investment accounts and will call insurance companies to verify:

  • Primary beneficiaries
  • Contingent beneficiaries 
  • Percentage allocations

You may have multiple people listed as a primary or contingent beneficiary, or you can have one or two. We’ll gather information on all your financial and insurance account beneficiaries and separate them by account to make it easier to determine who is the beneficiary on what accounts.

We then present the accounts in the meeting to help you understand if your account needs to be updated.

Why do we review beneficiaries annually?

Of course, we have a lot of real-life examples of accounts that people seemingly forget to update during crucial life moments.

  • One client got divorced and didn’t remember to fix all the beneficiaries. It doesn’t matter who he is married to today. If he passed, the account would have gone to his ex, even though he is remarried.
  • Someone has a child who is in a lawsuit, so maybe you don’t want money to go to this individual based on the current circumstances.

A quick, annual review of your beneficiaries can help you better manage them because life changes can impact who you want to be named as a beneficiary on your accounts.

Common Example of Husband and Wife

Couples who have an individual account will, in most cases, have their spouse being 100% beneficiary of their accounts. If the person isn’t alive when the other person passes, the account would then go to the contingent beneficiary, who can be one or more people.

For example, if you’re married and leave your wife as the primary beneficiary and she passes before you, the contingent beneficiary would be “next in line.”

Joint accounts work a little differently.

On joint accounts, you’re both co-owners of the account, but you can have beneficiaries listed on the account.

Spouse and Three Kids

While you’re free to do as you wish, it’s most common for a person to leave their spouse as the primary beneficiary of their accounts. You should also list your kids as contingent beneficiaries so that if your spouse is no longer living, the account will go to your children.

It’s most common to offer an even percentage to each child, in this case, 33.33% share to each of the three children.

In certain cases, one of the children may receive 0.01% extra to make an even 100%.

Spouse and Two Kids Who Each Have Children

Every scenario is a bit different, and we really want to illustrate the importance of following beneficiary best practices. If you’re like most couples, you’ll:

  • Name your spouse the primary beneficiary
  • Name your children as contingent beneficiaries

Let’s assume that each of your children has a child, so you have two grandchildren. Your eldest child dies. What will happen to your grandchild? Does all the account go to the sole, living child?

You can put measures in place that allow you to pass the funds to your grandchildren. You can even pass the funds to children who may not be born at the time of naming your beneficiaries.

A strategy to use is called Per Stirpes.

What Per Stirpes does is allow for the funds, which you name for Child 1, to flow down their family tree if they pass away. You don’t even need to list the grandchildren on the account when using per stirpes.

Per capita can also be used, which means that the account goes to your kids only. In this case, if you have two kids and one passes, the other child will receive 100% of the account. You can also opt to give one child 75% of the account or 10% – it’s up to you. Certain clients opt to do this when one child makes significantly more money than another or they have a medical condition.

Children do have a right to disclaim their inheritance, which, if the benefit goes down the lineage, can have its tax benefits. Perhaps your child wants their children to inherit the money, so they disclaim their portion, and it goes to your grandchild.

If your grandchild doesn’t make any money or is in a lower tax bracket, this can be beneficial.

Annually, you need to review and update your:

Major life changes are a good time to review these documents, too. If you get married, divorced, have a child or grandchild, it’s a good time to look through your beneficiaries and be sure that everything is in order.

Schedule a 15-minute call with us if you would us to help you review your beneficiaries.

February 5, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for February 5, 2024

CLICK HERE TO WATCH THE UPDATE

Preparing To File Your 2023 Taxes in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon, Murs, and Taylor discuss how to prepare to file for the 2023 taxes. The first things you should be looking at include your different sources of income and tax forms connected to that income. Listen in to learn the importance of working with a professional tax preparer to avoid misreporting different income taxes.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

Preparing To File Your 2023 Taxes in Retirement

Taylor Wolverton sat down with us to discuss prepping your taxes in 2023. Taylor helps our clients with a focus on tax planning, and she shares a wealth of information in our recent podcast that you’ll find invaluable. Waiting until the last minute to file your taxes is stressful. The earlier you begin, the less anxiety and stress you’ll experience. What do you need to be thinking about when preparing to file your 2023 tax return?

