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 to Manage Your Money and Your Risk Exposure

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If you’re trying to learn how to manage your money and your risk exposure, you may be asking: how can I invest when the world’s economies are so uncertain? COVID-19 has caused a lot of investors to rethink their investment strategies because economies have slowed in the wake of the pandemic.

This is the topic that we’re going to be discussing today to help you better manage your money and risk exposure to weather potentially volatile markets.

Understanding the Need for Risk Management

Risk management is a major part of a lot of people’s lives. Think of it this way: you have insurance, right? You likely have insurance on your home and automobile. If a fire breaks out, you know that the insurance will cover the expenses to rebuild and get right back on with your life.

But do you have insurance on your 401(k)?

Since 1926, there have been 16 bear markets that occurred roughly every six years. During these periods, the market took a dip for over a year and a half, typically 22 months, and the market fell 20%, 30% or even higher during this time. On average, markets lose 39% of their value during a bear market.

For many people, this is a fire that is obliterating their 401(k) and retirement. Risk management is the insurance on your retirement to lower the risk of cutting your investment portfolio in half when a bear market occurs.

Importance of “No More Pies” Methodology

What “No More Pies” really means is that there’s no more standard pie chart that is given to you by a financial advisor and never updated.

A chart may be viable and worthwhile today, but markets change far too often to just follow without adjustments. Young investors may believe that they can ride the wave and not have to worry about market fluctuations.

But as you age, you should be lowering your risk tolerance.

No one wants to lose 50% of their investments. The investments may come back, but there’s never a guarantee. Even when they do come back, you’re looking at 7 to 10 years before recovering from a 50% loss. A person that is 65 waiting 10 years to recover their losses is going to lose a lot of valuable time in the process.

It’s also harder to recover from the loss when you’re drawing from the portfolio to live.

Managing Money During a Crisis: Why Not Being Passive Benefits You

Money management should always be on the top of your priority list because a passive portfolio is often set for failure. In the last year alone, we’ve seen markets highly influenced by both politics and the economy.

Passive investing is easy. You put your money into a bunch of financial vehicles, sit back and hold. The buy and hold strategy may work with some stocks and be a part of your portfolio. Yet, the passive investor isn’t adjusting to the market change or signals that show that this commodity is going to fall or that a cryptocurrency is going to tank in the next few weeks.

During a crisis, you want to:

·  Slowly start adjusting investments as problems start arising

·  Monitor and watch the markets for indicators of something brewing

·  Continue monitoring and adjusting your risk to navigate market volatility

A lot of people get overly concerned, pull all of their money out of the markets and lose out on the opportunity for strong market gains because they fear losses due to political or economic concerns.

It’s important to look at all of the variables, make daily assessments and adjust as risk increases or decreases.

If you go with gut decisions or you’re too cautious, you may miss out on market opportunities out of fear that you’ll make a misstep during a crisis. One of the worst choices that you can make is not doing anything and hoping for the best.

When you stay on top of the markets and adjust based on the indicators that are coming out daily, you’ll be adding that insurance to your retirement accounts that wasn’t available before.

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 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.

Buy and Hold is Dead: Why Risk Management is Fundamental in Today’s World

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Buy and sell investments were all the rage just a few years ago. People would invest in a new, hot tech stock, hold on to it and reap the benefit of their shares rising drastically. Warren Buffett was a major supporter of buying and holding, and the strategy led him to being one of the richest men in the world.

We’re here to tell you that the buy and hold is dead for the individual investor thanks to risk management.

Buy and Hold’s Main Flaw for Asset Allocation and Investing

Buy and hold is ideal for institutions that have an infinite lifespan. A business that can be around for a hundred years doesn’t need to concern itself with the prospect of their stock fluctuating up and down and potentially losing 50% of its value.

These institutions can continue holding until the stock recovers, which is something that a person nearing retirement may not be able to do.

A regular individual that is investing and holding is unlikely to withstand a plummeting stock market.

Risk assessment is an option that allows investors to interpret and react to a changing market. For example, the risk assessment for the most recent market crash could have helped a lot of investors keep money in their retirement and investment portfolios.

Between 1999 and 2013, the S&P 500 was below its average until mid-2013.

Tens of millions of investors needed their money during this time. For example, a person in 1999 at 55 might have needed just average returns over the next decade to retire comfortably. But the market dipped by as much as 50%, causing the investor to put his life on hold.

Massive fluctuations in the market, even over a 10-year period, can be devastating for an investor or someone that has been growing an investment portfolio for retirement because 10 years is a long time.

Risk Management is Not Timing the Market

Risk management is about the ebb and flow of the market. When the market starts to become too risky, a risk management approach will take immediate measurements in the market to reallocate investments to help avoid massive losses.

