January 2, 2024 Weekly Update

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

Here are this week’s items:

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

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

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

 

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

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

Reviewing 2023 in your Retirement

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

Reviewing 2023 in your Retirement

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

Reviewing 2023’s Episode List

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

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

What are You Getting for the Fee You Pay an Advisor?

Fees vary greatly from one type of advisor to another. We’re not going into this saying one fee is good or one is bad. For example, if I said I bought a $3,000 car, what would you think? You would assume it’s not the latest model on the market and doesn’t have a backup camera, lane assist, or any of the fancy features a higher-end vehicle might have.

A $50,000 car will have all the bells and whistles, but you may not need all those features.

Financial advisor fees are very similar. Lower fees often mean that you’re doing more, and the advisor is doing less for you. But if you don’t need some services or don’t mind having a hands-on approach to retirement planning, then the lower fees are perfect.

With this in mind, let’s dive into the meat of the fee world.

Fees in the World of Financial Advisors

You may come across the following fees when working with a financial advisor:

Transactional Fee

An hourly fee is exactly what it sounds like. You pay an hourly rate in a pay-as-you-go type of scenario. The planner may also have a set fee for certain services. In many cases, you’ll meet with this person once or twice per year, and then you are responsible for executing the plan.

If you’re the type of person who does the following, transactional fees may be good for you:

  1. Does their own taxes
  2. Paints their own house
  3. Does their own yard work

Many people don’t want to build their own portfolio and would rather spend time with their family, but for others, it makes more sense to have a transactional fee.

Assets Under Management Fee

In an assets under management fee structure, you’re charged a percentage of the assets that you entrust under the advisor’s management. Fees can range anywhere from .3 or .4% to 2 or 2.5%.

So, if you have $1 million in assets that the person controls, your fee at a 2.5% rate would be $25,000 per year. 

Fees vary by region, investment strategy, types of assets and advisor.

Commission-based

In some scenarios, the advisor may be paid a commission for insurance products that they sign their clients up for or for stock purchases.

Assets Under Management Fees are the Most Common

As a financial advisor, we see that assets under management is the most common fee structure. While the range can be great, we see most advisors charging 0.75% – 2% fees, and the more assets under management, the lower the fee percentage will be.

What do you get for these fees?

Full-service or Concierge Service

You’ll pay the highest fee for this type of service, but you enjoy the most hands-off experience possible. You’re working with a specialist who handles your retirement planning and strategy for you.

In our business, we call this the integrated wealth management system and cover things like:

  1. Investment-How do we invest for a return with good risk management in place?
  2. Retirement-focused financial plan-We cover where you are today, Social Security, and whether you will have the money you need to reach your retirement goals. 
  3. Tax strategy-As you accumulate wealth, you have money in multiple buckets, and we want to pay attention to withdrawals and how that will impact you today and in the future. Minimizing your tax burden is really the goal for us in this regard. We can save some clients thousands of dollars by finding tax mistakes or employing other tax-saving strategies.
  4. Estate planning– In this category, we’re talking about wills, trusts, power of attorney, life insurance and more.

We also cover things like continuous care scenarios or long-term care, and it just keeps evolving. Our in-house Medicare Specialist works with our clients to help them onboard for Medicare, find the best solutions for them and really ease our clients’ minds in the long term.

If you’re not sure which fee structure is best for you, consider the following:

  • Lower fees mean that you take a hands-on approach
  • Higher fees mean that you take more of a hands-off approach

For our fee, we try to cover everything for our clients, from tax planning to Medicare and estate planning. You may not need this high of a level of service, but it’s often the difference between 0.75% and 2%.

So, when searching for a financial advisor, be sure to know exactly what you’re getting for your fee because it can be substantial.

Schedule a call to talk to us about our financial planning services.

August 28, 2023 Weekly Update

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 August 28, 2023

This Week’s Podcast – 5 Financial Planning Topics That Need to Be Discussed Annually

Listen in to learn about things to consider when doing tax strategy and planning before the end of the year to enable changes. You will also learn the importance of having a Medicare and healthcare planning, year-end investment review, estate planning update, and reviewing your RMDs.

 

This Week’s Blog – 5 Financial Planning Topics That Need to Be Discussed Annually

Annual financial planning topics evolve as you age. We believe that once you secure your retirement, or when you’re close to it, you should consider the following: 

5 Annual Financial Planning Topics 

We recommend…..

5 Financial Planning Topics That Need to Be Discussed Annually 

Annual financial planning topics evolve as you age. We believe that once you secure your retirement, or when you’re close to it, you should consider the following: 

5 Annual Financial Planning Topics 

1. Tax Planning 

Why would you be doing your tax planning in September, October, or November? Several of the following strategies need to be employed before December 31, so if you wait until your tax return is being prepared around March or April of the next year, it will be too late.  

We recommend: 

  • Conducting a review of your earned income 
  • Confirming distribution amounts from your IRA or 401(k) 
  • Identifying any interest and capital gains you may have received in taxable accounts 

In the years you have lower income than what you expect in the future, we recommend thinking about Roth conversions. Although you will likely pay more taxes in the year you convert to Roth, the ultimate goal with all tax planning strategies is to minimize lifetime taxation. 