CLICK HERE TO READ THE BLOG

2023 Tax Planning to Tax Preparation in Retirement

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Taylor Wolverton sat down with us to discuss prepping your taxes in 2023. Taylor helps our clients with a focus on tax planning, and she shares a wealth of information in our recent podcast that you’ll find invaluable.

We’re going to be covering all the insights she provides in the podcast below, but feel free to listen to the episode, too.

Waiting until the last minute to file your taxes is stressful. The earlier you begin, the less anxiety and stress you’ll experience.

What do you need to be thinking about when preparing to file your 2023 tax return?

Gather Tax Forms

  • Report all 2023 Sources of Income; to name a few:
    • W-2 from your employer
    • Self-employment income and all amounts reported on 1099-NEC (nonemployee compensation)
    • 1099-INT for interest income 
    • 1099-DIV and/or 1099-B for investment income
    • 1099-R for IRA/401k/annuity/pension account distributions
    • SSA-1099 for Social Security benefits
    • Documentation of rental income
    • Any other income that applies to your situation

With money market interest rates around 4% – 5% this year, the interest reported from those accounts will likely be higher than you’re used to. If you made transfers to and from accounts in 2023 to take advantage of higher interest rates or for any other reasons, be sure that you track down your tax forms from both institutions. 

Rental Properties

Rentals are popular and allow you to make an income from properties you own throughout the year. We have many clients with rentals who will need to report this source of income on their tax return. Supply your tax preparer with as much documentation as you have available; deducting expenses associated with your rental property will lower your overall tax bill.

If you have an Airbnb or long-term rental, consider the following:

  • Work with a CPA/professional tax preparer to not avoid misreporting information
  • Maintain documentation on your rental income
  • Maintain documentation for all expenses relating to the rental
    • Include mortgage interest from your form 1098

Standard Deduction vs Itemization

Everyone who files a tax return can at least take the standard deduction. If you had certain expenses during the year that add up to a value greater than the standard deduction, you can use that value as an itemized deduction instead. If those expenses add up to less than the standard deduction, you’ll take the standard deduction since that will offer the greatest benefit in lowering tax liability.

Itemized deductions include:

  • Mortgage interest
  • Real estate property taxes on primary home
  • Personal property taxes
  • Charitable donations (subject to dollar limitations)
  • Medical expenses (subject to dollar limitations)

It can be a lot of work to gather the above information, but especially if you’ve just started working with a tax preparer that is new to you, it may be worth submitting all of these documents to see the outcome. If you took the standard deduction last year and these items haven’t changed much, you probably don’t need to supply all of these documents. Every person is unique and there’s no right or wrong answer for everyone.

Note: For the year during which you turn age 65, your standard deduction increases. Verify your date of birth with your tax preparer to be sure you are receiving the additional standard deduction; otherwise, you may be unnecessarily overpaying taxes.

Reporting QCDs on Your Tax Return

Qualified charitable distributions (QCDs) are something we talk a lot about because they’re such a valuable tool for anyone who is charitably inclined. You can donate to whatever charities you’d like to support while reducing your tax bill in doing so. As an example, let’s assume you’re in the 22% tax bracket and made a $1,000 QCD. As long as you meet the requirements, you’ll save an immediate $220 in federal tax. 

Overview on QCDs:

  • Must be over age 70.5 when the donation is made
  • Donation must be distributed directly from your IRA and be sent to a 501(c)(3) charitable organization
  • Limited to donating $100,000 through this method in 2023
  • The donated IRA distribution is completely federal and state tax free because you won’t claim the distribution as income on your tax return

QCDs are reported as normal distributions on form 1099-R from your IRA. For that reason, you will need to be the one to provide the additional context to your tax preparer by letting them know the dollar amount of the QCD. For example, let’s assume you took $50,000 in distributions from your IRA and also made a QCD of $5,000 from the same IRA account in 2023. Your 1099-R will show $55,000 in distributions with no specification that $5,000 went to charity. You need to be the one to let your tax professional know to input the $5,000 as a QCD. Otherwise, it may be reported as a fully taxable distribution which negates the whole purpose of QCDs and may result in an unnecessary overpayment in taxes. 

