Is Cryptocurrency Safe for Your Retirement Plan?

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Cryptocurrency is alluring for a lot of investors. It’s hard to overlook Bitcoin and Ethereum rising to $65,000 and $4,300 (1) in the last few months. But these crypto currencies have also dropped to $36,977 and $2,587 at the time of writing this article.

For someone in retirement or close to retirement, crypto may or may not be a smart addition to their portfolio.

Where Cryptocurrency Stands for Current Retirees or Someone Close to Retirement

A lot of our clients are interested in Bitcoin and other cryptocurrencies. There are stories of people investing $10,000 in these investments that are now worth $1 million or more. High returns on investment are always going to raise a person’s interest.

There are also some people saying that crypto could replace the dollar, which would make it less volatile and a lot more attractive,

The question is, for someone that is close to or in retirement, could you afford losing 40% or 50% of your investment in a month?

Crypto can provide massive returns, but you’re also entering an investment that can cause you to lose a lot of money overnight. Talks of regulating crypto in the past month sent a bunch of the currencies spiraling downward.

Your goal and objective when investing in cryptocurrency will be the determining factor in whether or not to add it to your portfolio. The last thing you want to do is secure your retirement only to see your portfolio suffer massive overnight losses.

Assessing Risk and How Risk Pertains to Crypto

Cryptocurrencies have a lot of risk because it’s still so new. You have strong backers like Elon Musk that can push Bitcoin high with one announcement and cause it to tumble with another.

Government regulations are also another issue.

All of this uncertainty adds to the risk of investing in cryptocurrency. Are you willing to lose 30% to 50% of your portfolio in a few weeks? If not, then cryptocurrency isn’t for you.

When we talk to our clients and run a risk assessment, people are typically willing to risk 5% to 10% of their portfolio. Let’s look at a real-world example. Let’s assume that you have $1 million in a retirement portfolio:

  • 5% to 10% loss would be $50,000 to $100,000
  • 30% to 50% loss would be $300,000 to $500,000

Wiping out $300,000 of your retirement can be very difficult for a person to withstand. For most people that have been investing and building up a retirement account throughout their adult life, jeopardizing retirement for crypto is simply unthinkable.

There are also some clients that are willing to put maybe 10% of their portfolio, or $100,000 using the example above, into crypto. If the person is comfortable losing this money, they may think that the risk is worth the reward.

How Much of Your Retirement Portfolio Are You Willing to Risk?

If you’re willing to take a risk on the unknown, you’ll want to ask yourself: how much should I risk? You can funnel 2% of your portfolio, or $20,000 into crypto, and keep the rest in low-risk investments.

While you stand to gain and lose a lot, most people are fine with diversifying into crypto if the potential loss isn’t devastating.

If you can afford to lose the money, you should have the mentality that you’re willing to lose it all. Perhaps you don’t mind losing $1,000 or even $100,000, and if this is the case, you can definitely invest in crypto.

We wouldn’t recommend a significantly high percentage of your retirement account being used for crypto because you worked hard for your retirement.

And if you do decide to invest in crypto, what is the upside? Will you pull out of the investment if you see 50% returns, or will you keep your money in the investment for the long-term? There are a lot of questions to ask yourself.

In the ideal world, we advise our clients that have worked so hard to secure their retirement that they should only invest amounts that they’re comfortable losing. The last thing you want is to not have enough money to retire because of a riskier investment.

If you’re close to retirement, are you willing to lose your retirement to crypto?

For most people, the answer is no.

Understanding Crypto Well Enough

Retirement planning is a learning experience. If you want to secure your retirement, you need to understand the investment vehicles that you’re choosing. In our opinion, and through experience, we only invest in things that we understand.

Sure, cryptocurrency has a lot of upsides, but if you don’t understand it, you don’t know what it can be applied to in the real world.

You don’t need to be a teacher of crypto, but we do recommend that if you want to add this investment to your portfolio, be sure that you know how they work.

Crypto is “created.” The coins are mined using processing power. The concept is all digital and essentially made up. But through backing, these digital currencies have been able to grow.

A lot of people want a decentralized currency, and this has given crypto its basis for existing.

You need to ask how crypto works.

  • What is crypto mining?
  • How are transactions logged?
  • What’s the future of crypto?

If you can answer these questions, then you may find that cryptocurrency is a good option for you. 

For our clients, we aim for stability in their portfolios. We certainly don’t want to lose all of a portfolio overnight, and we minimize risk with a diversified portfolio. Cryptocurrency is one of the investments that can lose a significant amount of value overnight, so there’s little that you can do to adjust your portfolio to reduce imminent risk,

You can go to bed at night and wake up with 30% of losses.

As advisors, we don’t invest our clients’ money in crypto because there’s far too much risk. We’ve had some clients that want to take on that risk and will invest themselves. But for us, with a long-term retirement plan in mind, we only recommend investing in small amounts of crypto at this time.

If a major government backs a digital currency or creates their own, we may change our mind completely on cryptocurrency investing.

But for now, we only recommend investing in crypto if it’s money that you can lose.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Resources

  1. https://economictimes.indiatimes.com/markets/cryptocurrency/bitcoin-rises-4-eyes-37000-ethereum-gains-8/articleshow/83114422.cms

What is an Exchange Traded Fund (ETF)?

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You may have heard of an exchange traded fund, or an ETF before when trying to plan out your retirement or boost your investment portfolio. But what is an ETF and how would you benefit from one?

That’s exactly what we’re going to discuss in this article. We’re going to cover two main concepts:

  1. What is an ETF?
  2. Action items to secure your retirement

What are Exchange Traded Funds?

ETFs have grown in popularity over the past few years, with a lot of money being funneled into them for people’s retirement. We also use them in our own practice, but they should be a part of a diverse portfolio rather than the only investment that you make.

We’re going to compare an ETF to a few investment vehicles so that you have a clear understanding of ETFs and why you may want to add them to your retirement plan.

What is an ETF?

An ETF is a stock, and you can purchase it in the same way that you buy an individual stock. But the ETF itself is not a singular company. When you purchase an ETF, you’re buying into a stock of stocks.

If you wanted to purchase technology stocks, you might consider Google, Amazon, Oracle, Microsoft and plenty of others. 

You would have to sit down, do your research and then purchase the stocks separately. An ETF can make this process easier by allowing you to purchase shares in the ETF, which contains a diverse set of technology stocks.

One purchase allows you to purchase a nice portfolio of stocks without needing to sit down and pick and choose stocks. It’s a lot easier to manage a single ETF than it is to manage 20 tech stocks.

If you know anything about mutual funds, you may assume that they’re the same as an ETF, but they’re not.

ETFs vs Mutual Funds

Mutual funds are one of the most common and original forms of investing outside of a single stock. A mutual fund is, at the heart of things, a company that has different investment objectives.

The objective can be:

  • Mirror the S&P 500
  • Mirror a sector, such as tech or healthcare

The company behind the fund will align the fund’s stocks with this objective. Within a mutual fund, there are many moving parts, including a portfolio manager and various other employees.

A mutual fund will purchase a variety of stocks and place them into their fund.

Mutual funds are a great way to invest in a more hands-off manner because you don’t have to actively manage the mutual fund. The main drawback of the mutual fund is that there are management fees, which can be high.

Since the mutual fund is a company with employees and researchers, they do have fees, which eventually eat into your investments.

ETFs are a natural move forward because they’re more cost-effective than a mutual fund.

Another major difference between an ETF and a mutual fund is that when you put in a buy or sell order for a mutual fund, the order doesn’t go through until the market closes for the day. This can be bad for your investment.

Let’s see an example.

  • Overnight, a bunch of market indicators point to energy stocks dropping tomorrow.
  • You put in a sell order at 9:30 in the morning to avoid losses.
  • Mutual fund sell orders aren’t executed until the market closes, so you sustain losses.

You’ll find a lot of retirement accounts, such as a 401(k), relying heavily on mutual funds. 

Actively Managed ETFs

A new trend is popping up where people are gravitating toward actively managed ETFs, which are very similar to mutual funds without the constraints of only being able to purchase or sell at the end of the trading day.

The downside of an actively managed ETF is that you’ll pay more fees.

If you want to manage your portfolio, you can simply sell the ETF and purchase another one if the ETF isn’t performing well. So, you have a lot of options when it comes to ETFs, and if you don’t mind paying the additional fees, you can even choose an actively managed ETF.