On the flipside, if you are expecting an influx of income in the future, you can plan ahead to minimize your tax liability by considering the following strategies: 

  • Tax loss harvesting, which is selling securities at a loss to offset capital gains from securities sold at a profit in the same year.  
  • Qualified Charitable Distributions (QCD) or other charitable giving and donor-advised funds 
  • Verifying that you’re withholding a satisfactory amount of taxes on earned income and any retirement account distributions 

Everyone must pay their dues, but if you take strategic steps today, you can lower your tax burden to ensure that you’re not paying a dime more than you owe. 

2. Required Minimum Distributions (RMDs) 

IRA contributions are typically tax deductible, meaning the contributor does not pay tax on those amounts. Instead, taxes are owed on distributions. Once the IRA account owner reaches a certain age, the IRS imposes required minimum distributions (RMDs) to ensure the taxes are eventually paid rather than allowing the owner to indefinitely defer their tax liability.  

Your RMD start age depends on the year you were born. The age for these distributions was 70-and-a-half, and then the law changed to 72, and then 73. Some individuals will need to begin RMDs at 75. The IRS can assess a very hefty penalty if you miss your RMD. If you are charitably inclined, a QCD from your IRA will satisfy your RMD. We have a great article on this topic: How Do Required Minimum Distributions and QCDs Work?  

3. Medicare and Healthcare Planning 

Open enrollment happens in the last quarter of the year, somewhere at the beginning of October. You can move plans at this time without any underwriting. Everyone should look at: 

  • What their plan includes 
  • Options to change plans 
  • Coverage you may need added 

Everyone is different, and most people end up not changing their plans. However, it is still a good idea to review your plan around the last quarter, because if changes need to be made, open enrollment is the opportune time to do so. 

Note: We can put you in contact with some of our partners who specialize in Medicare and healthcare planning. You may even be able to switch to an identical plan at another provider and pay lower premiums, which is always a great way to secure your retirement. 

4. Year-end Investment Review 

If you’ve been looking at your investments throughout the year, you know that your portfolio has gone up and down quite a bit. However, you might overlook a few things and really need to perform a year-end investment review. What is a year-end investment review? 

It’s an annual best practice to consider: 

  • Portfolio risk 
  • Tax loss harvesting 
  • Adjusting your allocations 

You may want to rebalance your portfolio, depending on how one stock performs compared to others. Perhaps one stock is responsible for 60% of your gains. Unfortunately, this is a major risk that needs rebalancing because you risk the stock falling and your portfolio struggling as a result. 

Additionally, you may be at the point in your retirement planning where you’re close to leaving your job and have enough money to live the life you want, but you have too much risk. Bonds, annuities, or other financial vehicles may need to make up more of your retirement strategy at this time. 

Different age groups have differing risk tolerances. 

Your risk tolerance at 50 will be much different than when you’re 60, and so on. Changes can be made based on how the markets performed, how the economy is doing and your feelings going into the coming year. 

5. Estate Planning Update 

Clients often drag their feet when it comes to estate planning because it’s a topic no one wants to think about. However, if you make it a routine, you will be sure that these documents are 100% in order and accurate. 

You want to be sure that: 

  • Every document is up to date 
  • Beneficiaries (and their information) are up to date 

Often, people come into our office, and they haven’t updated their plan in 10 years. Time goes by so fast, and if any major changes aren’t put down on paper, you may leave money or assets to someone who is no longer in your life. 

Beneficiaries may be incorrect or no longer with us, and these documents are final once executed. A simple review is worth your peace of mind that all the hard work and energy that you put into retirement planning will help the individuals that you love when you pass on. 

An annual update is a check and balance that your estate plan is in order. 

If you check all these items off in September or October, you can go into the coming year knowing that you have your retirement plan in order. 

Want to discuss any of these topics more? Schedule a call with us and we’ll do our best to help you.

July 3, 2023 Weekly Update

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:

This Week’s Podcast – You Have Enough to Retire, but How Do You Create an Income.

Listen in to learn the importance of starting a withdrawal strategy in the first few years of retirement to avoid a sequence of return risks. You will also learn about all the things you should be thinking about if you want to retire early or at any age to keep your life fun and exciting in retirement.

What’s the importance of having a financial professional to help you with the withdrawal strategy to avoid the stress of the deaccumulation phase? Learn here…

 

This Week’s Blog – You Have Enough to Retire, but How Do You Create an Income.

In this scenario, the couple wants to retire at 55 – one year from now. They want to know the best way to take their distributions. The couple plans not to touch the qualified money until they hit age 59.5.

They go on to say that they understand the 4% rule, but they don’t…

You Have Enough to Retire, but How Do You Create an Income?

An article came across our desk from MarketWatch about a couple in their 50s who want to retire early. They have $4.5 million in savings and don’t know what to do to withdraw the money in retirement

Breaking down the couple’s assets, they have:

  • $2.3 million in taxable accounts
  • $2.2 million in retirement assets

The couple has the assets to retire, but this article resonates strongly with us at Peace of Mind Wealth Management. How do you build a plan that will last 20 – 30 years and take care of your family?

