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 July 22, 2024
2025 Medicare Part D Overhaul in Retirement- Key Changes in Prescription Drug Coverage
Radon and Murs discuss the upcoming changes to Medicare Part D in 2025, bringing on their in-house healthcare specialist, Shawn Southard. The discussion highlights significant updates to prescription drug coverage that will impact beneficiaries, especially concerning cost reductions and structural changes due to the Inflation Reduction Act of 2022.
2025 Medicare Part D Overhaul in Retirement- Key Changes in Prescription Drug Coverage
As the calendar turns to 2025, the landscape of Medicare Part D and Prescription Drug Coverage is poised for significant changes. These updates, driven by the Inflation Reduction Act of 2022, aim to ease the financial burden on beneficiaries but come with their own set of implications. In this comprehensive guide, we’ll delve into the major shifts…
As the calendar turns to 2025, the landscape of Medicare Part D and Prescription Drug Coverage is poised for significant changes. These updates, driven by the Inflation Reduction Act of 2022, aim to ease the financial burden on beneficiaries but come with their own set of implications. In this comprehensive guide, we’ll delve into the major shifts in Medicare Part D, to help you navigate through the changes and understand what they mean for your prescription drug coverage.
A Brief Overview of Medicare Part D
Before diving into the 2025 changes, let’s take a second to review the basics of Medicare Part D. Medicare Part D is a federal program that subsidizes the costs of prescription drugs for Medicare beneficiaries. It is an optional benefit offered to everyone with Medicare and is provided through private insurance companies that Medicare approves.
Part D plans cover both brand-name and generic prescription drugs at participating pharmacies. Each plan has its own list of covered drugs, known as a formulary. The structure typically includes a deductible, an initial coverage period, a coverage gap (often referred to as the “donut hole“), and catastrophic coverage.
The Inflation Reduction Act and Its Impact on Medicare Part D
In 2022, President Biden signed the Inflation Reduction Act, a comprehensive piece of legislation aimed at curbing inflation and reducing costs in various sectors, including healthcare. One of the key aspects of this act was to address the escalating costs of prescription drugs for Medicare beneficiaries.
The act introduced several phased changes to Medicare Part D, starting in 2023, with the most significant adjustments slated for 2025. Let’s break down these changes year by year:
Changes Implemented in 2023
No Cost for Part D Vaccines: All vaccines covered under Part D became free of cost, eliminating deductibles and cost-sharing for beneficiaries. This was particularly beneficial during the COVID-19 pandemic, as it ensured access to essential vaccines without financial barriers.
Insulin Cap: A $35 monthly cap was introduced for insulin, significantly reducing out-of-pocket expenses for beneficiaries who rely on this life-saving medication.
Changes for 2024
Elimination of Cost Sharing in Catastrophic Phase: Previously, after reaching the catastrophic coverage phase, beneficiaries still had to pay about 5% of their drug costs. Starting in 2024, this cost-sharing was eliminated, making prescription drugs essentially free for beneficiaries in this phase.
The Major Overhaul in 2025
2025 brings the most significant changes to Medicare Part D, reshaping the program in several ways to reduce costs for beneficiaries and streamline the coverage process.
1. Reduction of Out-of-Pocket Maximum
One of the most impactful changes is the reduction of the out-of-pocket maximum. Previously, beneficiaries had to spend over $8,000 out-of-pocket before reaching the catastrophic coverage phase. In 2025, this threshold will be lowered to $2,000. This dramatic reduction will provide substantial financial relief to beneficiaries who face high drug costs.
2. Elimination of the Coverage Gap (“Donut Hole”)
The infamous “donut hole” or coverage gap, where beneficiaries had to pay a higher percentage of their drug costs after spending a certain amount, will be completely eliminated in 2025. This change means that the confusing and often burdensome phase where beneficiaries faced higher out-of-pocket costs will no longer exist.
3. Introduction of Mandatory Discounts by Manufacturers
To offset the elimination of the coverage gap, drug manufacturers will be required to provide mandatory discounts on brand-name drugs. These discounts will be 10% during the initial coverage phase and 20% during the catastrophic phase, ensuring that beneficiaries continue to receive cost savings on their medications.
4. Shift in Cost Sharing
The cost-sharing responsibilities between Medicare, drug plans, and beneficiaries will be restructured. Medicare will reduce its share from 80% to 20% in the catastrophic phase, while drug plans will increase their share from 20% to 60%. This shift aims to balance the financial load and ensure that drug plans contribute more significantly to the cost of prescription drugs.
5. Introduction of a Payment Plan for Out-of-Pocket Costs
A new feature starting in 2025 is the Medicare Prescription Payment Plan Program. This program allows beneficiaries to opt into a payment plan to spread out-of-pocket costs over 12 months. This change will help those who struggle to pay their drug costs upfront, offering a more manageable way to handle expenses without incurring interest.
Potential Implications and Preparations
While these changes bring about positive shifts in cost reduction, they also have potential implications that beneficiaries should be aware of.
Higher Premiums
With the increased financial responsibility on drug plans, it’s expected that premiums for Medicare Part D plans may rise. Beneficiaries should be prepared for potential increases in their monthly premiums, and it’s crucial to review plan options during the annual enrollment period to ensure the best coverage for their needs.
Fewer Plan Choices
The restructuring of cost-sharing and the introduction of mandatory discounts may lead to some plans exiting the market. Beneficiaries might see fewer plan choices in their geographical area, making it essential to review available plans carefully during the enrollment period.