You can also choose the old school investment route where you purchase single stocks, add them into your account and manage everything yourself.

ETF vs Stock Purchases

If you want to build a portfolio of stocks, you can go out and purchase stocks individually. You may want to invest heavily in healthcare stocks, or perhaps you’re interested in small- and mid-sized companies.

You can go out and purchase a lot of individual stocks to properly diversify your portfolio.

But you want to manage your risks when you’re investing your retirement. If you purchase just one or two hot stocks, you can make a ton of money or lose a ton of money. Instead, purchasing a mix of stocks across sectors allows you to take on less risk in your portfolio.

Volatility is less of a concern when you have stocks in multiple sectors.

You may own hundreds of individual stocks, leading to statements that span dozens of pages. It can easily get confusing when trying to figure out which stock is a small- or medium-sized company, and then keeping up with all of these companies can be very difficult.

Researching the direction of each company and their stock is a full-time job in itself when you have a portfolio of 100 or 200 stocks.

ETFs, on the other hand, allow you to purchase 100s of stocks at once. You purchase into an ETF that has massive diversification that helps keep volatility low and reduces your own management. It’s also much easier to see an overview of your portfolio with an ETF versus hundreds of stocks.

Remember, ETFs can be bought or sold just like stock, so your buy or sell order goes through immediately. 

Real World Example of ETFs in Action

Last year, in 2020, the pandemic hit, and the market was starting to fall. We chose to sell off our ETFs as the market dipped, sat on cash, and then bought back in when stimulus checks were sent out and the market started to perform better.

If you remember, Zoom and Amazon were performing very well and benefitted from the pandemic, along with other stocks.

Online and tech companies, especially large cap ETFs, were our go-to choice because these were the stocks that were performing best. When these companies started to cool towards the end of the year, we moved back to small- and mid-cap companies that began to perform very well.

You can choose a broad asset class, such as technology, or you can narrow your ETF down further with biotech ETFs.

ETFs are a great option because they allow you to purchase:

  • Indexes
  • Bonds
  • Stocks
  • Precious metals
  • Different classes of ETFs
  • Country-based ETFs

From a fee perspective, ETFs are more affordable than other options available. We’re seeing the entire investment world start to see the value of ETFs and even some 401(k) plans are moving in this direction.

If you want to learn more about what we do or how we can help you secure your retirement, you can sign up for 15-minute introductory call with us.

How Do Financial Advisors Get Paid?

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When people come to us for financial advice, and particularly retirement planning, they have a very important question to ask: how do financial advisors get paid? You’re entrusting an advisor with your money, and you have a right to know how that person’s fees are structured.

A client might like everything we’re talking about, but they almost always ask how we’re getting paid.

We think it’s very important to know how an advisor is paid because it’s your money being invested. There are three traditional ways that financial experts may be paid:

3 Ways a Financial Advisor Can Be Paid

1. Commission

Commission-based payments have been around the longest, and there’s always some controversy here. Let’s say that an advisor recommends purchasing 100 stocks in Microsoft. He or she may be paid a commission on this purchase.

When someone handles your money, they may be paid commissions, which some clients aren’t happy about.

There are a lot of people that assume commission-based is bad because the advisor:

  • Is incentivized to sell you a product
  • Puts their interest first
  • Etc.

But this isn’t always the case. There are a lot of good products that are commissionable. In some cases, products are always commissionable. Life insurance, for example, is commissionable, and the insurer pays an advisor commission because they recommend the product.

There are times when an advisor can’t get away from the commission, but this doesn’t mean that the product is bad by any means.

An annuity, which pays out money in disbursements, is one that needs servicing. Since the advisor is servicing the annuity, the insurer will pay them a commission because servicing can last 10 years or more.

An advisor may receive a commission:

  • Once per buy-in and/or
  • Once per year, etc.

Mutual funds are another product where there are three different types:

  • A Shares
  • B Shares
  • C Shares

A shares are commissionable and provide an advisor with a certain percentage upfront. B shares don’t have upfront costs, but when you sell the shares, a charge is made and goes to the advisor.

There are also some mutual funds that pay a small commission to the advisor annually.

Real estate investment trusts (REITs) also have commission attached to them. An advisor may be paid with an REIT in many ways:

  • Commission, which is most common. The advisor is paid by the REIT, but you’ll be required to keep the money in the trust for a specified period of time.
  • There are some REITs that don’t pay commission in the same way, which we’ll be talking about in the next sections.

It’s best to ask your advisor if they receive commission. Advisors may also have the option to waive a commission. For example, an A share commission can be waived.

Note: In the financial industry, the commissions are highly regulated. The financial advisor working on your retirement planning can’t do much in terms of changing the commission due to the strict regulation on these products.

2. Fee-only

Fee-only advisors can help you with retirement planning, and this classification means that the advisor cannot help you with a product that gives commission. For example, let’s assume that an advisor is looking through your retirement plan and thinks life insurance would be an amazing option for you.

As an advisor that offers fee-only services, it is required that refer you to someone else for this product because they cannot receive a commission on it.

This is a very restrictive space.

Fees can be:

  • Hourly fees
  • Flat rate
  • Asset-based (percentage of the funds or estate managed)

Asset-based fees are often preferred because as your estate or portfolio grows, the advisor is paid more. This type of fee structure makes sense for a lot of people because it’s in the best interest of the advisor to maximize your returns so that they’re paid more.

3. Fee-based

A fee-based advisor allows the individual to offer both commission and fee-only services, which offers the financial planner the most flexibility. If one of these financial professionals thinks that you may need life insurance, they can offer you this without needing to refer you to someone else.

In the broad spectrum, fee-based makes sense because the advisor can do everything for you.

But we recommend working with someone who is a fiduciary. 

What is a fiduciary?

A fiduciary is held to the highest standard. As a fiduciary ourselves, this means that we must take care of the client first. As a client, this provides you with the most protection.

When speaking to a financial planner who is fee-only or fee-based, any time that there’s a conflict of interest, such as a commission being paid for a product recommendation, it must be disclosed.

We work on a fee-based arrangement, and when we make a recommendation that has a commission, we have to disclose everything to the client.

Ultimately, commissions are built into rates, so there’s always some payment coming from the client. We believe as long as the advisor is upfront and you know all of the fees and/or commissions upfront, commissions are perfectly fine.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

How to Avoid a Scam!

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Trusting your retirement savings with someone else is difficult. If you’ve spent your life working hard, the last thing you want to do is lose your retirement because of a fraudulent advisor. Bernie Madoff is a name that a lot of people in retirement planning associate with fraud.

After all, Madoff stole around $20 billion (1) in principal funds from his clients, although his firm stated they had returns of $65 billion.

If you want to secure your retirement, you need to know that your advisor isn’t pocketing your money and spending it to live the life of a billionaire. 

Today, we’re going to talk about safeguarding yourself against the Bernie Madoffs of the world.

Quick Background on Bernie Madoff for Everyone That Doesn’t Know

Bernie Madoff’s activities, initially, were legal. He setup custodianships so that he could manage his clients’ money. When you sign over custodianship, you’re putting a lot of trust in an advisor because manipulation can occur.

There’s a lot of oversight, but as we saw with Madoff’s business, regulators didn’t regulate him or his books like they should have.

He had free rein to move money to accounts, forge return numbers and get away with living the life of a billionaire in the process.

99% of Financial Advisors vs Bernie Madoff

Madoff ran a Ponzi scheme, and he did it exceptionally well, even though the activity was obviously illegal. When you hire an advisor, 99.99% of the time you’ll be hiring someone that isn’t Madoff.

You’re going to give someone access to your money, but it’s different than what Madoff was able to do.

When you work with someone – like us, for example – we use a third-party custodianship, which puts your money into Charles Schwab. You can also have money put into Fidelity, TD Ameritrade, or another custodian. It’s very difficult to create your own custodianship. These custodians will provide oversight for you.

For example, these entities create the statements that are sent to you so that an advisor can’t say, “hey, you made 15% returns,” when you really made 2% returns this year.

Bernie Madoff was able to manipulate the statements sent to his clients, who thought they were making a ton of money. Investors were happy to see their portfolios go up and didn’t question their statements.