And there are a lot of approaches that we take to determine risk, including:

  • Supply and demand balances to better understand how an investment may pan out in the short-, mid- and long-term.
  • The inner workings of a market. This helps us determine what the lows and highs are for a certain industry’s stock to pinpoint potential risks that an average investor may not realize is happening in the market.

Risk management also includes another important aspect: when to get back into the market. For example, when the market began to tank in 2006, a lot of investors sold off their stock and never really got back into the market because they didn’t have the data to properly calculate their risks.

Proper risk management can alert an investor when the market is good to enter again and when, even if it’s difficult, it’s time to offload an investment.

Risk Off and How a Risk Manager Determines When It’s Time to Reduce Risk

Risk is all based on a timeframe. In most circumstances, there’s a short and long timeframe that may indicate that it’s time to offload certain stocks. A long-term timeframe may be based on supply and demand measurements, especially internally in markets where these factors aren’t witnessed by the average investor.

Oftentimes, when markets are seeing a sway in supply and demand, it’s months after these internal factors are being recorded.

Rebalancing a portfolio to remove assets that may suffer from these factors is a good idea, and you may stay out of these markets for the long-term, which can be five, six or even ten years. Short-term factors also play a role in risk management.

A short-term indicator can help a portfolio withstand short-term fluctuations, such as those seen with COVID. Stocks fell in the first-quarter of the year but rebounded, which allowed someone considering their risk to reenter the market at the right time and reap the growth seen just a quarter or two after.

Multiple timeframes can be followed, which are tailored to a specific client and based on:

  • Declining internals
  • Supply and demand
  • Improving fundamentals

Buy and hold is a good strategy for some, but as you age, risk management needs to takeover. The risks that you can face when you’re younger shouldn’t be a part of your portfolio later on in life when you have proper risk management in place.

Risk management models can help predict a market’s direction, allowing investors to capture a market’s upside while not capturing a lot of downside.

While you’ll always capture a little upside and downside, the right data and management strategy will allow you to capture more of the upside in the market, reducing risk and generating more gains in the long-term.

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.

Reverse Mortgages Explained

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Reverse mortgages are a hot topic among retirees. Some retirees want to have access to a reverse mortgage for financial security, while others are still unsure of how they feel because of some of the practices in the industry in the 60s, 70s and 80s that gave these types of mortgages a bad name.

If you’re considering a reverse mortgage, it’s important to know what these mortgages offer you, their benefits and your obligations when taking out a reverse mortgage.

Traditional vs Reverse Mortgage

A traditional mortgage is what you likely used when you purchased your home. You’ll go through a mortgage company that has a lien on your home and will have to pay the mortgage note for 15, 20 or 30 years (terms can vary).

When you make a payment, you’ll be paying down your principal and interest.

Reverse mortgages are different because there are no payment obligations, but there will be a lien against the property. The loan will be paid at some time in the future where interest and principal are repaid, but the loan has no monthly obligation.

Since a reverse mortgage is only allowed for someone 62 or older, the lender often only recuperates their money when the last borrower passes away and the home is sold.

Reverse Mortgage Example

Confused?

Let’s look at an example:

  • You own a $500,000 home.
  • You own the home outright and no longer have a mortgage.
  • You want to take money out of the home through a reverse mortgage.

In this scenario, you’ll typically opt to take out money via a line of credit. You’ll likely be able to take out $275,000 if you’re 70 years old. You can take money out of this line of credit where the repayment is made at some time in the future.

With a reverse mortgage line of credit, there’s no repayment obligation, and these lines of credit cannot be:

  • Frozen
  • Reduced
  • Cancelled

A reverse mortgage line of credit can only be cancelled if the borrower doesn’t meet their obligations. During COVID-19, a lot of home equity lines of credit were frozen, leaving a lot of older homeowners unable to access money that could have potentially helped them navigate the pandemic.

Scenarios Where a Reverse Mortgage Makes Sense

A lot of people choose to do a reverse mortgage when they’re in retirement and still have a mortgage payment to make. The mortgage payment causes a cash flow problem, which causes a lot of people to take out a reverse mortgage to free up some cash.

Other people want to create a new source of income, while others open a line of credit for when they need long-term care insurance. Need to make a down payment for a continuous care retirement community? A reverse mortgage can help you generate the cash to make this payment.

There are also others that want to downsize, so they’ll use this mortgage to make a second or vacation home purchase.

Using the previous example, let’s say that you a $500,000 home and want to take $200,000 out for the down payment on a continuous care retirement community buy-in with the expectation that you’ll be able to move into the community in two years.