Reporting Roth Conversions and Contributions on Your Tax Return

Like QCDs, tax forms reporting Roth conversions will not differentiate Roth conversions from normal distributions. It is true that whether it was a distribution to your checking account or a conversion to your Roth IRA, the distribution is taxed the same; however, not specifying that it is a conversion can have other consequences. 

If you’re under age 59 ½, you cannot take a normal distribution from an IRA without penalty (unless you meet certain exceptions), but you are eligible for Roth conversions at any age. It will be helpful for your tax preparer to know the additional context around the dollar amount of the Roth conversion to eliminate any unnecessary penalties that would otherwise attach to early distributions from an IRA. 

The second important specification is not just that it was a Roth conversion, but WHEN it was processed. If the WHEN is not communicated to the tax preparer, it could put you in danger of owing unnecessary underpayment penalties. For example, one of our clients did a Roth conversion in November and paid estimated taxes in November. Since the IRS is a pay-as-you-go system, they want you to pay taxes at the same time you’re receiving income/distributions, so the timing is another detail that will be important for your tax preparer to be aware of.

Context matters!

Reporting Contributions on Your Tax Return

Roth IRA contributions will not impact your taxes and are not reported on tax returns at all. You will receive a form 5498 from the account you contributed to, but oftentimes, this form isn’t available until May. You don’t need to delay submitting your tax return until you receive this form as it is just to show the contributions that you made.

If you do have any questions and are a client of ours, feel free to give us a call and we’ll help clarify anything that we can.

Want to schedule a call with us?

Click here to book a call or reach us at (919) 787-8866.

January 29, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for January 29, 2024

CLICK HERE TO WATCH THE UPDATE

Cybersecurity Safety in Retirement

Listen in to learn the importance of staying informed and taking precautions when using the internet instead of avoiding it. You will also learn the importance of having strong passwords, changing passwords when you suspect maliciousness, setting up two-factor authentication, and more.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

Cybersecurity Safety in Retirement

On the Secure Your Retirement podcast, we had a very special guest to discuss cybersecurity safety in retirement. You’ve worked your entire life to retire one day, and with how everything is digitally connected, it’s scary how in a split second, someone can steal your identity.

Retirement planning in the digital age really requires a discussion on cybersecurity and what you can do to protect yourself.

CLICK HERE TO READ THE BLOG

Cybersecurity Safety in Retirement

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On the Secure Your Retirement podcast, we had a very special guest to discuss cybersecurity safety in retirement. You’ve worked your entire life to retire one day, and with how everything is digitally connected, it’s scary how in a split second, someone can steal your identity.

Retirement planning in the digital age really requires a discussion on cybersecurity and what you can do to protect yourself.

Joseph O’Donnell of Terrapin Technology Group was happy to sit down with us and answer a lot of the questions that we had about cybersecurity.

Note: Our employees and firm must go through training to protect our clients and maintain our license. We all train in cybersecurity to better protect clients and reduce the risk of working with us financially.

Phishing Emails – A Growing Concern

Phishing emails, voicemails, or text messages can be fraudulent. Scammers hope that you “take the bait” when they call or send these messages. For example, you may receive an email that appears to be from someone you know asking for money or from your child asking for your bank account password.

The emails may match up to the person’s email and look 100% real.

But someone may have hacked into your child’s email account and is now trying to “phish” for you to take the bait so that they can steal your identity and/or money.

Phishing emails often have:

  • Threat
  • Urgency

You may click on a link that looks like Amazon, enter your credit info, and then submit that information to the hacker without even knowing it.

It’s common for these emails to say things like:

  • Someone accessed your credit card account. Can you verify it?
  • Your Amazon package is missing. Please log into your account. 

In either case, links in these messages never lead to a legitimate website.

Determining What is Phishing and What’s Not?

Text messages, calls, and emails have become so convincing that it’s very challenging to know what’s real and what’s not anymore. Even tech-savvy people and those trained in cybersecurity may be tricked into handing over their information.

How do you tell what’s real or not?