Madoff, for all of the bad that he did, caused a shift in the way financial advisors can manage money. Oversight and regulations that allowed him to get away with his scam have been strengthened to provide safeguards for investors so that their money is safer in the hands of an advisor.

One of the protections that are in place now is that you own the entirety of your account.

Let’s say that we were managing your money and you decided that it’s time to go in a different direction. You could:

  • Contact Charles Schwab
  • Remove us from the account

You can log into your account to see the activities going on, which does provide some level of peace of mind that your funds are being managed properly. The custodian even prepares all of your tax documents.

Administering Your Account on Your Behalf

As an advisor, if you allow us to administer your account, we do have the power to put in an order to send you funds from the account. The power of an administrator provides us with some opportunities to manage your account, but you’ll never be able to ask us to personally write a check on your behalf.

And that’s a good thing.

The majority of advisors are setup in a similar way to us so that they don’t have the custodianship over your money. A third-party, well-known custodian will provide the oversight and protection necessary to keep your money safe and secure.

Licensing and an Advisor

Industry certification is a must-have in financial planning and the insurance industry. Your advisor should meet all of your state requirements and have the required certifications.

For example, we’re certified financial planners, but we’re also FINRA licensed.

FINRA provides oversight in the world of securities, and they have a variety of licensing available. Licenses offer protections that allow you, as someone looking for a financial planner, to have some peace of mind that your advisor is someone legitimate.

You should ask your advisor about their licensing and even go to your state’s board to learn more about licensing requirements.

If you look into 5 advisors and one says, “no, I don’t need a license,” that should be a red flag that maybe something isn’t right.

But licensing alone doesn’t mean that you can’t be taken advantage of or enter into a Ponzi scheme. Licensing should be seen as a bonus and adds credibility to the advisor, but that’s not the only thing that you should be considering when choosing a financial adviser.

Structure of the Advisor’s Business

Advisors can structure or setup their business in different ways. We’re setup as an RIA, or registered investment advisor, which gives us the ability to act on the behalf of our clients. Since we’re an RIA, we’re held to a fiduciary standard.

What does this mean?

This means that we have to put the client’s interest above our own. You’ll find that broker dealers and agents have their own setups.

And there are different ways that advisors are paid. For example, we’re paid a fee for managing money. We don’t receive commissions on transactions, so there’s no incentive for us to push you to one security or financial vehicle over another.

Brokerages, on the other hand, may be reputable, have a license and can push you to a mutual fund or other investment option. These brokers can sell mutual funds, securities, etc.

You should go to your state’s site and try to find out if the person you’re dealing with is licensed. Licensing means that the advisor is being regulated and must remain compliant.

Money Transfer the Right Way

Even if someone is licensed, this doesn’t mean that there aren’t ways in which fraud can take place. The biggest concern is when money transfers occur because there’s a standard, “right way” for these transfers to take place, and a not-so-standard means of transfers.

What’s the Right Way to Transfer Money?

The right way to transfer money is to write a check to a custodian company, not the investment company themselves. Custodians are highly regulated and are the safest option for transferring money.

What’s the Wrong Way to Transfer Money?

Let’s assume that you’re working with XYZ Corp and you want to invest funds. If you’re making a check out to XYZ Corp, you’re handing over your money directly. The company may be honest and put the funds into your account, or some or all of it can be taken.

It’s not a good idea for you to write checks directly to the financial advisor unless it’s to pay their fees.

When you read about Ponzi schemes, 99.99% of the time, the investor writes a check to the investment company that will then “disperse” the money to your account. If you’re not writing a check directly to the custodian, you’re putting yourself at risk.

Investing your money is always a risk, but you shouldn’t have to stress when you put your trust in a financial advisor. If you do your due diligence, you’ll be able to reduce the risk of being a victim of a Ponzi scheme.

Sources

1. https://www.wyff4.com/article/5-things-to-know-bernie-madoff-scam/36124939#:~:text=steal%20%2465%20billion.-,His%20Ponzi%20scheme%20is%20often%20referred%20to%20as%20a%20%2465,but%20those%20returns%20never%20existed.

Trusts Explained – What you need to know!

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Trusts can be a powerful part of your estate plan, but they’re not a tool that every estate needs to leverage. Do you need a trust? Let’s find out.

What is a Trust?

One of the most common questions we’re asked when working with someone that is in the retirement planning phase of their life is: do you need a trust? And the answer isn’t that simple. A trust may be a way for you to secure your retirement while putting assets in a trust for someone else, but it’s not an estate planning tool for every person or situation.

You can think of a trust as a relationship between:

  • Person that sets it up (grantor)
  • Beneficiary (beneficiary)
  • Person that takes care of the trust (trustee)

An example of a trust can be as simple as:

  • Giving someone $20 
  • Ask the person to give the money to someone else

When you create a trust, you’re allowing the trustee to grant assets, on your behalf, to the beneficiary.

When to Consider a Trust in Your Overall Estate Plan

A trust is not a part of everyone’s retirement planning because it’s really a part of your estate plan. You’ll be creating a trust for someone else, although while you’re alive, you may have access to the trust and all assets within, depending on how the trust was created.

Do you need a trust? No, it’s optional.

But that doesn’t mean that you might not benefit from one. A trust is a good option when you have:

  • Children who are too young to really be a beneficiary
  • Children who are disabled and receiving benefits that they may lose from inheritance
  • Beneficiaries suffering from addiction that may only be granted items in the trust under certain conditions

We also see a lot of trusts being made because the parent of a child isn’t sure that their child’s marriage is going to last, and they do not want part of their estate to go to the ex-wife or ex-husband.

A will distributes the assets out easily in an estate plan, while a trust allows the trustee to manage the estate over time until the beneficiary is ready to receive all or part of the trust.

Trusts are a great way to help divide assets in a second marriage. Perhaps you have children from your first marriage or prior to your second marriage, and you want them to receive a portion of your estate upon your death.

If you don’t have a trust in place, your assets would go to your spouse who may or may not distribute assets to these children.

So, there are a lot of great reasons to choose a trust as a way to strengthen your estate plan. The trust type that you choose will be very important, too.

Most Common Types of Trusts

There are a lot of different types of trusts, and some of these trusts can be very specialized. We’re going to cover the most common types of trusts, but before we do, it’s important to discuss something that is very important for all estate planning matters: probate.

What is Probate and Why You Want to Avoid Probate

When assets are transferred at death, this would be considered probate. A will is, essentially, probate because it helps transfer assets after your death, while a trust can have assets put into it while you’re alive.

Let’s say that you have a house when you die. The house will go through probate and then be given to your heirs.

When assets go through probate, there are drawbacks, such as:

  • Fees 
  • Longer time to transfer the asset

But there are some circumstances where probate may be beneficial. This is not as common, but it can happen.

Revocable Living Trusts

A trust that provides protections for beneficiaries, but they have one key benefit: they’re in existence when you’re alive. While you’re alive, you can place assets in the trust to avoid probate.

Irrevocable Trusts

These trusts are often created for life insurance or charitable donations. Once created, these trusts cannot be modified, revoked or changed after their creation. If an asset is placed in the trust, it cannot be taken out even if your wishes change.

Testamentary Trusts

A very common type of trust that is built into your will. These trusts are only “created” upon your demise, and they’re often in place to protect children that are too young to benefit from the estate just yet.

Special Needs Trusts

A trust for someone that has qualified for Medicaid or Medicare benefits. These trusts are drafted in a way that provides funds to the individual while also ensuring that they qualify for their benefits.

You can also have a trust that is more unofficial but is used when someone is less mature, suffers from a medical condition or is an addict and, at this time, shouldn’t benefit from the trust.

The person can still receive their fair share of the estate, but in the case of an addiction, you can put the share in a trust so that when the child is sober, they can receive assets from the trust. A trustee will often be the deciding factor on whether a special needs trust beneficiary is ready to benefit from the trust.

When a Trust Doesn’t Make Sense for Your Estate Plan

Trusts are a good option for some, but they may not be a good option for others. The times when a trust doesn’t make much sense are:

  • All heirs are doing well with no concerns, in happy marriages, etc.
  • Most of your assets transfer outside of probate, i.e. life insurance, retirement funds, etc.

It truly comes down to the beneficiaries whether a trust is necessary. If you have family dynamics, where maybe an heir is on drugs or gambles, you may want a trust. On the other hand, there are times when a 20-year-old is mature and responsible, so a trust isn’t required.