The article’s response was pretty standard: seek professional advice instead of trying to do it yourself because everyone and their circumstances are different.

With that setup, let’s dive into the meat of the topic and explain how we recommend you create an income stream.

What the Couple Lets Us Know About Their Situation and Ideas

First, the couple wants to retire at 55 – one year from now. They want to know the best way to take their distributions. The couple plans not to touch the qualified money until they hit age 59.5.

They go on to say that they understand the 4% rule, but they don’t know whether to take money monthly, quarterly, or annually. The couple planned to take money off the table after the 2021 peak, but waited until 2022 for tax purposes, and that backfired.

They also want to know how often they should withdraw money from their accounts.

From our perspective, we love the idea of a retirement focused financial plan. As you grow up you are told to save. Save as much as you can, and dump the money into 401(k), IRA, life insurance, brokerage accounts, emergency funds, and so much more.

Suddenly, you’ll exit the accumulation phase of life and need to enter the distribution phase.

The money you’ve built up needs to last the rest of your lifetime. This is where the anxiety phase seems to kick in:

  • Did I save enough?
  • Did I plan enough?
  • Do I have enough money to last the rest of my life?

We see clients that have less than $4.5 million for retirement and some with substantially more.

How Do You Start Withdrawing?

Based on the article, we know that the individual who wrote into MarketWatch understands the 4% rule. This rule is simple: if you withdraw 4% of your assets annually, you should maintain your assets throughout retirement.

Let’s say that you have $1 million in an account and take $40,000 out of the account annually. In a “predictable” market, this means you’ll replenish the money you take out each year.

We saw in 2022 that the market fell 20% – 30%, depending on the index. In 2020, the market fell over 30% in just a few weeks.

Markets are not predictable. Every few years, we do see volatility and corrections.

While the 4% rule is slightly off and is more like 3.3%, meaning for every $1 million you have in retirement accounts, you can confidently take out $33,000. Rates of returns have gone down, and inflation has gone up.

The times when 7% – 10% gains were almost certain in the markets are, in our opinion, not in our future. You’ll have years of gains in this range or higher, but on average, the market fluctuates too much for it to be predictable.

Based on this information, you should speak to a financial professional and look at all the pieces of retirement and how they fit together.

The person who responded to the question mentioned something else that was important: sequence of returns risk.

What is Sequence of Returns Risk?

If you start your retirement in a down scenario, your return risk goes up. For example, if you wanted to retire in January 2022 and wanted to withdraw $5,000 a month for retirement, it was a bad time.

The markets went on a steady 12-month decline with no recovery phases in the middle.

A person may have had $1 million at the start of the year, but when the year experiences a downturn like 2022, the $5,000 you take out is turning into a higher percentage of your portfolio.

The portfolio stress becomes higher when you withdraw on a down asset.

If the first early years were down 10% or 20%, you could get into a very tricky situation where you might receive 7% returns a year now. However, those initial down years really hurt your chances of the account lasting through retirement.

For us, it makes more sense to consider where you’re withdrawing the money and think about withdrawing money from accounts with less risk.

You may even need to adjust the number of withdrawals you have during down years.

Gap Between the 55 and 59.5 and Funding Retirement

Since the person is retiring before 59.5, they do risk being penalized if they touch their retirement accounts before the age of 59.5. The person writing in understood this fact, but they will need to fund retirement for 4.5 years in some other way.

You can tap into your non-retirement accounts, and there are strategies to tap into a 401(k) at age 55.

The other thing to identify if you’re retiring early is:

  • How much do you need to spend every month? These are “needs”, including food, utilities, mortgage and so on.
  • How much do you want to spend every month? “Wants” include things like vacations, visiting grandkids and so on.

We also need to think about pensions and any income that may be coming in that is not tied to your retirement account. Since the person is 55, we’re not considering Social Security. Early retirement age means thinking about heightened health insurance costs of around 10 years until the person reaches age 65.

When retiring at 55, the person also has opportunities to understand where to withdraw money from to make their money last.

Between the age of 55 and 75, when the person needs to take required minimum distributions, they have 20 years where they can do some pretty cool stuff. For example, they can:

  • Convert pretax to tax-free accounts
  • Reduce taxes through conversions

If the person has all their money in a traditional 401(k), they can start converting these assets through Roth conversions over these years. The ability to grow assets tax-free is a beautiful concept.

We recommend the person spend time understanding where money is coming in, where money is going out, and when various milestones in retirement will be hit.

A person can begin taking Social Security early, at retirement age or at age 70. The additional income may help pad their income needs later in retirement.

Medicare also needs to be considered and is a massive topic because of IRMAA, or surcharges for making too much money in retirement. You may take out more money from one account, but you’ll be penalized in some way:

  • Tax bracket change
  • Taxable Social Security
  • Medicare surcharges

When it comes to a withdrawal strategy, we follow a bucket approach that follows a “why” scenario for spending by breaking your money into:

  • Cash
  • Safety
  • Growth

Bank money and emergency funds are cash. This money is easy to access and will not impact retirement. Safety buckets speak to the idea of the safety of return risks. If we have a safety bucket with low risk and make a return, it brings predictability to our plan.