Stricter Formularies and Prior Authorizations
To manage costs, drug plans may tighten their formularies, potentially excluding some higher-cost drugs. Additionally, there may be an increase in the need for prior authorizations and step therapy, where beneficiaries must try lower-cost drugs before moving to higher-cost options. Staying informed about these changes and working closely with healthcare providers to manage medications will be vital.
What You Should Do Now
Given these significant changes, it’s more important than ever for Medicare beneficiaries to review their prescription drug coverage. Here are steps you can take:
Review Your Current Plan: Look at your current Medicare Part D plan to understand how the upcoming changes might impact your coverage and costs.
Compare Plan Options: During the Annual Enrollment Period (AEP) from October 15 to December 7, compare different Part D plans to find the best coverage for your needs. Pay attention to premiums, formularies, and cost-sharing structures.
Consult with a Medicare Specialist: If you’re unsure about how these changes will affect you, consider consulting with a Medicare specialist. They can provide personalized advice and help you navigate the complexities of Medicare Part D.
Stay Informed: Keep up with updates and changes to Medicare Part D by following reliable sources and attending informational sessions. Staying informed will help you make the best decisions for your healthcare coverage.
If you want to understand all this a little better, we offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need.
Schedule your complimentary call with us to learn more about the 2025 Medicare Part D Overhaul – Key Changes in Prescription Drug Coverage.
By following these steps and staying proactive, you can ensure that you are well-prepared for the upcoming changes to Medicare Part D and continue to receive the best possible prescription drug coverage.
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 July 15, 2024
Radon and Murs discuss whether to take Social Security at age 62 or wait until the full retirement age of 67. This is one of the most frequent and challenging questions they encounter from clients. They emphasize that the decision involves multiple factors and cannot be answered by simply searching online. Through a detailed example featuring their colleague Taylor, they explore the considerations that influence this significant choice.
Retirement planning is a multifaceted and often complex process, especially when it comes to deciding the right age to start drawing Social Security benefits. This blog aims to dissect the pros and cons of taking Social Security at 62 versus waiting until 67, using insights from a detailed financial planning podcast discussion.
Retirement planning is a multifaceted and often complex process, especially when it comes to deciding the right age to start drawing Social Security benefits. This blog aims to dissect the pros and cons of taking Social Security at 62 versus waiting until 67, using insights from a detailed financial planning podcast discussion.
Introduction to the Decision
Retirement is a significant milestone, and deciding when to start drawing Social Security benefits is a critical part of that journey. Social security benefits can begin as early as age 62 or as late as age 70. The later the begin date, the higher the benefit amount. For that reason, the choice of when to begin benefits is a common dilemma faced by many. Each option has its own set of advantages and potential drawbacks, and the best choice depends on individual circumstances, financial goals, and life expectancy.
The Scenario
Let’s consider a scenario where a couple, Jim and Jane, are both 61 years old and planning to retire at 62. They each earn $150,000 per year, have prioritized saving for retirement, and as such, have managed to accumulate substantial assets in their retirement accounts. Their primary question is whether to start taking Social Security benefits at 62 or to live off their savings and wait until their full retirement age of 67.
Understanding Social Security Benefits
Social Security benefits are calculated based on your highest 35 years of earnings. The Social Security Administration (SSA) provides an online tool where individuals can view their estimated benefits at different retirement ages. For Jim and Jane, their estimated benefits at full retirement age (67) are $3,800 per month each.
Financial Considerations
Income Needs and Expenses: Jim and Jane’s current monthly expenses are $8,000, which includes living expenses, travel, and leisure activities. Their home is paid off, simplifying their financial needs somewhat.
Retirement Savings: Both have IRAs worth $750,000 each, making a total of $1.5 million in retirement savings. They are also contributing the maximum allowable amount to their 401(k) plans.
Social Security at 62 vs 67: If they start taking Social Security at 62, their benefits will be reduced by approximately 30%, resulting in around $2,660 per month each.
Analysis of Different Scenarios
Taking Social Security at 62
Immediate Income: Starting benefits at 62 provides immediate income, reducing the need to draw down their retirement savings.
Reduced Benefits: The benefits are reduced by 30%, impacting the total amount received over their lifetimes.
Impact on Assets: By starting benefits early, Jim and Jane can preserve more of their retirement savings. However, the lower monthly benefits could result in less overall income if they live a long life.
Waiting Until 67
Higher Monthly Benefits: Waiting until 67 increases their benefits to $3,800 per month each, providing a more substantial income.
Drawdown of Assets: They will need to rely on their savings to cover expenses from 62 to 67. This could significantly deplete their retirement accounts.
Long-Term Impact: Higher benefits from 67 onward can provide more financial security in later years, but this assumes they live long enough to benefit from the increased payments.
Detailed Financial Projections
Using financial planning software, we can project the impact of each option on Jim and Jane’s retirement assets:
Retiring at 62 and Taking Benefits at 62:
Initial drawdown from savings to supplement reduced Social Security benefits.
By age 90, their projected net worth is $3.1 million, assuming no major unforeseen expenses or market downturns.
Retiring at 62 and Waiting Until 67:
Larger drawdown from savings to cover expenses until 67.
By age 90, their projected net worth is $2.9 million, slightly less than if they had taken benefits at 62.
Waiting Until 70:
This option maximizes Social Security benefits but requires substantial drawdown from savings until benefits start.
By age 90, their projected net worth is $2.8 million, the lowest among the three options.
Holistic Approach to Decision Making
When deciding on the optimal age to start taking Social Security benefits, it is crucial to consider several factors:
Life Expectancy: If there is a family history of longevity, it might make sense to delay benefits to maximize lifetime income.