If you think, “I have an anti-virus, I’ll be fine,” you’re not safe. Phishing emails do not fall under the umbrella of the anti-virus. Phishing emails are difficult to protect against because human responses are involved. If there’s a “threat,” such as you’re over balance, it’s a threat in the sense of urgency.

If you find yourself receiving an urgent message like the examples we’ve shared, it’s important to:

  • Step back from the computer or email app
  • Call the bank or lender directly (not using the info provided in the email)

You should consider everything as being unsafe when it comes to emails like this and fall back to traditional phone calls or other forms of communication.

The minute you trust an email, it’s a foothold for the hacker to have you:

  • Send information
  • Fill in your passwords

Even if you receive a call saying, “Your Amazon card has been charged $3,220,” hang up and call Amazon. You always want to call:

  • The number on the back of your credit card
  • The number of your bank

Never, ever click on the link in the email or call the number in the email because these can all be made to look legitimate, but in reality, be very elaborate fakes.

The “I Fear All the Problems of Being Online, So I’m Just Not Going to Be Online” Attitude

We have clients in all age groups who are afraid to be online and tell us that they’re just not going to participate because the risks are too high. This response is similar to driving a car: you may be in an accident, but do you stop driving?

Often, you continue to drive or ride in cars but remain diligent and take necessary precautions, such as:

  • Insurance
  • Braking early
  • Checking each direction twice

Your best security is to be informed because even if you don’t use the Internet, when you go into stores to use a credit card, there is a data point created on you.

Plus, staying off the Internet also makes it more difficult to find information or interact with the world.

Fraud happens online and offline, and we’re seeing more texts and phone calls come in that are phishing for your information. You may receive a very convincing call about your bank account and provide things like your last four digits of your Social Security Number. But what’s really happening is:

  • The person is logging this data
  • The person plans to call your bank using this data
  • The person wants to steal your identity or transfer your money to themselves

Unfortunately, we live in a world where there are scammers who will leverage anything they can for financial gain of some sort.

Navigating Data Breaches and What Happens If You’re a Victim

Data breaches happen a lot. If you become a victim, there are often millions of other names on the list who are also at risk of their identities being sold. We also only have so much time. While you may know that you should have different passwords for all your accounts, it’s not uncommon for people to use the same passwords across multiple accounts because it’s easier.

The problem?

One password can unlock multiple accounts in a data breach if you reuse the password often. Even Joe has reused the same password across multiple accounts, and when that happens, you risk the password hitting the dark web at some point.

23andme had a recent data breach, due to a weak password, and it had a cascading effect on other people’s information being stolen. The hacker used the person’s password, which was likely a:

  • Kid’s name
  • Password1234
  • Anything else that’s easy to guess

If you do receive a notice to change your password or are notified of a data breach, be sure to change this password on all accounts that it’s associated with. Hackers may know your 23andme password, but if it’s the same as your bank and email account, they can also gain access to these accounts.

Whether the account is your Facebook, email, bank, or something else, be sure to enable two-factor authentication.

Yes, it’s an extra step to take, but it will safeguard your account.

If you don’t know what two-factor authentication (sometimes multi-factor, MFA or 2FA) is, it’s when the website will send you a text to verify that the person logging in is really you. Since a hacker won’t have your phone, it’s one of the best security measures that you can take.

Effectively, two-factor authentication will require you to enter your email and password, and then it will:

  • Call your phone, or
  • Send an email with a password, or
  • Send the code on an authentication app, or
  • Send you a text

Hackers are stopped cold in their tracks when you have two-factor authentication in place.

Using Password Managers

You may have heard of LastPass, Bit Warden, 1Password, Google’s password manager and others. These managers allow you to use sophisticated, complex passwords on multiple accounts and you only need to remember the password to the manager.

If you do use a password manager, you want to be sure that the data is encrypted.

Joe doesn’t recommend that you use a browser password manager unless it’s for something that isn’t really important, such as your New York Times account or something like that.

Cybersecurity is a topic that we’ll be discussing throughout the year to help you protect your accounts and identity online.

Click here to schedule a call with us to talk about securing your retirement.