Choosing a Trustee

Sometimes, choosing a trustee is easy. You have someone in your life that you trust and know will handle your trust accordingly. When you don’t have a clear person that you can trust to handle these matters, then you have a few potential options:

  • Family
  • Friends 
  • Accountant
  • Lawyer 

You can also choose co-trustees where two people are left in charge of the trust.

Deciding on a trustee is very difficult. The trustee may be in their position for 20+ years. A trust can be around for decades, meaning that the trustee is in a vital position where they have to make decisions on distributing money or investing assets so that the trust grows over time.

The trustee may have to tell children “no” when they ask for a distribution.

You have to choose a trustee that you can trust and is very responsible. Since this is a position that the trustee may be in for a long time, they need to be reliable, dependable, in good health and someone that you have a lot of faith in to do the right thing.

Trusts are a complicated form of estate planning, and it’s important to speak to an estate planning professional to help you really determine if a trust is a good option for your estate.If you want to learn more about how to secure your retirement or need help with your retirement planning, click here to schedule an introductory call with us.

How Does a Variable Annuity Work?

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A variable annuity is another type of investment that you can make and add to your retirement account. When we talk about variable annuities, it’s important to fully understand what an annuity is and what they offer to your retirement account.

If you want to implement an annuity into your account, it’s important to know the three main types of annuities available.

Types of Annuities

1. Immediate annuity

The most common form of an annuity is the immediate annuity where you provide an insurer a lump sum of money. In exchange for your lump sum, you receive a certain amount of guaranteed income every month or year (your choice) for the rest of your life. 

You’re giving up your cash, so you don’t have access to this liquidity any longer. Need a new roof? You’ll need to save your income from the annuity or use funds from another account to pay for it.

2. Fixed annuity

A fixed annuity means that you receive a fixed interest rate. Your principal will never fall below a certain amount, and you’re guaranteed a certain amount of interest. The only time your principal goes down is when you withdraw money from the account.

You can have two main kinds of fixed annuities:

  1. Declared rate. A declared rate annuity means that you’ll have a fixed interest rate for certain numbers of years and then can choose to keep money in the annuity or walk away.
  2. Fixed index rate. When you choose this type of fixed annuity, the interest rate is based on an index similar to the way a stock index works. But you cannot lose money with this type of annuity. You can earn 0% interest, but you can never go into negative territory.

You can always draw an income from a fixed annuity. 

3. Variable annuity

What is a variable annuity? Basically, this is a type of annuity that has its interest rate vary based on the type of investment that this annuity is in. For example, you may invest in a certain type of financial instrument.

When you invest in a variable annuity, you can lose money if the financial instrument performs poorly similar to how the stock market works.

How Do Variable Annuities Work?

All annuities have their limitations, but a lot of people are intrigued by the variable annuity because they feel more in control. It’s important to remember that this is also the riskiest annuity because there’s no guarantee of:

  • Interest rate
  • Principal in the account

And you’ll also need to know how to invest using a variable annuity. Since your money is going into investments, this is one of the areas that you really need to sit down and learn about before deciding which type of annuity is best for you.

Making, or potentially losing, money all comes down to your investments.

It works out like this:

  • Put a lump sum into a variable annuity
  • Choose investments in the annuity, called sub accounts

You may be able to invest in mutual funds, ETFs, etc. All of these investments are considered sub accounts.

When you invest in a variable annuity, your investments are limited to what the insurance company offers. The insurance company will allow certain types of investments, and you lose a lot of your control over your money in the process.

Insurance often structures the fund around their own company. For example, the insurer may have their own mutual fund, and you may only be able to invest in these funds that the insurer created.

You may have just 20 or 30 total options with a variable annuity rather than investing freely.

Once you choose a fund, you’re hands-off and are subject to the market risk. You may gain a lot of return, or you may lose out on your investment. The protection that’s offered with the fixed and immediate annuities is completely lost with a variable annuity.

Losing Beyond the Market Dip

For full disclosure, it’s important that we look at how you may lose money with a variable annuity. Let’s assume that you’re able to heavily invest in the S&P 500, and the market falls 30%.

You put $100,000 into the sub account, so now you’ve lost $30,000.

But then there are also other potential losses, which come from fees. You may lose $30,000, but then the fee can be 1.5% to 3% (1) or more (we’re seeing 3% to 5% in total), causing you even more losses. Fees are not based on gains or losses, so your account can go down to $50,000 and fees are still going to be charged.

There are a lot of fees, including:

  • Admin fees. Cost for the insurance company.
  • Mortality expense. Essentially a death benefit.
  • Investment expenses. Costs of about 1% annually for investing.
  • Rider charges. Protection or income protection that can be added on to the annuity. Fees typically range from 1% to 2%.

It’s important that you’re aware of these fees. A lot of these insurers also have surrender charges.

When Would It Be Smart to Use a Variable Annuity?

When you really start understanding a variable annuity and all of the fees involved, you’re going to think “why would I ever choose a variable annuity?” We agree. For most people, a variable annuity doesn’t make much sense because you’re taking on more risks for higher fees.

There is one instance that we can think of where we may recommend a variable annuity.

When does this type of annuity benefit you? All of the annuities are tax deferred, but if you have a variable annuity, you’re likely to also put money into an IRA.

If you have a lot of money that’s not in an IRA and want to leverage a variable annuity for tax purposes, this is really the only time when you may want to put your money into a variable annuity.

What a Variable Annuity Might Look Like for Tax Purposes

Let’s say that you have $100,000 in a variable annuity and $100,000 in a brokerage account. When your brokerage account goes up or down, you’re going to pay taxes and capital gains. In the variability annuity, you wouldn’t be paying taxes because the account is tax deferred.

But when you do take money from the annuity, all of your gains are fully taxable.

You’re paying out taxes later on, which is a nice perk, but these taxes are still going to come out of the account. Keep in mind that the withdrawal from the account will be seen as income, so it’s not taken out as capital gains.

Taxes are not taken out of your original investment – just on the gains.

A variable annuity is beneficial when you don’t have a surrender charge and low fees and prefer tax deferral on your money.

While we don’t recommend a variable annuity to many of our clients, it’s still a viable investment option that you need to consider carefully. You may find that the tax deferment is great for your circumstances because you would rather be taxed at once rather than every year.

If you’re preparing for retirement and want a little guidance and peace of mind, schedule a 100%, no obligation introductory call with us today.

Sources

1. https://www.annuity.org/annuities/fees-and-commissions/

Beneficiaries – What you need to know!

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When you secure your retirement and have been diligent in your retirement planning, you’ll quickly find that your concerns may grow. One of the most common questions we get from others is: how to leave money to the next generation.

Our clients have a lot to say about leaving money to the next generation, including:

  • I’ve given enough to the next generation.
  • My goal is to enjoy my retirement. The kids can have what’s leftover.

But what happens if you’ve done everything that you wanted to do? You’ve traveled, purchased a vacation home and you still have more money than you need. Chances are that you’ll pass away with money that is left for your heirs.

You can use smart retirement planning to make sure that anything left does go to the next generation.

Account Types That You Can Setup

A lot of accounts can be setup so that the remaining funds can be passed down responsibly, including:

  • IRAs
  • 401(k)s
  • Savings
  • Brokerage accounts
  • Life insurance
  • Annuities 

You may even have private property, such as a home or other belongings that you want to pass down to either the estate or a specific heir.

How We Would Handle These Accounts

When you enter into your retirement, you’re likely going to have multiple accounts that you’ve put money into, with the most common being an IRA and 401(k). Accounts always have their own set of issues:

Traditional IRAs/401(k)s 

These haven’t had taxes deducted from them yet, so you need a withdrawal plan in place. But these accounts also make it easy to add a beneficiary to them. You can often log into your account, such as your Charles Schwab account, and add the beneficiary online.

We’ve had a lot of clients that have forgotten about these accounts completely.

If you’re juggling multiple accounts, it’s easy to forget one that may have a few thousand dollars tucked away in it. There’s also the risk that you have already added a beneficiary that you may no longer want to leave money to. For example, your ex may have been the beneficiary, and if still listed as such, he or she will be the beneficiary even if that isn’t your wish.

We recommend that you secure your retirement by consolidating these accounts so that all of your money is in one place, and it’s much easier for you to manage these accounts. 