Finally, the growth bucket is the long-term bucket that is in the stock market and will go through ups and downs. If we can avoid tapping into this bucket, it will be allowed to grow long-term and can circumvent volatility because you don’t need to take money out of the account during down periods.

You can tap into the growth bucket when you need it for things like a vacation. It is a liquid bucket but allowing it to grow over time makes sense for our clients.

We aim to create a withdrawal strategy that minimizes risks and allows you to live comfortably through retirement. Everyone’s retirement plays out differently because your needs are unique and will change over time.

Working with someone who lives and breathes retirement strategies can help you create a withdrawal plan that minimizes risks and tax burdens, and considers volatility in ways that “general” rules, like the 4% rule, do not.

Do you have questions about retirement and want to speak to a professional?

Click here to schedule a 15-minute call with us today to discuss your retirement concerns.

May 8, 2023 Weekly Update

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 May 8, 2023

This Week’s Podcast -What Issues Should You Consider Before You Retire?

Listen in to learn the importance of understanding your cash flow needs and budget and building some type of plan for your retirement. You will also learn the importance of budgeting for health insurance if you retire earlier than age 65 and the options to consider for long-term care planning.

 

This Week’s Blog – What Issues Should You Consider Before You Retire?

Are you considering retiring? After working your entire life, you’ve come to this beautiful ending where you’ve hit all your milestones to secure your retirement and can pursue the things that you truly love to do. Many companies offer early retirement options to their employees, it’s an important time to consider a few things before retirement.

What Issues Should You Consider Before You Retire?

Are you considering retiring? After working your entire life, you’ve come to this beautiful ending where you’ve hit all your milestones to secure your retirement and can pursue the things that you truly love to do.

Many companies offer early retirement options to their employees, it’s an important time to consider a few things before retirement.

In our most recent podcast, we go through all the things we think you should consider before retirement. Even if you’ve spent decades on retirement planning, these are things that you need to sit down and think about before transitioning into retirement.

Want a sneak peek at what we’ll be talking about?

  • Cash flow
  • Healthcare
  • Assets and debts
  • Tax planning issues
  • Long-term care

If you’re not considering all these points already, you need to go through them for yourself to better understand each one.

5 Issues to Consider Before Retirement

1. Cash Flow

Cash flow from your own financial perspective will change a lot when you retire. You’ve spent a lifetime working, receiving a check, and enjoying steady cash flow as a result. When you close out your life chapter of working, your cash flow will change.

Instead of cash being given to you for the hours you put in every week, you’ll take money out of the retirement accounts you’ve built up.

You’ll need to consider:

  • Your cash flow needs.
  • Where will the money come from- Social Security, pensions (we’re seeing far fewer of these), retirement accounts, etc.

Often, many of our clients have income from their careers, but do not have a strict budget in place. You need to spend time learning what your true cash flow needs are every month so that you can determine whether retirement is even a possibility.

If you’re lucky enough to have a pension, be sure to know your options:

  • Single life is often the highest payout
  • Spouse benefits

Are you retiring early? Social Security defines retirement as around 67, but there are benefit implications to retiring “early”. If you retire before 59.5, you are penalized on your IRA withdrawals. There are a lot of things to work through to understand what retiring early truly means.

For example, if you retire early, there is an income limit for Social Security that you need to consider. The limit is $21,240 (currently). If you hit full retirement age, the income limit is bumped up to $56,520.

Keep in mind:

  • Retiring before 55 comes with an IRA penalty
  • Retiring at 55 with a 401(k) doesn’t have a penalty

If you’re married, you also need to consider what that means for you and your spouse. You want to consider that one spouse likely has a higher income than the other. If you have a higher Social Security amount, your spouse will get credit if you’re married for 10 years or longer. The spouse, if they never worked, can receive up to 50% of the Social Security benefits that you have. However, if the person did work and their own benefits were higher, then they will receive the benefits they earned.

We recently had a client who didn’t know this and was shocked when they found out that their spouse would also get benefits. Even if you are now divorced but had been married to your ex-spouse for at least 10 years, there may be some benefit there for you in Social Security.

Healthcare is the next big point to consider.

2. Healthcare 

At 65, you qualify automatically for Medicare. Retiring before this age means that you must put a lot of thought into your healthcare because healthcare is very expensive. Medicare will save you a ton of money, but you need to bridge the few years between retirement and Medicare.

We’re seeing costs from $1,000 to $1,500 for people at 62 or so to get private health coverage. That figure is for a single individual and not a couple.

Employers cover your healthcare while you’re working, but when you retire, you’ll need to consider:

  • Dental
  • Vision
  • Healthcare

If you are contributing to an HSA, you will want to think about using this account, too. At age 65, you still need to take IRMAA into account, which is a Medicare surcharge for someone making over a certain threshold. We have a whole episode on this very topic, which you can listen to here or read here

3. Asset and debts 

Many of our clients have the majority of their money in an IRA or 401(k). One of the first things we are asked is, “Should I pay off my house?” If you need to take the funds from a 401(k), the answer is likely going to be: no. You need to pay taxes on your 401(k) withdrawals, and paying off your home can have a significant impact on the money you’ve saved. Instead, small distributions to make an extra payment often work better.