January 22, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage. Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for January 22, 2024

CLICK HERE TO WATCH THE UPDATE

Don’t Gamble Your Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the risk and reward concept in retirement investing and how your age and life experiences will impact it. You will also learn how to avoid uncertainty and unpredictability with an investment strategy and the importance of a good long-term strategy and a diversified investment portfolio.
CLICK HERE TO LISTEN TO THE PODCAST
 
CLICK HERE TO WATCH ON YOUTUBE

Don’t Gamble Your Retirement

For a moment, you might be up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.
CLICK HERE TO READ THE BLOG

Don’t Gamble Your Retirement

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We were recently at a conference in Las Vegas, and it made us think about the retirement gamble. Gambling isn’t for everyone. Someone will hit a jackpot, but others simply aren’t good at it.

Murs went into the casino, and within ten minutes, he had lost the $100 he had set aside.

For a moment, he was up and doing pretty well, but just like the stock market, things changed quickly. Risk and reward are crucial in retirement planning. You can roll the dice on investments and certain things a little more when you’re younger, but many want to limit rolling the dice when you’re 5 or 10 years away from retiring.

When Does Risk Change in the Retirement Gamble?

Risk doesn’t matter as much when it’s money that you have set aside. If you put $10,000 into crypto using money that wasn’t going to be for retirement and whether you lose it or it triples, the outcome will likely feel different because you used money that was set aside. However, risk should be tamed the closer you get to retirement because you don’t want to have to be in the workforce for an additional year or two or more due to too high of risk.

Your risk tolerance can change at any time, but we often see two main circumstances where it changes:

  1. Life experiences and milestones
  2. Age

We have some clients in their 80s that are rather aggressive investors, and they’re often business owners who have dealt with ups and downs regularly.

Other clients are much younger and more conservative in their investments because they’ve been burned on investments in the past. These clients don’t want to deal with losses like they did in 2008.

Of course, the stock market is risk and reward, but there’s a stark difference between the risks of certain stocks. One stock may be in a dying industry, while another is a major grocery chain with less risk.

There’s no absolute wrong or right answer to the risk that you’re willing to take. We help our clients manage risk based on their tolerance so that they can be confident in their retirement strategy.

Uncertainty in Your Investments and Retirement

When people sit down and really start retirement planning, it’s common to have some uncertainties. You’ve never lived through retirement, and you don’t have experience knowing how to transition to using your retirement funds to:

  • Pay the bills
  • Derive income
  • Address taxes

You can have predictability and certainty in your retirement plan. Rules, just like at the casino, can help you manage your money so that it lasts the rest of your life. Plans allow you the freedom to leverage advanced tax strategies and have a steady stream of income from retirement that allows you to live the life you want without running out of the money you worked hard to invest and save.

Instant Gratification vs a Good, Long-term Strategy

Picture back in 2020, during the pandemic, there were MEME stocks, such as Bed Bath and Beyond and FOMO (fear of missing out). You would see on the news that investors were riding on the coattails of certain stocks, and everyone would follow the crowd.

Ultimately, these people who followed the crowd lost a lot of money because many of these stocks were being over-inflated.

People had a lot of fun with these trends, but as a long-term strategy, these trends ended up failing. A long-term plan is your best choice for retirement. We believe in multiple “buckets” in retirement so that all your money isn’t tied to the market.

For our longtime listeners and readers, you know we often discuss a few main buckets:

  1. Growth
  2. Safety/income

Safety/income buckets may make a 4 – 6% return in the next few years, and they’re not tied to the S&P 500. You can be confident that this money will be there for the next 10 – 20 years.

Growth buckets are separate from the safety and income buckets.

We can act like we’re in the casino with a growth bucket, still investing wisely, but your safety/income bucket is secure, and you can ride the ups and downs of the market. Volatility is here to stay in the market and it’s important to have a long-term strategy in place that allows you to secure your retirement and still make a nice return on investments.

Diversification in Retirement

You don’t want to put all your eggs in one basket or bet everything you have on one investment. A savvy gambler will put money on multiple games, and that’s what you should consider doing in your retirement.

For example, if your growth bucket has a high level of diversification, you hedge against losses and still have your safety/income bucket to rely on.