It’s important to note that 401(k) accounts can be consolidated down into an IRA if you’re no longer working or aged 59 ½ or older.

Savings Account

Savings accounts may not have high interest rates, but they’re a good option to have access to cash when you need it. These accounts lack the great returns you’ll see with other accounts, but you can easily setup what is known as a TOD, which is a transfer on death, or POD (payable on death).

When you set these options on your savings or options, the account is able to avoid probate, which your beneficiaries will thank you for.

You can also setup multiple beneficiaries because what happens if your main beneficiary dies before you do? 

Brokerage Accounts

Setting up a brokerage account properly makes it much easier to separate assets even when compared to a will. The brokerage account may have a beneficiary designation, POD or TOD, that you can designate.

You would name someone to your account.

When you die, all the person has to do is file a claim and provide proof of who they are. This is much easier for the beneficiary than having to deal with probate or the courts.

Life Insurance

A life insurance account is one of the best accounts that you can leave to an heir. Why? These accounts are paid tax-free, so beneficiaries never have to worry about advanced tax strategies to keep more money in the estate.

Roth IRA

Roth IRAs are tax-free, too. The beneficiary is required to take the money out within a ten-year period.

Assigning Primary, Contingent and Further Benefits

Retirement planning should include knowing who you want to assign as your beneficiaries. The standard beneficiary documentation will include:

  • Primary beneficiary, which would be your first choice of a beneficiary. This may be your wife, child or anyone you like.
  • Contingent beneficiary or beneficiaries, which are the person(s) that you’ll want to leave your accounts to if the primary beneficiary is deceased at the time the document is executed.

We recommend that if you have a second contingent, you’ll want to add them as well. A good example of this would be your grandchildren, which would be second contingents. You can have percentages assigned to all of the grandchildren, and this is actually tax advantageous in most cases.

An example of the tax advantages:

  • You want to leave money to one grandchild to pay for their schooling.
  • The child’s parent is wealthy.
  • You might think that leaving the account to your child and allowing them to pay for schooling is beneficial, but it is not.

If you list the grandchildren, the parent can use “disclaiming,” which would help them not go into another tax rate. The grandchild will have to take the money out, allowing them to, in most cases, pay far less taxes if the grandchildren are listed.

You need to make sure that the grandchild is listed as a second contingent so that the money can be passed to them rather than their parents through disclaiming.

This is a tactic that is primarily used for a 401(k) or an IRA.

Per Stirpes and Per Capita

When you fill out a beneficiary form, you’ll often have to choose by per stirpes and per capita. If you don’t choose one, it will normally default to per capita. What does this mean? This means that if you put down three beneficiaries, and one of your children dies, their portion would be dispersed to the two remaining children.

This means that the two beneficiaries would now receive 50% of the account.

If you want the money to go to that child’s grandchildren, you will put “per stirpes” next to your child’s name. This would disperse the funds to your child’s children evenly instead of the money going to only your children.

These are some of the best retirement planning methods that you can use to leave money to the next generation. Even if you don’t want to plan your retirement around the next generation, these tactics can help keep money in your estate.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Click here to schedule a free, complimentary call with us to discuss how you can leave money to the next generation.

How the SECURE Act and Cares Act Affect Your IRA

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Changes made in 2019 have affected a lot of people’s retirement accounts and how they work for their beneficiaries. It’s important for anyone with an IRA to know how the Secure Act and Cares Act affect their IRA because the changes are both good and bad.

The SECURE Act and Your IRA

The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. Changes under the SECURE Act have both good and bad points, which have many people confused. These changes include:

Repeal on Age Restriction for Contributions

Before the ACT passed, you couldn’t contribute to your traditional IRA after you reached 70 ½. Now, you can continue making contributions after this age, which is beneficial for people that continue working after they reach 70 ½ age.

You will need to have eligible compensation to be able to make these contributions.

New 10% Early Distribution Penalty Exception

Exceptions are now given for adoption expenses along with the birth of a child. If you take distributions before 59 ½, any portion of the distribution that is taxable is subject to a 10% additional tax.

This is a steep penalty, and since most people don’t realize that they’ll suffer a 10% penalty until they do their taxes at the end of the year.

Under the new rules, there is a $5,000 exemption per participant if you want to take money out for qualified adoption or birth expenses. The changes are beneficial for anyone that plans to adopt or have a child and needs to find some way to pay for these expenses.

Death of the Stretch IRA

People save in retirement accounts because of tax deferment. You can allow compound interest to work for your retirement account and grow your money more without paying taxes now.

If you die, your beneficiaries can also leverage this same deferment to a certain extent.

Prior to the SECURE Act

A designated beneficiary could stretch distributions for your life expectancy. For a beneficiary, this was highly desirable because assets would remain in the account and grow year-over-year and only have to pay beneficiary required minimum distributions.

The practice was a great way to build wealth.

With a Roth IRA, the distributions became tax free with a qualified event, such as the death of the owner. For many beneficiaries, this was one of the most devastating changes under the SECURE Act.

The SECURE Act changed it so that the stretch IRAs now requires beneficiaries to drain the account in the first 10 years after the account owner’s death. The rule is in place for most non-spouse beneficiaries.

Distributions are optional from year 1 – 9, but if you don’t drain the account, you must increase it by the end of year 10.

A few exceptions are if the beneficiaries are:

  • Disabled
  • Chronically ill
  • Minor child
  • Spouse of the deceased

Even with a minor child, once the child hits the age of majority, the account is switched to the new 10-year period.

A lot of articles seem to miss on exception, which is if the beneficiary is no more than 10 years younger than the account owner. You’ll be able to take a distribution of the account over your lifetime.

What does this mean for you?

The stretch is available for older beneficiaries, which is a nice perk that is offered to eligible for certain beneficiaries. For any beneficiaries that are listed above, the stretch exists otherwise the SECURE Act does remove the stretch IRA.

Qualified Charitable Distributions (QCD) and Why You May Want to Make Them

QCDs shouldn’t be tied into your required minimum distributions. You can begin QCDs as long as you’re 70 ½ at the age of distribution. The Cares Act allows you to make a QCD without needing to take a required distribution.

A lot of financial managers are excited with changes to the QCD because, under the old rules, if you took a distribution from your retirement account, any pre-taxed amount is included in your income.

The exception is if you make a QCD to an eligible charity.

It’s vital that the charity be eligible because if the distribution is made to the charity, the distribution will be tax-free. You can do this up to $100,000 per person each year. Churches are included in this tax-free distribution treatment.

Note: Under the SECURE Act, you don’t have to start taking out your required minimum distribution (RMD) until you’re 72.

CARES Act and Its Importance to Your IRA, 401(k), etc.

The Coronavirus Aid, Relief, and Economic Security (CARES) Act also has some important changes for your retirement accounts. Under the CARES Act, the RMDs aren’t required for 2020.

Under the CARES Act, if you lost your employment or income, you can take up to $100,000 in distributions from your account in 2020. You won’t need to claim 100% of the distribution on your taxes, but you can spread it across three years instead.

You’ll also not have to take a penalty due to the coronavirus-related distribution.

Qualifying for the distribution requires you to be a qualified individual, which falls into the following categories:

  • Test positive for COVID-19 (you, household member, etc.), or
  • Have your income, or a household member negatively impacted due to the coronavirus

If you took someone into your home this year, you could take this benefit if the person is experiencing hardship because of the pandemic. 

The IRS hasn’t mentioned how they will verify that your claims are true.

The CARES Act isn’t subject to that 10% early distribution penalty mentioned earlier.

Note: Many 401(k) plans don’t allow this distribution. You may be able to treat the distribution as a coronavirus distribution.

RMDs and 2021 Possibilities

A lot of advisers were uncertain of what changes may occur in 2021 as the pandemic lingered and even surged to start 2021. There was lot of speculation that there may be some RMD benefits, but this doesn’t seem to be the case as of April 2021.

It seems that those 72 or older will have to resume their RMDs in 2021, with a few changes to keep in mind:

  • You can postpone your 2021 RMD to April 1, 2022, but you will need to take two RMDs and risk having to pay higher taxes if the distribution puts you into a new tax bracket.
  • It’s expected that new legislation will take place in 2021, so you may want to hold off on your RMD because it’s possible that they could be affected.
  • Life expectancy tables have been updated by the IRS and will affect your RMD. The changes will reduce a 72’s first RMD by 6.57% under the change.