Low mortgage rates, such as 2.8 percent, can often be left because you may make more money with the cash in a brokerage account.

Let’s say that you have $100,000 left on your mortgage and your principal and interest payment is $1,200. If you had this $100,000 in a savings account, it might only net you $600 a month. In this scenario, paying off the house is a wise choice.

Bump your mortgage balance to $300,000, and it may not be beneficial to pay off your mortgage.

Beyond mortgage, you also need to consider risk exposure.

Transitioning to retirement means that you need income for 30-something years from the asset accounts that you have. When you retire, you want to have as little risk exposure as you can with your assets because you don’t want to experience a situation like we did in 2020 when some indexes fell 20% – 30%.

Reevaluating your investments and how you’re invested in the market will help you to limit your risk exposure.

4. Tax planning issues 

If you retire prior to 72 or 73, tax planning can save you a lot of money. 

Imagine retiring at 62 and you have $1 million in assets in your IRA growing at a little over 7% per year. By the time you’re 72, you’ll have $2 million and need to take a required minimum distribution of $80,000 or so per year. If you have Social Security and a pension, these distributions can push you into a higher tax bracket.

We can take a strategic approach to retirement by looking at a Roth conversion. We had a client who retired, had cash in the bank and lived on these funds to allow for significant Roth conversions at a low tax bracket.

5. Long-term care

The least fun part of retirement planning is long-term care planning. You never want to think about yourself in a long-term care situation, but it’s a reality that all of us are at risk of being in at some point.

And long-term care is not cheap.

You need to have a scenario in place where you are prepared to pay for this care. We’re seeing a lot of people pay $8,000 a month for long-term care, with durations being 4 or 5 years. This form of care can cost you $400,000 to $500,000 in total.

Can you afford to take on this financial burden?

You can pay insurance premiums out of pocket, or you can go with an asset-based plan. We’re seeing premiums soaring 50% to 70%, causing many people to be unable to pay for their long-term care.

Instead, you can put $100,000 in a long-term care annuity that grows to $300,000 and can be used for your long-term care. You still have access to this money if you need it and can also name beneficiaries on the account. A beneficiary will receive the total of the account if you pass and never use it, or they may receive any unused funds in the account.

If you pay insurance premiums on long-term care insurance, you will not receive any of these funds back. An annuity can be a great option because if you don’t need to use the funds in the account, they aren’t just going to an insurance company.

We also recommend that you have a will in place or review your will and beneficiaries on all accounts before you retire. If you don’t have all of your estate planning documents in place, you are putting a major burden on your family. You want to go as far as confirming all your beneficiaries and loved ones know the types of documents you have and where these documents are just in case you are ever unable to show them.

P.S. We are working off our own internal checklist titled “2023: What issues should I consider before I retire?” Call the office or email us if you would like a copy of this checklist. We also have a checklist for anyone who is updating their estate plan so that you don’t miss any key points along the way.

Click here to schedule a 15-minute call with us to discuss the things to consider before retirement.

April 17, 2023 Weekly Update

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 April 17, 2023

This Week’s Podcast -Retirement Withdrawal Strategy

Learn how to determine your spending during retirement and which accounts the money will come from. You will also learn the importance of being flexible to make changes to your strategy as things and priorities shift over time.

 

This Week’s Blog – Retirement Withdrawal Strategy

If you’re like most people, you’ve worked a lot, put money into retirement and relied on your paycheck to pay the bills. A lot of time goes into retirement planning, and then there’s this cosmic shift where you’ll find yourself spending your retirement money.

You have all of these accounts that have grown as you tried to secure your retirement, and you may be wondering: Which accounts do I take money from? 

Retirement Withdrawal Strategy

If you’re like most people, you’ve worked a lot, put money into retirement and relied on your paycheck to pay the bills. A lot of time goes into retirement planning, and then there’s this cosmic shift where you’ll find yourself spending your retirement money.

You have all of these accounts that have grown as you tried to secure your retirement, and you may be wondering: Which accounts do I take money from? 

The steps below can help you create a retirement withdrawal strategy that works well for you:

5-step Retirement Withdrawal Strategy

1. Determine Your Retirement Needs

We work and save for so long that when retirement comes, most of us don’t know our needs. You’ve built up a nest egg, and now it’s time to understand your needs:

  • Essential income: What do you need to stay relatively happy? You’re not having all of the fun yet, but you need to pay your mortgage, eat and enjoy life a little bit, such as going out to dinner. Calculate this expense, which may be $3,000 to $4,000 or less and maybe even more, depending on your lifestyle.
  • Wants in retirement: Do you want to travel, play golf, or spoil your grandkids? What will make retirement fun for you? It’s important to come up with your own bucket list and then put a dollar figure on each item.

Social Security is unlikely to cover all of your needs, and this is where the coming steps will help you create a withdrawal strategy.

2. Understand the Different Types of Retirement Accounts

Many people know a lot about their 401(k) accounts because they’ve paid into them for so long. Their employers may have contributed to these accounts, and it is where many people have the bulk of their wealth.