If the market goes down, you don’t have to stress or the emotions of the S&P 500 being down 20% because you have the money in your safety bucket to maintain your lifestyle. Your safety bucket allows you the freedom to let the stock market go back up again because history shows us that it will go back up if enough time passes.

It’s easy to see stocks down and sell because you’re down hundreds of thousands of dollars. But you’re less likely to sell at a loss and make a rash decision like this when you have other money to rely on.

Psychological Aspects of Investing

Investments are a gamble. Sometimes, people get stuck, and they say well, “I lost $1,000, but I have a good feeling this stock is going to rise.” Behavioral finance shows that sometimes people make decisions they may later regret based on what’s happening at the moment.

A sound strategy allows you to take a step back and avoid making rash decisions because you lost money in the stock market.

It’s inevitable that you will lose money in the market – periodically – but these losses are very likely to turn around. Going into the market with a plan of action and staying the course (with tweaks along the way) is better than making rash, costly decisions.

We don’t want you to gamble with your retirement.

Work with someone who will help you with investing, tax planning, Social Security and all of the other aspects of retirement. It’s helpful to have a professional in your corner who can help you navigate the different aspects of retirement.

We don’t have all the answers, but we have people on our team who can help.

Click here to schedule a 15-minute call with us.

January 8, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for January 8, 2024

CLICK HERE TO WATCH THE UPDATE

Understanding Medicare Advantage Open Enrollment in Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs have our in-house Medicare specialist, Shawn Southard, discuss the Medicare Advantage open enrollment. With an education background and a servant’s heart, Shawn is passionate about helping people find the right Medicare plans. Listen in to learn about the benefits of a Medicare Advantage plan and the reasons for the Medicare Advantage open enrollment period.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

Understanding Medicare Advantage Open Enrollment in Retirement

Medicare is such an important part of your life as you age and secure your retirement, but it’s often overlooked in retirement planning. You may have to pay IRMAA surcharges and really need to begin planning to get the most out of your benefits. We’re happy to have had Shawn Southard on our podcast this past week to discuss Medicare Advantage Open and what it means for our listeners and clients.

CLICK HERE TO READ THE BLOG
 

Understanding Medicare Advantage Open Enrollment in Retirement

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Medicare is such an important part of your life as you age and secure your retirement, but it’s often overlooked in retirement planning. You may have to pay IRMAA surcharges and really need to begin planning to get the most out of your benefits.

We’re happy to have had Shawn Southard on our podcast this past week to discuss Medicare Advantage Open and what it means for our listeners and clients. Shawn works in-house for us and will be helping all our clients with their Medicare needs.

Throughout the year, there are a lot of Medicare-related things that pop up that we really need to focus on. 

Note: Every month, we plan on having Shawn on the show to discuss questions that our listeners may have.

Medicare Open Enrollment Period

Medicare has quite a few enrollment periods that are easy to overlook. You can enroll when:

  • You turn 65 years old
  • You’re working past 65, retire and leave your health plan.
  • Annually, from October 15 – December 7 (this is when 95% of beneficiaries make changes to their plans)
  • January 1 – March 31st for Medicare Advantage policyholders, who can change plans or disenroll if they wish.

Medicare Advantage Open enrollment is what anyone reading this blog or who watched our episode will need to think about in January until the end of March.

What is a Medicare Advantage Plan?

Medicare Advantage plans, at a very high level, are often organized into parts by letters. But before we go into that, original Medicare is broken into:

  • Part A: Hospital coverage
  • Part B: Medical coverage
  • Part D: Prescription Drug coverage, optional but will incur lifetime penalty if not enrolled when eligible.

Part C is the Medicare Advantage plan. Medicare Advantage helps round out your Medicare. These are private plans that go through the insurance companies and are approved by Medicare. Each plan must offer the same Part A and B coverage as your original Medicare plan, but it is a private plan.

The Advantage plan offers additional benefits, such as:

  • Preventative Dental 
  • Preventative Vision
  • Hearing Exams

An Advantage plan may also combine your prescription coverage into the plan, but you’ll need to review each plan to learn more about the coverage offered.

Why Join a Medicare Advantage Plan Over Original Medicare?