So, in two years, you’re able to move in and take out $200,000 in a reverse mortgage line of credit,

What happens?

  • Closing costs were rolled in.
  • Interest accrued for two years.
  • Loan balance is $240,000.

If the home is sold for $500,000, you would have net proceeds of $260,000 leftover. The sale of the house pays off the reverse mortgage, which doesn’t require any payments during the two-year period.

Baby Boomers Transitioning Into New Homes

Over a million baby boomers have decided to transition into a new home. The transition may be because the homeowner wants to:

  • Avoid having to do maintenance and move into a retirement community.
  • Downsize because their home is too big for them now.

A reverse mortgage can also be used in this scenario. The homebuyer can choose to use a reverse mortgage to invest money or to pay for the down payment for the new home. You can also opt to use the reverse mortgage money as a down payment, move into the retirement home and then sell off the other property to repay the reverse mortgage.

There are a lot of options to use the reverse mortgage to make money.

Now, when you’re reaching end of life and pass away, what happens to your heirs? Your heirs will have to pay the loan balance. Traditionally, the home’s appreciation will outpace the reverse mortgage loan balance interest growth.

The heirs would sell the home at the appreciated value and pay off the reverse mortgage.

Let’s assume that over a 10-year period, the home’s value rose $80,000. The loan value will, in most cases, rise less than this amount, allowing the heirs to sell the home with a net profit.

Using a Reverse Mortgage for Cash Flow When You Have Investments

COVID-19 is a prime example of when investors can use a reverse mortgage line of credit when the market’s conditions aren’t optimal. At the start of the pandemic when the markets dipped, a lot of people relied on their reverse mortgage because it’s:

  • Tax-free
  • Doesn’t require the sale of assets
  • Made more sense to use at the time

You don’t want to sell when the market is on a dip because you’ll be losing money. Instead, a lot of people used their reverse mortgage to allow the market to rebound before selling off the investments you have.

If you need $500 a month to pay your bills, you can draw from the line of credit much like an annuity.

#1 Misconception About A Reverse Mortgage

If you’re considering a reverse mortgage, the largest misconception is that the bank now owns the home. You still own your home, but the reverse mortgage lender has a lien on the home that allows them to be repaid when the home is sold.

Practices in the 60s through 80s did foster this misconception, but times have changed for the better.

Once you sell the home, you will receive 100% equity you have in the home minus the reverse mortgage repayment. So, once the reverse mortgage is repaid, you or your heirs will receive all of the remaining equity.

Can the Home Be Underwater?

No. The loans are backed by the FHA and insured for the borrowers and their heirs. For example, if a market collapse occurred and your $500,000 home is now worth $200,000 and your reverse mortgage was $300,000, you or your heirs would:

  • Sell the home for $200,000
  • Repay the $200,000
  • Not have to repay the remaining $100,000 balance

Essentially, your heirs would not be inheriting a debt that they cannot afford to repay with a home that has a reverse mortgage.

The heirs nor the estate would have to repay any excess debt beyond the price of the home at the market value at the time of sale of the home.

Steps to Taking Out a Reverse Mortgage

If you’re thinking about a reverse mortgage, you should sit down with a local representative of a reverse mortgage broker who can discuss your goals with you. Local representatives can see where you live and better understand what your needs are.

Local loan officers can run calculations to see if a reverse mortgage is a good option for you.

Counselors will request a meeting with you, which lasts about an hour, and ensures that the loan officer walked you through all of the steps in the mortgage process. If you decide the mortgage is a good option for you, an appraisal is done, and then closing takes about 30 days to complete.

Your money is then available for you to access after closing.

When you meet with a counselor, they do not have an opinion on the mortgage. Instead, the counselor answers all of your questions and provides you with all of the fine details relating to the reverse mortgage. These individuals make sure that you understand a reverse mortgage 100%.

Credit history is considered, but the lender wants to reduce the risk that you’ll go into default rather than make sure you have a high credit score.

A lot of homeowners want to enjoy a better retirement, and a reverse mortgage can help fund this goal. Yes, your heirs will not receive the full value of the home because the mortgage needs to be repaid, but you’ll be able to enjoy a better retirement.

And a lot of children are happy with their parent’s decision to take money out of their home to fund the retirement that they envisioned.

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.

2021 Tax Deductions and Tips

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Tax professionals offer the best option for learning about 2021 tax updates. A good CPA can provide you with updates that can affect you when filing your taxes and can hopefully reduce the taxes you owe or increase the refund you’re owed.  Here are some suggestions from a CPA that we know and trust.