Current Health Status: Poor health might favor taking benefits earlier to ensure some benefits are received.
Retirement Lifestyle: Desired lifestyle and spending patterns during retirement play a significant role in this decision.
Tax Implications: Social Security benefits are taxable, and the timing of withdrawals can impact overall tax liability.
Other Income Sources: Availability of other income sources, such as pensions or rental income, can influence the decision.
Conclusion
The choice between taking Social Security at 62 versus waiting until 67 is not a one-size-fits-all decision. For Jim and Jane, starting benefits at 62 appears to be slightly more advantageous in terms of preserving their retirement assets. However, this decision is highly individualistic and should be made based on a comprehensive analysis of personal financial situations, health, and retirement goals.
Financial planning tools and consultations with financial advisors can provide valuable insights and help make an informed decision. Ultimately, the goal is to ensure a comfortable and secure retirement, with Social Security benefits complementing overall financial plans effectively.
For personalized advice and detailed financial planning, consider consulting with a retirement planning expert. Understanding the nuances of Social Security and integrating it into a broader financial plan can significantly impact the quality and security of your retirement years.
By considering the various factors and projections discussed, you can make a more informed decision about when to start taking your Social Security benefits. This comprehensive analysis should help you weigh the pros and cons and choose the best path for your unique situation.
If you want to understand all this a little better, we offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need.
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 July 8, 2024
Andrew Opdyke – 2nd Quarter Economic Update for Retirement
Radon and Murs speak with Andrew Opdyke as he provides his expert analysis on the current economic landscape and what to expect moving forward. They discusses the divergence within the economy, the issues with the banks, the recession and market volatility, and much more.
As we navigate through 2024, the economic landscape is evolving in intriguing ways, shaped by the Federal Reserve’s strategic moves, the unique dynamics of an election year, and the ripple effects of global events. Join us as we discuss the latest trends, market performances, and economic forecasts, providing you with essential insights to stay ahead in these transformative times.
Welcome to the Secure Your Retirement Blog’s 2nd Quarter Economic Update! As we navigate through 2024, the economic landscape is evolving in intriguing ways, shaped by the Federal Reserve’s strategic moves, the unique dynamics of an election year, and the ripple effects of global events. Join us as we discuss the latest trends, market performances, and economic forecasts, providing you with essential insights to stay ahead in these transformative times.
By covering topics like the Fed’s surprising rate cut predictions and the enduring strength of key market sectors, our goal for this update is to equip you with the knowledge to make informed financial decisions and secure your retirement future.
The Fed’s Mid-Year Checkup
One of the most notable events as we reached the halfway point of 2024 was the Federal Reserve’s mid-year meeting in June. Entering the year, the Fed had signaled plans for three rate cuts, and the market anticipated as many as six. However, the Fed’s June meeting painted a different picture. Despite earlier expectations, inflation had not moved as anticipated, and economic growth continued. Consequently, the Fed adjusted its forecast, now planning just one rate cut for the year.
Interestingly, the Fed projected that key economic indicators like the unemployment rate and core inflation would remain stable. They anticipated an unemployment rate of about 4%, exactly where it was during their meeting, and core inflation to end the year at 2.8%, again mirroring the current rate. This status quo forecast suggests a delay in the rate cut cycle, with higher rates persisting a bit longer. This development is a critical aspect of our 2nd Quarter Economic Update, as it shapes expectations for the remainder of the year.
The Election Year Factor
With 2024 being an election year, there’s speculation about how political factors might influence the Fed’s decisions. The Fed aims to maintain political independence and typically avoids making significant moves around election time. Therefore, September is the first potential date for a rate cut, provided there are notable changes in economic fundamentals. However, the most likely scenario for a rate cut this year appears to be December.
It’s essential to recognize that election years often bring heightened emotions and volatility. Despite the debates and political maneuvering, the long-term impact on markets tends to be minimal. Historical data shows that markets move forward regardless of the party in power. Therefore, while elections dominate headlines, their short-term impact on economic fundamentals is often overstated.
Market Performance and Future Outlook
Despite the ongoing challenges with inflation and geopolitical issues, the stock market performed well in the first half of the year. If the second half mirrors the first, we could see a notably strong year for the markets.
However, the question remains: will this trend continue? Market movements are often driven by a mix of earnings expectations, company fundamentals, and investor emotions.
For instance, there’s considerable excitement around artificial intelligence (AI) investments, with significant projects like the Intel plant in Ohio and the TSMC plant in Arizona. While these developments are promising, they also introduce a degree of caution, as market optimism sometimes outpaces actual progress.
Historically, market movements have been influenced by interest rates and borrowing costs. Currently, we see higher-than-average market valuations, which suggests that future market performance will need strong fundamental support. Investors should be mindful of potential volatility and focus on long-term growth areas.
Recession Concerns
Entering 2024, there was considerable talk of an impending recession. Now, halfway through the year, the question remains: is a recession still a possibility?
According to the National Bureau of Economic Research (NBER), a recession is determined by multiple indicators, such as:
employment
consumer spending
industrial production
While some areas have seen declines, consumer spending and employment indicators remain relatively stable.
The data shows that while we are not currently in a recession, there are signs of economic slowing. For instance, manufacturing orders have decreased, and sectors like auto sales and home sales are down. However, the strength of the economy, particularly driven by retirees and baby boomers, continues to support overall growth.
While a recession is not off the table, the likelihood of a severe downturn seems moderated by ongoing consumer activity and targeted investments in growth areas.