A lot of you may be thinking, “Why would I switch from original Medicare to an Advantage plan?” One of the main reasons to make the switch is that original Medicare is only for things that are deemed medically necessary.

Medicare Advantage plans add in coverage for:

  • Annual physical exams
  • Dental cleanings
  • Eye exams
  • Hearing exams

Original Medicare plus a Medigap plan is an option, but this option comes with a premium that ranges from $130 – $150 per month.

Medicare Advantage has many great plans that have $0 premiums.

For a retiree, an Advantage plan often makes a lot of sense because they’re on a fixed income. 

Why Someone May Not Choose a Medicare Advantage Plan

Advantage plans seem very advantageous, but they’re also not for everyone. A downside of Medicare Advantage is that they are network plans:

  • Health Maintenance Organizations (HMOs), smaller network
  • Preferred Provider Organizations (PPOs), larger networks

You’ll need to go to someone in your network if you have an Advantage Plan. Original Medicare doesn’t have networks, so it’s easier for you to travel. You don’t need to worry about the provider being in network as long as they accept Medicare.

Medicare Advantage HMO requires you to stay in network. A PPO does have out-of-network options, but you may pay more for the services.

You need to consider the following when choosing a Medicare path (Original Medicare/Medigap or MedAdvantage):

  • Health
  • Lifestyle
  • Budget

Medicare is complex, and it’s easy to make a costly mistake along the way because of the amount of misinformation that exists. It is in your best interest to consult with a Medicare specialist before making any changes to your plan.

Why Someone May Want to Switch Medicare Advantage Plans

Since we’re in the enrollment period where someone can switch Medicare Advantage plans, the question arises: why would you switch plans?

Often, a person wants to switch Advantage plans because:

  • Doctors that they have been going to are no longer in their network, so they switch to a plan that allows them to retain the same doctor that they know and trust.
  • They plan to move and the new service area does not have their providers in network.

Shawn helps our clients choose the right plan for their medical needs and lifestyles. He has a strong educational background as a high school teacher and corporate trainer. In fact, his background as an educator is why he joined our team. He aims to educate each client, based on their individual needs, to find the best Medicare path.

Shawn needs to know your health/medical conditions, any prescription drugs you are taking, and your lifestyle (such as traveling) to help you select the right type of Medicare plan for you. 

Medicare is complex – especially if it’s not something you work with every day.

If you want to have an in-depth discussion about your Medicare situation and ensure that you’re on the right pathway, feel free to reach out to Shawn.

Click here to schedule a 15-minute call with us.

January 2, 2024 Weekly Update

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We do love it when someone refers a family member or friend to us.  Sometimes the question is, “How can we introduce them to you?”   Well, there are multiple ways but a very easy way is to simply forward them a link to this webpage.

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for January 2, 2024

CLICK HERE TO WATCH THE UPDATE

What Are You Getting for the Fee You Are Paying in Retirement?

Listen in to learn about the three major types of financial advisors and what each offers you. You will also learn about categories of our Wealth Integrated Management System: specialized investment strategy, a retirement-focused financial plan, tax strategy, estate planning, and other ever-evolving elements to cater to our clients’ needs.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

What Are You Getting for the Fee You Are Paying in Retirement?

You may already have a financial advisor or are shopping for one, but you may not know what you’re getting for the fee that you’re paying. We’re going to try our best to outline multiple categories of fees to help you get your head around what different advisors may charge and why.
CLICK HERE TO READ THE BLOG

Reviewing 2023 in your Retirement

Listen in to learn the different episodes with information about what you need in retirement, including a power of attorney, estate planning, retirement income strategies, and more. You will also learn about the episodes on long-term care planning options, plus the basics of continuing care retirement community (CCRC).
CLICK HERE TO LISTEN TO THE PODCAST
CLICK HERE TO WATCH ON YOUTUBE

Reviewing 2023 in your Retirement

Every week, we have podcasts come out, and as new listeners find us, it can get very tedious to find all the resources we provide. This week we have prepared an End of 2023 wrap up to highlight some of the episodes from this year. 

Reviewing 2023’s Episode List …

CLICK HERE TO READ THE BLOG