However, you may be involved with:

  • Traditional or Roth IRA
  • Traditional or Roth 401(k)

If you have a traditional IRA or 401(k), there is a rule that you have to take what is known as a required minimum distribution. Currently, at age 72, you need to begin taking withdrawals from these accounts every year. This age is set to increase to over the years, but right now, it’s 72.

We have a few clients who didn’t realize that they needed to take this distribution and don’t need the money. However, since these accounts are traditional, you’ll need to take your withdrawals and pay taxes on this money, creating a lot of interesting scenarios.

For example, you may have to deal with:

  • Health benefit changes that are based on income
  • Paying into a higher tax bracket because your income is now higher

Roth accounts do not require you to take a required minimum distribution. In many cases, we’ll discuss doing things early, such as in your 50s and early 60s, when you still have time to convert the traditional account earlier to avoid potential drawbacks in the future.

Everyone with a traditional or Roth IRA must sit down and figure out the rules of each account type that they have.

3. Figure Out Your Priorities

Year by year, your retirement withdrawal strategy can change. Nothing is set in stone, but we find a yearly strategy provides our clients peace of mind. With that said, you do need to determine your priorities.

For example, you may want to prioritize:

  • Roth conversions to get into a tax-free scenario
  • Tax strategies to lower future taxes

Roth conversions will trigger taxes and can impact you in the future. 

We have one client who is trying to leverage a very low tax year, live on cash in the bank and do a Roth conversion. He plans to live on the cash he has saved so that the Roth conversion can happen at a rate of just 12%.

Since he is converting into a Roth account, he benefits from:

  • Allowing the money in the account to grow
  • Not having to take withdrawals

He is making it a priority to get his money into accounts that can grow tax-free and not have to worry about future withdrawals.

Another priority that we have seen in recent years is staying under IRMAA. IRMAA is a Medicare surcharge, and if you go over a certain threshold, you’ll need to pay higher premiums as a result.

Don’t know what IRMAA is or why it matters? Read through our guide: IRMAA Medicare Surcharges and 

If you never want to go above the IRMAA threshold, this can be a priority and achieved by creating the right withdrawal strategy.

4. Manage Investment Risk

Investment risks can be complicated, but we like to keep it simple with a three-bucket strategy. The strategy includes:

  1. Cash in the bank that you can use as emergency money any time you need it.
  2. Investment bucket, which is the money that you want to grow. Some risk is involved here.
  3. Income or safety bucket. Let’s assume that we have an income or safety bucket, this will cover your expenses and allow your investment bucket to rise and fall without worrying about market downturns.

You can read more about our retirement bucket strategy here.

5. Be Willing the Adjust

The final step in a retirement withdrawal strategy is that you should be able to adjust the strategy at any time. Unfortunately, there is no one-size-fits-all approach or rule of thumb to follow with your withdrawal strategy.

Retirement-focused financial plans are “living and breathing.”

We want to have the ability and flexibility to adjust your plan when it benefits you the most or when priorities change. For our clients, we recommend going through their plans at least once a year.

A quick review helps you understand if you have everything to cover your life for 30+ years in retirement. If you get caught in autopilot, you may miss important changes that need to occur.

If you prioritize your withdrawal strategy, you’ll find that it’s a lot less complex than it is if you scramble to create a strategy too late.

Do you want help with your retirement planning?

Click here to schedule a call with us about your retirement withdrawal strategy.

March 27, 2023 Weekly Update

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 March 27, 2023

This Week’s Podcast – Implementing Your Retirement Plan

In this Episode of the Secure Your Retirement Podcast, Nick and Taylor return to talk about the retirement plan implementation after the initial process. When you decide to be our client, we ask for all the information needed to open your account with our custodian Charles Schwab.

 

This Week’s Blog – Implementing Your Retirement Plan

At this point, a lot of work has been done on both sides of the table: you provide a wealth of information, and we give you a recommendation and insight into your retirement. Now, you have to decide whether or not you want to work with us as a client.

If you love everything and want to work with us to secure your retirement, we will move forward through a new process…

Implementing Your Retirement Plan

Last month, we started a conversation on the retirement planning process, which you can read here or listen to on our podcast. In that episode, we discussed:

  • Preparing for an introduction meeting with our team
  • Obtaining documents for the meeting (financial statements, retirement statements, etc.)
  • What happens on our end before the second meeting
  • Bucket sheet (cash, safety and growth)

At this point, a lot of work has been done on both sides of the table: you provide a wealth of information, and we give you a recommendation and insight into your retirement. Now, you have to decide whether or not you want to work with us as a client.

If you love everything and want to work with us to secure your retirement, we will move forward through a new process.

Meeting and Figuring Out Any Additional Information We Need

We’ve gathered a lot of information from you up until this point, but there are still some documents we’ll need to open up accounts. For example, we’ll need:

  • Beneficiary information
  • Dates of birth
  • Addresses
  • Phone numbers
  • Contact information

We’ll spend time filling in documentation with all of your information to open up a Charles Schwab account in your name. Once all of this paperwork is signed, we’ll submit it to Schwab. In most cases, it will take 1 – 3 business days to open the account, depending on the type of account in question.