Geopolitical Issues
Geopolitical tensions, particularly involving Ukraine, Russia, and Israel, continue to impact the global economy. The disruption in the Red Sea area and the Suez Canal has led to increased shipping costs, affecting inflation and import prices. While Europe bears the brunt of these costs, the ripple effects are felt globally, including in the U.S.
The geopolitical landscape adds complexity to the Fed’s efforts to manage inflation. External factors like shipping disruptions and geopolitical unrest can drive inflation higher, complicating domestic policy decisions. Resolution of these conflicts could also ease inflationary pressures.
Social Security and Retirement
As a retirement planning-focused blog, we must address concerns about Social Security. Current projections indicate that without intervention, the Social Security fund could face significant shortfalls by 2033, potentially reducing benefits to 70-80% of their current levels.
However, there is hope. The next administration will likely prioritize addressing fiscal issues, including Social Security. Possible solutions include adjustments to retirement ages and tax policies. While changes are inevitable, those nearing or in retirement are likely to see their promised benefits, with more significant adjustments targeting future beneficiaries.
The U.S. remains in a strong demographic position compared to many other countries, with continued growth expected. While addressing Social Security requires difficult decisions, the nation’s substantial net worth provides a solid foundation for tackling these challenges.
Employment and Economic Strength
As we look forward to the remainder of the year, employment trends are a key concern. Early signs indicate potential rises in unemployment, particularly among younger demographics. If this trend continues, it could signal broader economic weakening.
However, the resilience of the economy, particularly driven by older demographics less impacted by borrowing costs, provides a buffer. The ability for people to find jobs and support their families remains a critical indicator of economic health.
Looking Ahead
In conclusion, our 2nd Quarter Economic Update highlights several key themes: the Fed’s cautious approach to rate cuts, the minimal long-term market impact of election-year politics, and ongoing geopolitical and social security concerns. While uncertainties remain, focusing on predictable elements and long-term growth areas can provide stability.
As we move through the year, the balance between economic caution and optimism will continue to shape our outlook. The resilience of the U.S. economy, supported by targeted investments and demographic strengths, offers a foundation for navigating these challenges. By staying informed and focusing on long-term strategies, we can better secure our financial futures.
If you want to understand all this a little better, we offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need.
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 July 1, 2024
Understanding Holistic Wealth Management in Retirement– Beyond Just Investments
Radon and Murs discuss holistic wealth management, which goes beyond just savings and investments. While an investment manager looks at your investments or savings in your wealth accumulation phase, a holistic wealth manager helps you build a comprehensive retirement-focused financial plan.
Understanding Holistic Wealth Management in Retirement– Beyond Just Investments
Learn all the data points we collect and focus on to help you build a comprehensive retirement-focused financial plan. You will also learn the advantages of having a holistic wealth manager to help you make major financial decisions in retirement that you might otherwise hesitate to make.
Holistic wealth management is what we do. If you listen to our podcast or read our blog, you’ve likely seen us use this term before. But what’s the difference between a holistic wealth management and an investment firm approach?
In our latest podcast (listen to it here), we explain what holistic wealth management is and how it differs from an investment firm.
An investment advisor or firm has its place in the investment industry and retirement. When you start in the process of accumulating wealth and saving money, you may need some guidance, and that is where one of these professionals can be beneficial.
Some people prefer learning about the different types of investments and the financial vehicles open to them, but others prefer to have a professional handle their investments for them.
A lot of people look for guidance and help on how to invest because they:
Don’t have time to do it themselves
Have a career
Prefer to trust a professional to manage their money
For many people, during their accumulation phase of life when they’re just starting to save, adding money to a 401k or IRA and wanting to put money into a brokerage account, this is the time that they begin working with an investment advisor.
Investment advisors can help you grow your money, and a big part of this is selecting the right assets for your individual goals and needs. Asset allocation, which means diversifying your funds into multiple areas of the market for the long term, is another major reason people work with an advisor.
However, if you have questions about the following, an investment advisor is not ideal:
Tax implications
Saving for a child’s college
When you’re younger, you go to a pediatrician because they specialize in working with kids. As you get older, you go to an adult primary care doctor because they specialize in helping adults. Saving for retirement and investing are very similar because the team around you will need to change with your life circumstances.
This is where holistic wealth management comes into play. We focus on and specialize in helping clients near or in retirement, and we help outside of investments. Investing money has been an integral part of Peace of Mind Wealth Management, and it’s still a major part of our business. Now, we’ve thoughtfully take it a step further.
Ok, so what is Holistic Wealth Management?
Retirement planning has a lot of moving parts, and while investing can help you reach your savings milestones and mitigate risks, it’s just one element of trying to secure your retirement.
We started focusing on holistic wealth management because clients were coming to us with questions like:
These questions have come up many times over the years. We noticed that there was a major need for a holistic wealth management firm that helps you grow your investments but goes well beyond what an investment firm offers.
We handle the investment side of things, and when you have questions about taxes, Social Security, Medicare, and Estate Planning we can help you plan for those, too.
Holistic management offers a focused plan that helps you get to and through retirement.
Our holistic management process starts with a discussion. We’ll sit down together so you can get to know us, and we can learn all about you and your goals. To get started on building your retirement focused plan, we’ll need to know:
Where you are today in terms of finances.
Where you want to be and when.
Instead of just focusing on investments, we’ll consider where income is coming in, expenses, tax planning, estate planning, healthcare, and the other nuances of life that can change when you retire.