Congress has also signaled some interest in pushing the starting age for an RMD up to 75 years old, but it remains to be seen whether this type of legislation will be approved.

If you’re turning 72 this year, you will have to take your first RMD by April 1, 2022.

Overall, the SECURE and CARES Acts have changed IRA RMDs and have some tax advantages. If you’re confused about the changes, speaking to an adviser can add some clarity and help you make the most out of your retirement accounts.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Continuous Care Retirement Community – Understanding Your Options

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Becoming a member of a continuous care retirement community (CCRC) is something people nearing retirement should be considering. These communities are often called life plan communities because you’re making a decision today for your future living and healthcare needs.

What is a Continuous Care Retirement Community?

A CCRC is a community that you enter when you’re still in good health but getting older. The idea is that you join these communities and effectively secure your spot as your care needs increase.

Perhaps you’re in the community for 10 years, but then your hips or knees continue to get a little worse, and you could use some additional care.

As a member of the community, you would be able to secure one of these care spots as they become available so that you can get the care you need. You’ll have peace of mind that as a resident, you can be confident that your care needs will be met for life.

5 CCRCs Contract Types

1. Extensive

An extensive contract has a higher upfront price, but no matter your care needs, the costs never increase. You’ll be buying into a contract, and you can be confident that your costs will remain the same despite potentially increasing medical concerns and needs.

2. Modified

A modified contract has an entrance fee, which is typically smaller than an extensive contract, but the costs will change as your care needs change. So, if you need a skilled nurse, you will have to pay for the care.

The care may be offered at a discounted rate, or you may receive a certain number of care days for free each year.

The modified contract does have an upfront cost, but you will risk potentially higher medical costs as you age.

3. Fee for service

This contract has an entrance fee, but it’s typically cheaper. This option allows you to secure your CCRC, but you will pay a standard fee for any service that you do need.

4. Equity

An equity share is a very important type of CCRC because you’ll actually purchase the property in which you reside. The equity share differs from a contract because you own the property, which will then become an asset.

5. Rental

As a rental, you’ll rent the home, and care may or may not be provided to you. This option is the most affordable, but you’re also taking a major risk because there may or may not be care available when you need it.

One of the things that is important to understand is that all of these options have risks. If you pay more, you reduce your risk in most cases. High upfront costs allow you to have the comfort in knowing that your risks are rather low.

For most people, they’ll often choose:

  • Modified
  • Fee for service

Rental properties are also rising in popularity, as people are considering their options when retiring.

Wait Lists and Continuous Care Retirement Communities

Every community has a different commitment to join a wait list for a community. The population is getting older and living longer, so the demand for CCRCs is very high. Joining one of these lists will vary from community to community, but it will typically require:

  • Application
  • Deposit

The deposits are often refundable or will go to your costs if you do decide to join a community in the future.

With waitlists being long, it’s important to consider joining one as soon as possible. The waitlist can be years – sometimes 4 to 5 years. It’s worth considering joining a waitlist early, especially when you’re in good health, so that you can secure a spot if you want to join in the future.

Good Health and Qualifying for a CCRC

A continuous care retirement community will often recommend joining when you’re in good health. The term “good health” can be subjective. What usually occurs is that when you’re ready to join a community, you’ll be asked to have an exam to better understand what your health needs are today.

Communities are only able to provide a certain level of care, and they safeguard members by ensuring that their care needs can be met.

As a general rule of thumb, if you can live independently, you’re in good health.

Members may be able to join a community if they need assisted living or skilled nursing. Each community is different, so it’s important to ask the community upfront what options are available for new members.

CCRCs are built to help independent members, those that pay a lot upfront, if they have medical issues. A lot of CCRCs don’t allow people that are not independent to join because the commitment is to the independent individuals that joined the community when they’re healthy.

When Should You Join the Community?

A CCRC is a community that you can join and be amongst like minded people. While a lot of members are over 70, this figure is starting to come down. Many communities have a minimum age of 62.

When it comes to couples, one person may be older than the other, and this can cause some conflicts. There is often a lower age requirement for one spouse, but it’s only a few years, making it difficult for couples to enter into a CCRC.

Some people join waitlists in their 50s in preparation that they’ll have a spot available in the community when they need it.

Understanding Entrance and Monthly Fees

A continuous care retirement community will often have an entrance fee and a monthly fee. The entrance fee is sort of like an insurance that allows you to become a part of the community. This fee will have some potential medical costs rolled into it.

The monthly fee is for all of the additional perks, such as:

  • Meal plan
  • Housekeeping
  • Utilities
  • Amenities
  • Fitness center
  • Classes
  • Transportation 
  • Maintenance, etc.

Monthly fees cover virtually everything with the exception of Internet. The monthly service fee at a CCRC covers everything so that you can relax and not worry about fixing a roof or mowing the lawn.

Specific Situations Within a CCRC

CCRCs have had to adapt with the times. There was a time when everything was standard, and meal plans couldn’t be adapted based on a person’s dietary needs or desires. Today, a lot of these retirement communities are offering made-to-order meals to adhere to the dietary differences of their members.

In addition to food concerns, another concern is how the fee structure may be different for couples when one is healthy, and one has higher care needs.

If a community can serve these individuals, they’ll often work with you. Members are different because if they enter as an independent, these communities understand that one individual may have more needs, while others don’t.

One spouse would move into the assisted living while one remains in independent living.

There are also options where an outside agency may send someone to care for the spouse so that the couple can stay together for longer.

A continuous care retirement community is a great option for anyone that wants to cover their bases as they age and grow older in a community that is more like a resort than a traditional retirement home. If you need additional care in the future, the CCRC can offer you the care you need at a place that you’ve long called home.

If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

 In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Documents for Estate Planning and Retirement

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Documents Every Person Needs for Estate Planning

     Is Estate Planning on your priority list? A common misconception about estate planning is that it is only necessary if you have a big estate, many assets, or a complicated family situation. 

The reality is, estate planning ensures that decisions that would be difficult to make in the moment are made in advance to make things easier in the future. 

    By making these decisions in advance and setting them out in writing or in some other way, you can ensure that the wishes of you or a loved one are preserved and that there is a concrete plan for what happens if someone needs to make a decision on your behalf after you die.

     Estate planning also governs what comes next after you die, from what happens to your property to how your funeral will be handled. At its core, estate planning is giving yourself the peace of mind that the people you leave behind will know what to do and will be taken care of, a concept that is very comforting for many. This can be part of your Retirement Planning Checklist.

Estate Planning Documents

      A number of legal documents must be prepared as a part of the estate plan. It is important that these documents are prepared correctly to ensure that your intent is reflected, that nothing slips through the cracks, and of course, that your will and other related documents are validly executed so you do not die intestate. 

      When Preparing for Retirement with estate planning, there are generally three main documents that attorneys advise families to prepare: A will, a durable power of attorney, and a healthcare power of attorney with a living will component. These three documents allow others to legally act for you, which is a powerful, invaluable tool when it comes to managing your end-of-life affairs.

  • Will
  • A will is a legal document that tells readers your wishes after your death, from the distribution of your property to the management of your estate to your intentions for how your children will be raised, in some situations. 
  • While, in some states the law recognizes handwritten/holographic wills, working with a seasoned estate planner or attorney will ensure that your estate is distributed exactly as you would like it to be. 
  • Some wills benefit from the inclusion of specialized clauses that allow for others to act on behalf of the estate, which can come in handy if the language of a will is unclear or if the way a certain property is set to be distributed is impracticable. 
  • For example, wills can include a power of sale provision, which allows the executor of the estate to sell a given property and distribute the funds among the will’s beneficiaries. 
  • Healthcare Power of Attorney
  • A healthcare power of attorney is a legal document that allows an established person to make healthcare decisions on the behalf of another. 
  • This kind of estate planning document is particularly helpful in situations where you or a loved one are unable to make healthcare decisions on your own behalf, like if you are in a medically induced coma or experience a lack of capacity. 
  • A living will is often part of the healthcare power of attorney document. The living will expresses what a person wants, while the healthcare power of attorney states who is authorized to be a decisionmaker.
  • Durable Power of Attorney
  • Durable power of attorney is similar to the healthcare power of attorney but is much broader. Durable power of attorney allows a person to entrust another with virtually all legal decisions. 
  • Someone who has durable power of attorney can make healthcare and financial decisions and even sign legal documents on behalf of another in the event that the person who gave them the power is incapacited or otherwise cannot act on their own behalf. 
  • Power of attorney is a powerful tool to entrust someone with, and can be used to make changes and allow access to bank accounts, various assets, and even change the beneficiaries of a will or similar legal document.