This is when:

  • Transfers take place
  • Nick reaches out to you about the account being opened
  • Verify that everyone can access the new account (including you)
  • Etc.

If you’re already a customer of Charles Schwab, we only need to provide a single form to access the account. 

Understanding Our Relationship with Charles Schwab

It’s crucial for you to understand that we don’t work for Charles Schwab. In fact, we’re not connected with the company in any way other than using them as a custodian. Custodians can be:

  • Fidelity
  • TD Ameritrade (not for much longer as Schwab acquired them)
  • Charles Schwab
  • Vanguard
  • Any place where you have your accounts

Charles Schwab doesn’t have a financial relationship with us.

When we transfer your accounts from your existing custodian to Schwab, something called an “in kind” occurs. This is a simple term, meaning that all of your assets are moved from one account to another and remain unchanged.

We don’t have to sell and repurchase anything when transferring your accounts to Schwab.

Until we come up with a strategy around the investments, nothing changes in your accounts during the transfer. The transfer doesn’t cause tax liability or anything like that.

What Happens If I Transfer My Monthly Distribution from One Custodian to Another?

If you have a custodian account with, say, Fidelity and you’re taking a $1,000 monthly distribution, what happens when you transfer to Schwab? We’ll need to fill out one additional form on your behalf and make sure the same exact thing happens at Schwab for you.

In essence, we’re just changing bank accounts when moving to Schwab, and we replicate everything for you effortlessly.

What Happens with a Company Plan, Such as a 401(k), 403(b), 457, etc.?

If you have what is called a “company plan,” the transfer happens a little differently. We require one less form to file and we’ll need to contact the company, such as the 401(k) company.

When we contact the company, we’ll request that the company send a check for the balance of your account. The check will be made out to Charles Schwab for the benefit of you. The check can be sent to you or to Charles Schwab directly.

The process varies and depends on how fast the company cuts the check.

Note: When we work together, we do a trustee-to-trustee turnover so that you don’t trigger a taxable event. 

Tax Planning Over the Next Few Months

During the first few months of working with us, we’ll dive into tax planning. If you want to secure your retirement, you must not pay a dime more in taxes than is necessary. First, we’ll need your most recent tax return.

We’ll analyze these returns to learn where you can save money.

For example, perhaps you can benefit from a Roth conversion, so we’ll have a conversation around this to see if it’s something you’re interested in doing.

Of course, we may be able to leverage:

  • Qualified charitable distributions
  • Donor-advised funds
  • Any opportunity to lower your taxable income

We want to lower your current taxable income and future taxes, too.

Clients Over the Age of 65

If you’re over the age of 65, you may be concerned about selling something with a gain or a Roth conversion. Clients who are paying Medicare premiums, or will be shortly, need to worry about something called IRMAA.

Don’t know what IRMAA is? Read our guide on it here.

Essentially, once your adjusted gross income reaches over a certain level, there’s a possibility that your Medicare premiums may start increasing. The goal is to keep your premiums at a level where whatever we do on our end, such as a Roth conversion, isn’t negated.

Our clients who work with us, we will:

  • Introduce you to a CPA we work with
  • Help you gather all of your tax forms
  • Ensure that your return is filed on time

Taxes have a lot of moving parts, and we do our best to ensure that we take as much of the burden off of you as we can.

Communication With Clients

On our end, there’s so much going on quickly that it can feel overwhelming and confusing. We communicate as much as we can with our clients so that you’re never left wondering: what’s going on with my accounts?

We provide updates, often via email or a phone call, to tell you about accounts opening, ensure that you have access to each account, transfer estimates and then when the transfer is complete.

We also keep in close contact with you during this time to ensure that if you have any questions, they’re all answered in a timely manner.

401(k) Transfers

If we’re transferring a 401(k), we often do not have an estimated date for this completion. However, we do see when the check is sent to Charles Schwab and when it is deposited into the account.

When the check goes to you, we’ll be in frequent contact with you to ensure everything goes smoothly.

At this point, we’ve done a lot of the process needed for our “45-day meeting.”

45-Day Meeting

In most cases, the 45-day mark is when we have everything in-house, and all of your assets have been properly transferred. We’ll be getting together to:

  • Ask you questions about logging into your account, statements and ensuring that you’re comfortable with the setup in place
  • Finalize anything that is left to talk about for the investment strategy
  • Deliver anything left in the investment strategy to you

We provide you with a one-page document on how everything is laid out for your multiple buckets. These buckets include your cash, safety, and growth accounts. During the visit, you’ll have time to ask us any questions about the way we devised these buckets.

Next, we’ll move on to the important part of estate planning, which will include a few things, such as:

We have a relationship with a partner firm, and we take care of this expense for our clients. The estate plan ensures that your retirement planning accounts for those times when you’re incapacitated or no longer living.

Since so much is going on during the first year of working with us, we will plan on meeting with you quite a bit so that we can get everything in place. You’ll also be able to see all of the work that we’ve done up until each meeting so that you can have peace of mind that your retirement is in good hands.

Do you want to learn more about our approach to retirement planning? Contact us today.

March 20, 2023 Weekly Update

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 March 20, 2023

This Week’s Podcast – I’m 66 – Can I Retire?