For example, if you’re under 65, your needs are different from someone who is older because your healthcare coverage options are a lot different. As you age, we help keep your retirement focused plan up to date, so all the pieces continue to fit together to secure your retirement.
Working With a Wealth Manager
A wealth manager handles retirement from multiple angles. You have the assets you need to retire, but what does retirement look like for you? We start the whole process by creating a retirement-focused financial plan.
Let’s say that you are 60 and want to retire at 65. You need to know that your finances will last through retirement.
We gather all the data points to know what you’ve done to save for retirement so far. We’ll look at how much you’re expected to receive from Social Security, what other concerns you may have, whether you have other sources of income and more.
On the flip side, we’ll look at what you expect to spend in retirement.
Many of our clients like to frontload the first ten years of their retirement to travel. Perhaps you want to travel around Europe for a few years. We need to know if this option is possible and what it means for your retirement.
Once you begin withdrawing assets, there will be tax implications to consider. We have specialists that help you:
Once you hit age 72-and-a-half or 73, you need to begin addressing required minimum distributions (RMDs). If you have pre-tax assets that you need to take money out of to satisfy an RMD, how does that change your tax situation? As a holistic wealth management firm, we can help our clients plan and strategize for these types of situations in one place.
People often need help reaching the finishing line, and we walk them through things like:
For us, this is holistic wealth management. We’re in meetings all the time where people have enough for retirement, but they have questions and concerns about much more than their investment accounts.
We received questions today from people who want to switch homes or go from one home to a continuous care community, and they need help. Of course, some clients have questions on how to leave gifts to their grandchildren or how their dream vacation will impact their retirement.
We love it when clients share their dreams and goals for retirement and having the opportunity to help them feel secure in their plan when achieving them.
Recently, a client wanted to buy their dream car, a 69’ Chevelle, and we ran the numbers to find out if the client could afford it. We’re happy to tell you that the client could afford it, and they’ll be picking up the car in the next few weeks.
A bigger purchase, like a dream car, can be a big decision when you consider how it may fit into your retirement plan. A holistic approach to “running the numbers” for this client went beyond looking at investments, and considered how the purchase would impact their retirement focused plan now and in the future.
You need to ask which option is best for you:
Investment advisor
Holistic wealth manager
Some people prefer to do everything themselves, and for these individuals, they may find that working with an investment advisor fits them best. You may want someone by your side who can handle everything for you, such as your tax planning and financial projections, which is the starting point for how we help to secure your retirement.
If you want to understand all this a little better, we offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need.
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 June 24, 2024
Radon and Murs discuss the income needed during retirement. It’s important to understand that spending needs in retirement will differ significantly from your current earnings due to various factors such as taxes, savings, and job-related expenses.
Learn about a comprehensive approach to estimating retirement expenses by identifying costs that will decrease or disappear in retirement. You will also learn about expenses that will remain constant or increase during retirement and the importance of examining your current net income and expenses to understand your spending patterns better.
Today’s topic is something everyone who is thinking about or in the middle of retirement planning is concerned about: how much money do I need in retirement?
How do I figure out my income?
If you go online and use one of the calculators that claim to help you figure out the income you need in retirement, many will examine your current income and state that you need 80% – 90% of this figure in retirement.
For example, if you make $100,000 a year, the calculator will likely state that you need to have $80,000 in income each year in retirement.
We don’t like this approach because prior to retirement, you may be earning a high income, have heavy contributions to your 401(k), and other current expenses that you may not have in retirement.
Let’s dive into how we start to approach the income in retirement question.
What are Some Things That You Won’t Be Spending on in Retirement?
When you’re working, you’ll pay for a lot of things that you might not even realize that you won’t be paying for in retirement. A lot of these expenses will go down or be fully eliminated in retirement, starting with:
Commuting costs: Depending on where you live and go to work, you are spending time and money getting to and from work. Your commute costs will drop, which may mean gas, bus tickets, train tickets, parking, and other transportation expenses.
Attire: If you wear a uniform, suit, dress, or other work-specific clothing, you will not have the added cost of regularly buying and maintaining these clothes in retirement.
Professional development: If you take continuing education courses or pay to maintain licensing, these costs will also be lower or eliminated.
Food expenses: A lot of people go out for lunch because it’s easier to go to a restaurant or cafe than to make lunch at home. You may have a routine of going to a specific spot near your work to grab something to eat or drink before or after work. While $10 – $30 a few times a week or every day may not seem like much, it adds up quickly.
FICA Payroll taxes: You won’t need to pay FICA (Federal Insurance Contributions Act) payroll taxes, since they only apply to wages.
Child-related expenses: Kids will, hopefully, be out of your budget when you retire, too. Of course, there are some exceptions, but you likely won’t need to help pay for college or other expenses relating to raising your kids in retirement.
Travel: If you travel a lot for work, hotel, meals and transportation will go away.
Memberships: Any work-related memberships that you have you won’t need to pay for anymore.
Contributions: You won’t continue to add to 401(k) or IRA contributions. Some working folks are adding $30,000 to their 401(k) each year, which is a significant boost to their after-retirement income.
Any of the associated work expenses that you have will come off when you retire, which can dramatically decrease your expenses.
While not exhaustive, this list is a good starting point to think about things you are paying for as a working person that you may not need to pay for as a retired person.
How Much Money Do You Have Coming in Each Pay Period?
An easy way to start thinking about your income is to consider how much money you have coming in each pay period. If you have $8,000 coming in a month and can save $4,000, the rest of the money is for expenses.
But, what on the list that we just mentioned will you not be paying for any longer?