      With the help of these three key estate planning documents, you can feel confident that your loved ones will be taken care of and that it will be as simple as possible for your wishes to be respected after you die.

      If you want more information about preparing your finances for the future or retirement, check out our complimentary Master Class, ‘3 Steps to Secure Your Retirement’. 

      In this class, we teach you the steps you need to take to secure your dream retirement. Get the complimentary Master Class here.

Retirement Planning Checklist to a Worry Free Life

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Retirement should be worry-free, but many in the United States don’t have any retirement savings. Your goal should be to retire with as little stress and worry as possible.

It’s possible, but you’ll need to make sure that you begin securing your retirement today.

We’re going to outline an eight-point retirement planning checklist to help you retire worry-free.

8-Point Retirement Planning Checklist

1. List All of Your Retirement Goals

You can’t know where you’re at in reaching your goals if you haven’t defined them yet. Planning starts with your goals. Make a list of answers to the following questions:

  • What is your definition of a happy retirement?
  • Want to travel? Which destinations will you go to?
  • Want to spend time with family? How often will you travel to see them?
  • Would you like to move closer to family?
  • How much money do you want to spend or give away during retirement?
  • Will you help pay for a grandchild’s college education?

While this step may seem tedious, it can really put your retirement into perspective.

2. Know Your Numbers

Retirement is all about numbers. Money is a number’s game, and throughout your lifetime, you likely have made and contributed to a lot of accounts. You need to know how to access these accounts, how much money you have in them and where your money is allotted.

You may have an IRA, 401(k), annuity, brokerage and several other accounts.

When you have all of these accounts available and know their numbers, you need to consider your spending. Spending habits will typically have three main parts:

  1. Needs, or money to live
  2. Wants, or money to use for vacation, etc.
  3. Legacy, or money you would like to give away

You’ll need to consider that your money will come from your IRAs and 401(k)s, and then consider your income from Social Security, pension or other income streams.

Inflation will also play a role in your retirement planning because you’re not earning anymore, yet prices are still going up. All of these numbers will help you better know your financial situation when retiring.

3. Social Security’s “Big Picture”

When’s the best age to retire? Most places will tell you 70 – that’s a long time to wait. You can retire at 62, 67 or 70. Sure, the earlier you retire, the less you’ll receive. There’s a lot more to consider.

The moving parts may mean taking your Social Security earlier is more beneficial.

4. Educate Yourself on How to Invest Your Savings

Retirement savings should be invested. You’ll find two main forms of investing: active and passive. The main differences are:

  • Passive. You’ve likely been doing this for a long time. A 401(k) is passive in that you buy, hold and don’t do anything else. People that bought into Amazon back when it IPO’d, for example, have likely held on to it and reaped the benefits. Rebalancing may occur where you change up your asset allocation slightly, but it’s not on the level of an active investor.
  • Active. You manage the portfolio daily based on the current market. This is a time-consuming strategy, but you can hedge your losses and control your risk tolerance best.

Educate yourself on these two methods of investing your retirement savings, and you’ll have greater control of your retirement planning.

5. Understand Medicare

An integral part of your retirement planning checklist is to understand Medicare. Your health is so important, and we recommend talking to a Medicare expert. You need to have a plan to take care of Medicare.

There are a lot of options available, and they’re very complex with gaps.

At least one year prior to retirement, sit down with an expert that can help you understand your Medicare options, what’s covered, what’s not covered and how you can cover some of these gaps.

6. Put Your Legal Documents in Order

Estate planning is an essential part of retirement planning. Sit down and look over your estate planning documents. We’re talking about your:

  • Wills
  • Trusts
  • Power of Attorney, etc.

Have an attorney overlook your will. Have things changed since you’ve had these documents drafted? Update your legal documents to have the beneficiaries up to date. Do this with all of your documents.

7. Long-term Care Planning

People are living longer. Hopefully, you never have to go into a long-term care facility, but if you do, it’s a major expense. There are different layers of expenses:

  • Assisted living
  • Nursing care

You can self-insure these expenses, or you can take out an insurance policy that rises throughout your lifetime. Hybrid plans also exist, which will have long-term care plans and possibly life insurance in one.

Deciding how to cover the costs of long-term care will help you sleep well at night knowing that you can have a basic plan if you need help in the future.

8. Write Out a Retirement Income Plan

A written retirement income plan seems daunting, but it’s an integral part of every retirement planning checklist. Your retirement relies on your plan. There are a lot of items included in your plan that you’ll outline:

  • Retirement accounts
  • Expenses
  • Future expenses
  • Renovations
  • Car purchases
  • Inflation
  • Paying for your grandkid’s childhood expenses

When you think through almost everything that you can before retiring, you’ll have a plan to refer to and update as needed. You’ll also be able to see how your current actions are impacting your retirement.

If you follow these eight points, we’re confident that you’ll be on the path to a worry-free retirement. 

Need extra help or want to follow a proven program for retiring with peace of mind. Our 4 Steps to Secure Your Retirement mini course can help.

Click here to learn more about our course and how we’ll help you secure your retirement.

How Much Money You Need to Retire?

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When can you afford to retire?

Our clients often come to us wanting to know a set figure or amount to save that will mean they can retire. But it’s more complicated than just how much you have in your savings. There are lots of different factors to consider when creating a financial plan for a stress-free retirement.

In this post, we’re going to look at two example scenarios to show you what other variables impact your retirement savings and why the amount you’ve saved doesn’t necessarily mean you’ll have a better or longer retirement.

You can watch the video on this topic above or, to listen to the podcast episode, hit play below, or read on for more…

How much money do I need to retire?

The amount you need to have saved to retire is entirely dependent on your situation. No fixed amount or formula applies to everyone. Even if you had saved a million dollars, you’d still have to work through all the different variables to find out if it was enough for you to retire.

There are many variables and things to consider, including:

  • What age you want to retire
  • Your spending
  • Inflation
  • Healthcare costs
  • Your guaranteed income

When you want to retire has a huge impact on how much you need to save. You should consider both your savings and your spending habits whether you want to retire early or closer to retirement age, around 66 or 67 when you’ll receive Social Security.

Your spending is one of the biggest factors influencing your financial retirement plan. Living within your means before and after retirement is crucial to managing your money with longevity in mind.

Inflation also plays a part in how much you’ll need to retire. It’s been relatively low over the last decade, but inflation can change at any time. We set inflation at 3% for our retirement plans. This is the average inflation rate over the last 100 years. If inflation rates do rise higher than average, this typically only lasts for a short period and then readjusts. But it’s something to be aware of, as it will impact your spending and your savings.

Another factor that we cannot necessarily plan for is future healthcare costs. If you need long-term care or face health challenges in the future, it could take a chunk of your savings. While you can’t always prepare for these things in advance, you can take financial precautions, such as taking out insurance.

The one variable you can count on is how much guaranteed income you’ll have in retirement. Most people will have a pension or Social Security. Knowing how much guaranteed income you have in place helps you figure out how much extra you’ll need to save to cover your expenses.

How much you should save for retirement

We’re going to show you two scenarios to better understand how some variables affect savings and why it’s important to manage your money properly in retirement.

In the first scenario, there is Mary. Mary is 60 and has saved one million dollars ($1,000,000).

In the second scenario, there is Susan. Susan is 67 and has saved half a million dollars ($500,000).

Which do you think is going to have a longer retirement based on their age and savings?

Let’s run through these scenarios without changing any factors other than the amounts that each have saved and their ages. In both scenarios, the retirees will get $3,000 of Social Security each month, starting at age 67.

Scenario one: can I retire with a million dollars?

At age 60, Mary retires with one million dollars in IRA assets and has a spending plan of $6,500 a month. That means she needs $6,500 of guaranteed income coming into her bank account every month to pay the bills and live the life she wants to lead.