2021 Tax Updates You May Have Overlooked

Charitable Tax Deductions

Charity tax deductions are still available, allowing you to take advantage of giving away some of your money. One of the main differences this year is that you’ll need to itemize your charitable tax deduction, which is an unexpected change for a lot of people.

You can deduct at least $300 for an individual or $600 for a couple.

Itemizing your deductions only makes sense when you have more than the standard deduction of $12,500 or $25,000 for couples. For example, it makes more sense not to itemize your deductions when the itemized deduction comes out to less than the standard deduction.

Straight donations are mostly the same, so it’s important to get a receipt. You should be itemizing deductions to really leverage straight deductions which may include:

  • Cleaning out your attic
  • Donating items to Goodwill or another charity

When you’re donating to charity, you can donate up to 60% of your adjusted gross income for tax purposes. Most individuals will not hit this threshold because it’s high, but it is something high net worth individuals may want to think about.

Bonus: Qualified Charitable Distributions (QCDs) are for people older than 70.5, and it allows you to take money out of your IRA and donate directly to charity. This can be done on top of your standard deduction and must be made out directly to the charity. When you do this, you’re not taxed on the withdrawal and you can deduct the donation on your taxes to offer a double benefit to you.

Medical Deductions

When you’re older, closer to retirement or have had to pay for medical procedures in the past year, medical deductions are something that you should be considering. A lot of medical deductions can be made:

  • Insurance
  • Prescriptions
  • Direct doctor costs

If you have a major deduction, you may want to itemize to leverage these deductions. The $12,500 or $25,000 deduction will need to be considered because there’s really no reason to itemize if you’re not trying to deduct higher than this amount.

Reaching a high enough threshold to itemize your medical deductions is often only possible when you’ve had major medical procedures performed. A few of the procedures that may be included are:

  • Dental implants
  • Nursing care
  • Other major issues

Earned Income Tax Credit

The earned income tax credit is based on how much you earn and how many qualifying children that you have. You need to be between 25 and 65 years old and have qualified earned income. A person must earn $16,000 as a single person or $22,000 as a couple to maximize this credit.

When you hit $51,500 as a single person and $57,500 as a couple, this is when the earned income tax credit starts to really phase out for you.

If you have no children, you can expect up to $543, and with three children, $6,700.

Child Tax Credit

A $2,000 tax credit is given to a qualified child between the age of 0 and 16. Once they hit 17 and older, this credit drops to $500, which is quite a jump. The year that the child turns 17, the credit is lowered.

There is also an income threshold for this credit:

  • $200,000 for a single person
  • $400,000 for a couple

Home Office Deductions

A lot of people are working from home this year. COVID has changed a lot of people’s working situations, and there are a lot of questions surrounding home office deductions. Employees that receive a W2 are no longer able to deduct their home offices.

Business owners can write off their home office if it remains their primary place of business.

You can deduct $5 per square foot, or you can itemize your deductions. The itemization is only beneficial if you can deduct more than the square foot value of your office. Remember to keep receipts on all of your expenses from your home office to ensure that you can maximize your deductions and have proof of your expenditures.

If you only work from your home office once or twice a week, you won’t be able to claim this deduction because it’s not your principal place of business if you’re working more days per week outside of your home.

Unemployment Benefits and Your Taxes

All of your unemployment income is viewed as wages. The income is reported on a 1099G, which you will use to claim all of these benefits on your taxes.

Bonus: Stimulus Check and Claiming It as Income

You do not need to claim your stimulus check on your tax return.

Tips When Thinking About Your 2021 Taxes

A few of the tips that we want you to know about when thinking about your taxes in 2021 are:

  • Financial management to manage your portfolio can help you leverage capital gains rates at the current rate.
  • Employee benefits should be managed, such as HSA, 401(k) and other options. Maximize your 401(k) and consider an HSA to use for your health expenses. The HSA can be funded and grow, and by the age of 65, you can take out the money while enjoying tax benefits. Otherwise, the HSA withdrawals all need to be medical related.
  • Review federal withholdings early in the year to ensure that your withholdings are proper. Recent changes to the withholding rate have left many people paying more at the end of the year than they expected. Use the IRS.gov Tax Withholding Estimator to properly adjust your rates at the beginning of the year so that you have fewer surprises at tax season.
  • Try and donate $300 to $600 to a charity this year for additional savings.
  • If you’re going to itemize, consider giving more to charity if you can. Double up on donations to maximize your deductions.
  • Mortgage interest rates can also be deducted on the itemized deductions.

On a final note, be sure to be compliant and file your taxes on time or get an extension. Also, make all of your estimated payments and pay what you think you’ll owe on April 15 because you’ll be penalized otherwise even if filing an extension.

 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.