Some expenses on the list will still be there, even if they’re reduced, and we need to account for them.
You will still need to pay for:
Housing costs. Even if your home is paid off, you need to pay for things like property taxes and utilities. Our software will be able to account for mortgage payments that may only be there for a part of your retirement and will drop off.
Health insurance costs may change, and these costs may go down on Medicare. If your employer pays 100% of your healthcare costs, then your expenses may go up in retirement. You may even need to cover your own healthcare if you retire before 65, and all these expenses must be considered and accounted for to know how much money you really need in retirement. Shawn Southard, our Healthcare Professional Specializing in Medicare can help you find the best solution for your needs.
Many retirees have very busy schedules, filled with hobbies, events, and travel. You’ll likely need a car, so determining a budget for gas and car maintenance is important.
Insurance needs will vary, but you may need homeowner’s insurance, life insurance, long-term care insurance, and others.
FICA payroll taxes will be gone, but you’ll still need to pay Federal and State income taxes.
Hopefully, you’ll be at a place where you don’t have debt when you enter retirement. Debt and the high interest rates that come with it will impact your income.
Fun Stuff in Retirement
You’ve worked hard to reach retirement and you should plan to have some fun. A few expenses that you’ll need to consider are:
Travel costs
Date nights
Visiting family
Equipment and supplies for hobbies
Oftentimes, we can employ strategies to reduce income tax in retirement, and what helps with planning and strategy is knowing how you plan to spend your money in retirement.
Income matters. When you know what you’ll be spending, that’s when you can really see if you have enough in retirement to live the life you want.
When you’re working and earning a good income, you may not be overly concerned about swiping your credit card, and it can put you on autopilot because you know that you can pay for these expenses.
Once you understand your expenses and wants for the present and future, it puts things into perspective and gives you something to work towards.
We work with our clients to build a retirement-focused financial plan specific to their situation and goals. We build out the plan and provide ongoing communication to help you understand your expenses so that you can move closer to your retirement goals and what you want in retirement.
If you’re interested in having us create a retirement-focused financial plan for you, we would love to hear from you.
Get in touch with us and we’ll schedule a 15-minute consultation to discuss retirement with you.
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 June 17, 2024
How to Avoid Scams in Retirement – Practical Tips for Preventing Fraud
Radon and Murs discuss practical tips on how to safeguard your information and prevent cybersecurity fraud. Fraudsters are continuously evolving their tactics, making it easy to fall victim with a simple click, which is why keeping yourself educated is important.
How to Avoid Scams in Retirement – Practical Tips for Preventing Fraud
Scams are a major concern for everyone. Every day, people are falling victim to scams. Occasionally, a client of ours will contact the office because their data has been breached.Just in the last week, two clients have reached out to us because they were scammed.Let’s go through some tips to help you avoid scams and have peace of mind that you’re taking the steps to avoid falling victim to one of these scams…
Scams are a major concern for everyone. Every day, people are falling victim to scams. Occasionally, a client of ours will contact the office because their data has been breached.
Just in the last week, two clients have reached out to us because they were scammed.
Let’s go through some tips to help you avoid scams and have peace of mind that you’re taking the steps to avoid falling victim to one of these scams.
Remember, millions of people fall victim to identity theft, fraud and scams each year, so it can happen to you.
Client 1 Example
The first client clicked on something that led to a notice that said:
You have a problem with your computer
Call the Microsoft number on your screen for help to fix the issue
If you ever encounter this situation, do not call the number on the notice. Go to a computer repair specialist and they’ll help you because these notices are from scammers who scare people into doing exactly what our first client did.
Unfortunately, the client called the number on the screen, and they did share some information with the person on the phone. While some things were shared, the person’s identity has not been breached yet. However, they are now going through the necessary steps to circumvent any issues if the scammers do use this information.
Client 2 Example
In scenario two, the client clicked on something and divulged some of their information. It resulted in $4,800 being removed from their bank account. Fortunately, the person caught the withdrawal quickly and the bank was able to reverse the transaction before the client suffered a major loss.
We’re seeing an influx of clients get caught up in these scams, and if your thought is, “I just won’t go online,” that’s not always a realistic option.
You can be safe online, and learning what the latest scams are and how they work can help you avoid being scammed in the first place.
3 Things to Keep at the Top of Mind When Working with an Advisor
1. Good, Safe Practices to Working with Your Advisor
If you’re working with an advisor as part of your retirement planning, you must have good, up-to-date, safe practices in place. Your advisor is a trusted person who you share some of your most private data with, such as:
Financials
Social Security number
Account numbers
Date of birth
Talk with your advisor to understand how they protect your information and assets. For us, we have ongoing cybersecurity training, encryption, backup software, and numerous other safeguards.
We’re continually trying to improve our security measures as security risks evolve to keep client information safe and secure.
You also need to keep your advisor up to date when you:
Change your email address
Move to a new address
Change your phone number
Keeping your advisor up to date can prevent your important documents from going to someone other than you.
We require verbal verification to make changes to this type of information because going by email requests only can be very risky. If your email was hacked, the verbal verification requirement is an extra step we have in place to help keep you and your information safe.
2. Expect a Verification Call
If you send us an email asking us to send you money or to change addresses, expect a call from us. Speaking with you allows us to verify you made the request and confirm the details of the request so that we’re 100% positive before sending the money, changing emails, and so on.
While a call may be an extra step that you don’t want to take, it’s much better than the alternative.