In both scenarios, the retirees are facing an inflation rate of 3%. This means that Mary’s spending is increasing by 3% a year. After ten years of retirement, inflation alone pushes Mary’s $6,500 up to $9,000 of spending each month.

Mary has invested her one million dollars, so it’s increasing at 5% on an annual average basis. This grows her savings at a decent rate of return, but she is withdrawing these funds to cover her rising costs. Mary has to rely solely on her savings immediately after retiring, as her Social Security payments won’t start until she’s 67.

There are some other factors at play, but to keep this simple, based on Mary’s spending and inflation, it will take only 13 years for her assets to run out. Mary will still have her Social Security payments, but these aren’t nearly enough to cover the lifestyle she’s built and grown accustomed to.

So, even though Mary retired with one million dollars at age 60, which seems like a powerful position to be in, she only makes it to age 73 before she has no more savings.

Scenario two: how much do I need to retire at 67?

Now let’s look at the second scenario. Susan retires at age 67 with half a million dollars saved in an IRA. Susan immediately gets $3,000 of Social Security each month, just like Mary did at 67. But Susan also has a pension of $500, taking her guaranteed income up to $3,500 a month.

Susan wants a different lifestyle from Mary. She plans to spend only $4,000 a month – $2,500 less than Mary. By the time Susan is 80, inflation will push her monthly spend up to $6,000 a month, still less than Mary’s original monthly spending.

In both scenarios, inflation does make a big impact. But for Susan, inflation isn’t as detrimental to her savings. Susan needed to take less out each month than Mary to supplement her guaranteed income and so it’s a more manageable withdrawal over the long-term.

In this scenario, Susan’s spending habits mean she can comfortably maintain her lifestyle in retirement past age 90 before she runs out of her assets.

How to manage your money in retirement

Retiring later, having a pension (even if it’s small), and reducing your spending can make a significant impact on how long your assets will last you. Even though Susan had saved half the amount Mary had, she had a far longer retirement plan because she retired seven years later, took a small pension, and reduced her spending budget.

If Mary had reduced her monthly spending by $1,500 to $5,000, it would have added almost ten more years to her retirement plan. This reduction alone would mean that she’d be 82, instead of 73, before her assets run out.

Your spending is arguably one of the easier factors to change within a retirement plan. It can be very helpful to take a good look at your spending habits now and consider what they’ll be in the future so that you can get an idea of what your retirement could look like.

How to plan your savings for retirement

If someone has saved more money than you for retirement – don’t panic. People have very different circumstances. They may need more money to cover costs or plan to spend more in retirement. Having more savings doesn’t necessarily mean a longer, more worry-free retirement.

A written retirement plan can help you understand how all of these factors will affect your situation and prepare accordingly. It gives you peace of mind that your finances are set for your future.

We’ve put together a complimentary video course to help you prepare for retirement financially. If you want to put a strategy in place for your retirement savings and spending, the free mini-video series is available to access here: Four Steps to Secure Your Retirement.

How to Prepare For Retirement

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Your retirement years are considered the golden years of your life, giving you the chance to relax and spend time with your loved ones. However, in order to maximize your experiences, you need to start preparing for retirement today.

 

If you are in your 60s, developing a thorough plan for your retirement is essential. That is why we have put together our top five tips to help you prepare.

 

 

  1. Identify your retirement starting point
    • The first thing that you need to do is to identify your starting point. To do this, you need to collect as much information as possible such as bank accounts, income, and outgoings. With this information, you can then break this down into three key categories:
      • Essential Needs (such as rent, food, etc.)
      • Wants (such as those dream trips with your family)
      • Legacy (the money you want to leave behind or donate)
    • By breaking this information down into these categories, you will be able to have a clear idea of the amount required for your retirement. When developing this information, you should also take into consideration your social security, the age you would be looking to retire, and when you want to start taking your pension.

 

  1. Know your destination
    • Once you have your starting point, you should then think about the destination and everything you want to achieve during your retirement. Think about the goals that you want to achieve and how you want to live. Do you want a new car every few years? Do you want to become a member of a golf club? An annual holiday with the family, perhaps?
    • Whatever it might be, make sure you know what you want to ensure you can fulfill this golden period of your life.

 

  1. Build a retirement roadmap
    • With your start point and destination created, you now need to build your retirement roadmap. This is the plan that you will follow as you save towards, and live through, your retirement.
    • When building your retirement roadmap, it is really important that you know your income and outgoings. One thing that many people forget to do when building their roadmap is to factor in taxes and the rate of inflation. Without doing this, you can quickly find your savings erode faster than you were expecting.

 

  1. Plan for retirement roadblocks
    • Even the best-laid roadmap can experience a roadblock, so it is crucial that you factor unexpected costs and issues into your plan. For example, another market crash such as that experienced in 2008 or a sudden deterioration in your health can see your savings depleted.
    • That is why it is vital that you constantly monitor your roadmap, making those small adjustments to keep you on track. When it comes to healthcare, you should also consider carefully whether you will be able to self-insure or whether you will need an insurance policy in place.

 

  1. Retirement cruise control
    • While for the most part, careful planning and preparation can mean your retirement can effectively run on cruise control. However, just like you would in real-life when driving a car, you still need to be ready to take over as the road ahead changes.
    • From a potentially volatile market and inflation to economic and political impacts, keep your eyes on the road ahead and adjust accordingly.

 

 

Are you ready to prepare for retirement?

If you are thinking about your retirement and want to start taking steps today to ensure you are in the best possible position, then we are here to help you. Our ‘4 Steps to Secure Your Retirement’ mini-series has been designed to take you through the preparation stages step-by-step, ensuring you are able to be in the best possible place.

 

Want to find out more? Get started today!

Retirement Planning Tips

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Are you beginning to think about retirement planning? Finishing work and entering retirement is your chance to enjoy your golden years and unwind from the hustle and bustle of life. However, one of the most common questions we are asked is ‘how much do I need to retire?’ so, to help you, we have put together seven retirement planning tips to help secure your retirement.

 

  1. Understand your spending

When it comes to retirement planning, the first thing you need to understand is spending. This doesn’t mean your current salary, but what you bring home each month after you have taken out your savings and bills. You should exclude any bills, such as your mortgage, which might have been paid off by the time you retire.

 

By understanding exactly what you need to spend each month, you will be able to begin creating a much clearer plan for retirement.

 

  1. Break down your expenses

You should break down your expenses into three core areas, your essential needs, your wants, and then your giveaway money. Your essentials will cover things such as your and your grocery shop, everything you need to stay alive and happy. Your wants will then be those things to help you maximize your retirement fun, from holidays and golf members to spending time with your family and treating the grandkids. Finally, the giveaway money is the amount you want to donate to charity or leave behind.

 

  1. List your guaranteed income

Your guaranteed income refers to the money that you will still be receiving after retirement. This can be from things such as your pensions, annuity, or social security. This money should help you cover those essential expenses you listed earlier.

 

  1. Don’t rely on the 4% rule

The 4% rule for retirement is the idea that you live off 4% of your assets each year. While in theory, this can be an effective strategy for retirement planning; in reality, we believe it is a flawed method as it does not take into account the volatility of the market.

 

We recommend a different approach for you to secure your retirement by creating a clear plan that allows you to weather whatever the future might have in store.

 

  1. List your accounts by type

Another important retirement planning tip is to make a list of all of your accounts by type. This means things such as your 401K, a traditional IRA, brokerage account, and savings account. Each of these will be taxed differently, so this list will help you work out what you need.

 

  1. Consider your investments

When it comes to investing for retirement, many of us opt for a more aggressive strategy when we are younger. This high-risk option can yield more significant results, but you should start to reconsider the level of risk exposure you are willing to face as you get older. It is important you understand your risk tolerance and what you could potentially lose.

 

  1. Don’t worry if you have ‘enough’

Don’t worry about if you have enough for retirement. We work with clients with vastly different levels of savings, but what is most important is your retirement plan. If you end up spending more money each month than your savings can afford, then no matter how big your initial amount is, it will soon diminish.

 

You should focus on generating a spending plan that matches your lifestyle, not how much you have saved.

 

 

 

Looking to take your retirement planning to the next level?

Are you looking to cement your future? When it comes to retirement planning, there are a lot of moving parts that can make things seem complex, but our ‘4 Steps to Secure Your Retirement’ mini-series will take you through the process to a brighter retirement. Want to find out more? Get started today.