In this episode of the Secure Your Retirement podcast, Radon and Murs discuss the question of whether you can retire at age 66, using a specific example from an article in Market Watch. They provide insights and advice on retirement planning and financial management.

 

This Week’s Blog – I’m 66 – Can I Retire?

Are you 66 years old and wondering, “Can I retire?” You’re Not alone. We have a lot of clients come to us for retirement planning that ask this very question. People want to get out of the ratrace and enjoy life, and we actually read an article on Market Watch with a person asking this exact question.

I’m 66 – Can I Retire?

Are you 66 years old and wondering, “Can I retire?” You’re not alone. We have a lot of clients come to us for retirement planning that ask this very question. People want to get out of the rat race and enjoy life, and we actually read an article on Market Watch with a person asking this exact question.

Unfortunately, there is no standard answer to give you because the way you secure your retirement may be different than how someone else has planned for their retirement.

We do this every day. We know each element it takes to retire comfortably. Unless you’re working as a financial advisor, it’s not your job to know every little detail that shows you’re ready for retirement.

In our most recent podcast, we walk through the question of can I retire?

Let’s find out what we talked about.

Can I Retire?

What prompted this article is that a man who is 66 wrote into Market Watch, said he has $2 million in retirement and just wanted to retire and golf. We have folks with far less in retirement that have been able to retire and some with far more who have not.

Someone may read this and say:

  • You have $2 million. Of course, you can retire.
  • You have just $2 million? Of course, you can’t retire.

Let’s look at this man’s scenario. He is 66 years old and four months. He has $2 million in retirement, plans to have $3,300 in Social Security very shortly and works as a consultant three days a week and wants to leave his position.

He also has:

  • $1.6 million in retirement accounts
  • $600,000 in his wife’s retirement accounts
  • A daughter who still lives at home
  • A modest home that he owns
  • $9,000 – $10,000 in expenses
  • $6,000 in taxes and insurance
  • Home is paid off

As financial planners, we’re going to say to this individual, “Job well done.” This individual has done a great job paying off his home and saving over $2 million for his retirement.

Ultimately, dollars in and dollars out will dictate if this person is able to retire at 66 or not.

First, we’ll have a conversation with this individual to better understand their:

  • Travel goals
  • Legacy goals
  • Things they’re worried about
  • Health condition

We’ll want to create a retirement-focused financial plan that looks at multiple layers of a person’s scenario to understand if retiring now is possible with what they’ve saved and what they want in their retirement.

If you’ve read our blogs or listened to our podcast, you know that we mention the GPS retirement system a lot.

This system considers:

  • Where you’re going
  • Where you are right this moment

A fact-finding discussion that we have with our clients allows us to know a person’s starting point and where they want to be in the future.

What we’ll do is run a person’s financial plan at a rate of 4% to 5% because we know that if this plan does good, a higher rate of return will just make life easier. We don’t recommend running a plan at a higher rate of return than this because you’ll have to make riskier investments that can cause you to lose a major portion of your retirement.

The other thing we want to look at is why this person’s expenses are $9,000 – $10,000. We often find out that a person is spending $3,000 a month for traveling, so we then create a fun fund for 10 years.

Often, a person will travel for the first 10 years and then it tends to slow down, saving money in the process.

Taxes are also something to consider. If you’re paying a lot in taxes, it can reduce your ability to retire now or stay in retirement over the long term. Tax planning may be necessary for this individual because they may have deferred taxes, which means the $2.2 million in the bank is far less.

Next, we’ll go into scenarios.

What-if Scenarios

If we’re confident that the person can retire, now or in the future, then we can start looking into what-if scenarios. For example, if the person asking if they can retire has medical issues, they may be concerned about long-term care, which is very expensive. We can then consider:

  • Long-term care insurance
  • What would happen to the person’s retirement if long-term care were necessary?

What-if scenarios can be very positive, or they can be negative. Perhaps you want to buy a boat, RV or a second home. This will be considered in a what-if scenario.

We know that the individual in question has a lot of money in retirement accounts and a home paid off. Next, we would run a full retirement plan that shows us:

  • How much money the person has in their accounts every month based on the rate of return and expenses
  • How long the person can be retired
  • What life will be like from a financial standpoint if they reach age 90 or 100

If the person has more than enough money left at 90 in their retirement, we can then consider a long-term care scenario. Using the average cost for long-term care, stay length and so on, we can then find out the cost for the level of care, which is often $400,000 – $600,000.

Then, we will look at the remaining retirement balance when the person in long-term care passes, and we’ll see if they can live until 90 or 100 on the remaining retirement accounts.

We may find that self-insurance is possible, but if we find that you start running low on assets early, long-term care insurance may be a better option.

As you can see, there are many moving parts in retirement that you need to consider. We may be a bit biased, but everyone should sit down with a financial advisor to go through all these scenarios to better understand if you can retire and when.

We want to ensure that if you do retire, you can handle the what-ifs that come your way and have peace of mind heading into retirement.

If you have individualized questions that we haven’t covered just yet, feel free to contact us and we’ll be more than happy to answer them for you.

Click here to schedule a call with us.