3. How Custodians Protect Your Security
Custodians, such as Schwab or Fidelity, take security very seriously. Some of the many ways that custodians will verify you with is:
Voice
Two-factor authentication
If you want to protect yourself, two-factor authentication is one of the most secure measures you can take with your accounts. You’ll receive either an email or text with a code that you need to verify the log-in, or you may have to download an authentication app.
From our understanding, the authentication app is the best, and the text is really good, too.
Two-factor authentication prevents your account from being hacked so that even if a hacker gains access to your email, they can’t access your accounts without these codes.
11 General Best Practices of Cybersecurity
1. Be Suspicious of Everything
To avoid scams, you should be suspicious of texts, phone calls, and emails. If you do pick up calls from phone numbers that you don’t recognize, be cautious when they ask for any identifying information.
If, for example, the person asking for your identifying information states that they’re from Chase, hang up the phone and call a verified Chase number rather than trusting the phone call.
2. Remain Diligent on Social Media
People share a lot of life updates on social media, such as their date of birth, contact information, favorite vacation spots, and other data that a scammer or hacker can use to gain access to even more of your data.
Once you share this data with the world, it’s out there.
3. Be Cautious of Money Movement Instructions Via Email
If you receive any money movement instructions over email, you need to be extremely cautious. You might receive an email from UPS asking you for payment to ensure that your delivery arrives or PayPal asking you to click a link because someone deposited money into your account.
4. Avoid Clicking Links Because Phishing Attempts are HUGE
Phishing attempts are on the rise, and people are more willing than ever to try and steal your personal information. You want to avoid clicking on any unknown links because it’s too easy to fall into a phishing trap and have your information or money stolen.
If the link is to PayPal or a bank account, go to the verified website rather than clicking on the link in the email. This will help circumvent the risk of clicking on a phishing link.
5. Avoid Disclosing or Entering Confidential Information on a Device in a Public Area
Hackers can use man-in-the-middle attacks when you’re on public Wi-Fi to intercept your data and steal your identity. Public Wi-Fi is usually found in places like airports, cafes, and malls. Instead of using public Wi-Fi, you’ll either need to use a VPN or wait until you’re on a private, encrypted Wi-Fi network before entering private data or log-in credentials into an app or website.
6. Monitor Account Statements and Emails
If you make it a habit to log into your accounts and check your financial statements regularly, it will help you avoid unauthorized charges. Acting fast to dispute a credit card charge or withdrawal can save you a lot of heartache in the long term.
Check your emails and accounts often to make sure that you have a pulse on your balances and transactions.
7. Keep Your Technology Updated
Your technology is a major security risk because if a vulnerability is discovered, hackers will take advantage of it to gain access to your accounts or devices. You want to keep any technology (and its software) that you use updated, which includes:
Computers
Laptops
Tablets
Smartphones
Apps
Browsers
All computers should have updated anti-virus, anti-malware, and anti-spyware. If you don’t have these installed, be sure to work on that.
Enable security settings within your browser, too.
If you go somewhere that offers you a free USB device, it’s not worth using because it does pose the risk of having malicious software on it.
8. Avoid Throwing Your Computer Away
Your computer has very valuable information and log-in data on it. If we are no longer using a computer, we use a service that will destroy the computer so that it can never be restored. Never just throw your computer in the trash because it is a security risk.
9. Try to Avoid Using Public Computer
If you use a public computer at a library or other location, do not log into your accounts. Anyone who sits down at the computer can see the history and potentially access your account if you didn’t properly log out of all your accounts before you left.
You should also clear the browser history when you are finished if you do need to use a public computer.
10. Use Wireless Networks That You Know and Trust
Public Wi-Fi is simply not secure. You should use networks that you know and trust. Password protection and encryption can prevent a hacker from accessing the information you transmit over the network.
If you turn on a mobile hotspot on your phone, it will increase your security when using a public network.
It’s also not good practice to update your device or computer on a public network.
11. Be Strategic with Your Log-in Credentials and Passwords
No one likes to remember 20 different logins and passwords, but it’s one of the best security practices that you can follow. When creating a password:
Create a unique password for each account
Avoid using your date of birth or other personal info
Consider using a password manager for password creation and storage
Never share or text your password with someone else
Every time that you have a chance, be sure to enable two-factor authentication to keep your account safe.
More About Phishing Attempts
But we already covered phishing scams! Well, we are seeing such an increase in phishing attempts, it’s worth a deeper dive. Understanding the strategy of phishing attempts can be helpful to keep in mind as you answer calls or open emails and texts. Often, phishing scams will:
Dangle something, like money, if you give over information
Create a sense of urgency to get you to supply your data
Threaten you to get you to click on a button
As we’ve said before, never click on a link in an email that you don’t know or trust. For example, if Schwab emails you your statement, you can open your browser and go to the verified website to login and access these documents rather than click the link in the email.
If you see a suspicious link, hover it and look in the status bar on your browser to see the real web address.
Also, check the sender’s domain name. Often, scammers will send what looks like a legitimate email until you look at the sender. The sender may actually be from somewhere like Gmail or Yahoo and not the real company email address.
Carefully read the sender email address. Sometimes, the name will look very similar to a real account, such as @PayPai instead of @PayPal.com.
Examine the entire email before clicking on any link or button inside of the email.
Scammers may even use a name that you know for the sender’s name to trick you, so be very vigilant because scammers are smarter than ever.
We know that this is a lot to digest, but protecting your identity and sensitive information is a must when doing anything online.
If you have any questions, please feel free to contact our office.
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 June 10, 2024
Form 5498 Demystified – Essential Tax Information for Retirement
Radon, Murs, and Taylor discuss the significance of Form 5498 as an essential tax information document. Taylor describes Form 5498 as an informational document that reports contributions, rollovers, and required minimum distributions (RMDs) related to IRAs.
Form 5498 Demystified – Essential Tax Information for Retirement
Our in-house tax guru, Taylor Wolverton, CFP®, EA, sat down with us on this week’s podcast to help explain the ins and outs of Form 5498. Just a few days ago, a client sent us an email they received from Schwab saying, “important tax information.”The email said that Form 5498 was available for him to download. Our client was concerned because he had already filed his 2023 tax return and didn’t know why he was receiving this form or what implications it had.He asked us what he needed to do. That prompted us to…
Our in-house tax guru, Taylor Wolverton, CFP®, EA, sat down with us on this week’s podcast to help explain the ins and outs of Form 5498. Just a few days ago, a client sent us an email they received from Schwab saying, “important tax information.”
The email said that Form 5498 was available for him to download. Our client was concerned because he had already filed his 2023 tax return and didn’t know why he was receiving this form or what implications it had.
He asked us what he needed to do. That prompted us to have Taylor on the podcast to help all of our listeners and clients learn more about this form.
Taylor’s Response to the Client’s Email
First off, do not stress about Form 5498. For this particular client, the form was generated because he had transferred a 401(k) to a traditional IRA in 2023. The form was issued from the custodian of the traditional IRA to document that the 401(k) rollover was received as expected.
This does not change anything in terms of filing taxes.
You do want to keep Form 5498 for your records in case you’re audited or have to prove such a transaction was completed properly to the IRS.
Why Form 5498 is Important
When you open your email and the form, you’re likely to see some information about your contribution to your Roth IRA, Traditional IRA, SEP IRA, or Simple IRA. If you put money into these accounts the prior tax year, you’ll receive this form.
An account receiving a 401(k) or other employer-sponsored retirement plan rollover (like what happened with the client in our example) is also reported on this form.
In some cases, Form 5498 may also report what your required minimum distributions (RMDs) are if that applies to your situation. You’ll see the fair market value of the IRA from the year prior and what the previous year’s distributions should have been.
Form 5498 vs 1099
A 1099 is a tax form that reports distributions or sources of income, which are normally taxable. You need this information for your tax return, so be sure that you have this form before filing your taxes.
In contrast, your 5498 reports contributions to your account, RMD information, and/or that a rollover has occurred.
To make it simple:
A 1099 reports distributions
A 5498 reports contributions
Does Form 5498 Help Reduce Taxable Income?
Whether this form affects your taxable income depends on what the form is reporting. Contributions to a traditional IRA (or SEP IRA or Simple IRA) can be deducted on a tax return to reduce taxable income. However, you don’t need to wait to receive Form 5498 to report those contribution types on your tax return.
If the form contains information about an RMD, this should have also been already reported on your tax return. Because RMDs are a source of income, they will generate form 1099R which you should receive before your tax return is filed. The RMD information reported on Form 5498 is a way for the IRS to reconcile the distributions reported on your tax return with what the form says needed to be distribution to ensure you’ve met the requirement.
If Form 5498 reports your Roth IRA contribution or a rollover, this does not reduce your taxable income. Roth IRA contributions are not reported on the tax return. Rollovers are noted on the tax return but if done correctly, also do not impact taxable income in any way.
Form 5498 is Reported to the IRS
A Form 5498 is for checks and balances. Your custodian will send both you and the IRS the same form. The IRS will reconcile the information reported on your tax return with the information on this form.
Example of a Rollover Contribution
Let’s assume in 2023 someone had their 401(k) with Empower. If the person chose to transfer the 401(k) from Empower to a traditional IRA at Schwab:
They would receive a 1099-R in January or February from Empower
The 1099-R would show that the 401(k) no longer exists and the full amount at the time of the rollover, which is recorded as a distribution that is not taxable.
The rollover is noted on the tax return by the tax preparer
In May of 2024, Schwab would send out Form 5498 showing the same amount from the 401(k) confirming that it was received into a traditional IRA.
In this scenario, the 5498 confirms that the rollover didn’t simply end up in your checking account and that you did move the money into a traditional IRA like it should have been.
If you did pocket the money and never did the actual rollover, you potentially owe taxes and penalties on the distribution.
Why Does Form 5498 Come Out So Late in the Year?
While it may seem inconvenient that Form 5498 doesn’t come out at the same time as all other tax forms such as forms 1099, there is a delay because the deadline to contribute to many of your accounts is the same as the tax filing deadline.
So, for example, if you wanted to make a Roth IRA contribution for 2023 as part of your retirement planning strategy, you have until April 15, 2024, to make this contribution.
Form 5498 cannot be generated and sent out until after the contribution deadline, so that is why you’ll receive it later than your other tax forms.
In conclusion, if you do receive Form 5498, simply keep the form with your other tax records. If you’ve already filed your tax return, there’s nothing else that you need to do with it.
Do you have any questions regarding Form 5498 or about your retirement plan?
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 June 3, 2024
Annuitization Versus Deferred Annuities in Retirement
Radon and Murs discuss the concept of annuitization and immediate annuities versus deferred annuities. Annuities can come from different sources, such as insurance companies or municipal pensions. Listen in to learn how immediate annuities work, their pros and cons, and risks such as the potential loss of the principal if the annuitant dies early. You will also learn how…
Annuitization Versus Deferred Annuities in Retirement
Learn how deferred annuities work, the fixed type of deferred annuities, and why they make more sense for retirement planning than immediate annuities.
