June 20, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 20, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast -Steven Jarvis – Mid-Year Tax Strategies–

Are you committed to having a tax-planning conversation outside the tax season? The only way to win in the tax game is to have a proactive approach when it comes to tax planning.

It’s important to be committed to having some kind of tax-planning conversation on any topic, especially…

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –Tax Planning For Retirement–

CLICK HERE TO READ THE BLOG

Mid-Year Tax Strategies You Should Consider

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We recently sat down with one of our good friends Steven Jarvis CPA to discuss tax strategies everyone should be considering whether they’re currently in the middle of retirement planning or trying to secure their retirement.

In one of our previous podcasts, we also sat down with Steven to discuss taxes.

In fact, many of our clients also started working with Steven, and one thing that we continue hearing is that he helps eliminate the stress of taxes. According to him, the stress comes from stressing about doing taxes in April rather than engaging in tax planning throughout the year.

Steven and his team work intensely after-tax season to ensure that their clients follow the recommended tax strategies. So, we’re going to pick Steven’s brain to see what he recommends for your mid-year tax strategies.

First, Don’t Be Under the Impression That There’s Nothing You Can Do About Your Taxes

Before going any further, how did you feel about your taxes this year? Did you feel like you did your duty, paid your taxes and there was nothing else that you could do? If so, you’re like a lot of people that accept taxes as being a part of life.

And they are.

But you shouldn’t leave the IRS a tip because you’re not leveraging tax strategies. Taking a proactive approach to your taxes means that you’ll minimize your tax burden as much as legally possible.

Since it’s the middle of the year, it’s time to start thinking about them to lower your coming tax burden.

A few options available are:

Qualified Charitable Distributions (QCDs)

QCDs are one of the tax strategies that we often see with our clients. Steven explains that a QCD works by:

  • Taking money directly from your IRA
  • Sending the money straight to the charity
  • Meeting the QCD requirement of 70 1/2

The money cannot be made out to you or hit your bank account to benefit from a QCD. Instead, this is a process we look at in conjunction with handling your required minimum distributions (RMDs).

QCDs are powerful because when you take money from your bank account and donate it to a charity, there’s a 90% chance you’re not benefitting from it come tax season. 

Why?

Ninety percent of people do not itemize their tax returns, so they’re unable to deduct their donations.

QCDs allow you to:

  • Gift directly to charity
  • Benefit from lower income and tax rates

Another advantage of a QCD is that it lowers your adjusted gross income, too. Why is having a lower adjusted gross income important? Your Medicare benefit costs will be lower if your AGI is lower.

So, you’re:

  • Paying less in healthcare costs
  • Lowering your taxes
  • Donating to a cause you care about

QCDs are a great way to give back and receive a benefit from it, too. However, if you’re not 70-1/2 or the standard deduction is more beneficial than itemizing your taxes, what can you do?

Use a donor advised fund.

Donor Advised Funds and How They Work

A donor advised fund (DAF) is something to consider when you can’t use QCDs. DAFs allow you not to tip the IRS and still take a standard deduction. These funds will enable you to:

  • Lump multiple years of donations into a fund
  • Taxpayers still control the funds
  • Eventually use the funds for charitable purposes
  • Get your donations above the standard deduction to itemize

For example, if you donate $10,000 a year, you may not have enough to itemize and take the deduction. Instead, you may decide to put $30,000 into a DAF and immediately benefit by being able to itemize your taxes.

You don’t even need to distribute all the funds to a charity today and can simply opt to give every year to a charity of your choice. The key is to send these funds to a charity at some point.

So, this year, you put $30,000 into a DAF, itemize your taxes, and lower your tax burden.

Next year, you’ll likely go back to the standard deduction, so you’re paying less taxes this year and not paying any additional taxes for years you don’t contribute to a DAF.

However, there are also Roth conversions, which may help you with your tax strategies, too.

Roth Conversions to Lower Your Tax Burden

A Roth conversion converts a non-Roth account into a Roth. You take money out and pay taxes on it now, and let it grow tax-free in the future. You’ll pay more taxes this year, but your money grows tax-free afterward, which is great as your retirement accounts gain interest over the years.

Should you do a Roth conversion? 

We believe everyone should consider a Roth conversion, but what does Steven think? We asked him.

  • Everyone should consider a Roth conversion if they have IRA dollars.
  • Conversions aren’t the right option for everyone.
  • Roth conversions this year happen at a discount because of the markets.

In 2026, taxes are set to go up if nothing else changes, so putting money into a Roth account protects you from higher tax burdens.

If you’re in your peak earning years, it may not be in your best interest to go into a Roth conversion.

Steven states that the only way you’re worse off is if taxes go down. But are you really convinced that taxes will go down in the near future? Most people respond with no.

In this case, a Roth conversion is beneficial.

You’ll need to make your Roth conversion by 12/31 of the year.

Finally, Steven recommends having tax conversations outside of the tax season. You need to take a proactive approach to your taxes, work with a CPA and develop tax strategies to save money on your upcoming taxes.

If you wait until March or April to think about your taxes, it’s too late.

Sit down with a professional, discuss your options and determine what tax strategies you can use this year to lower your taxes – or not leave the IRS a tip.

Click here to learn more about our book: Secure Your Retirement: Achieving Peace of Mind for Your Financial Future.

June 13, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 13, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast -401k Versus IRA–

Do you understand the difference and similarities between 401ks and IRAs? How can you make the two or one make sense for you as your retirement plan?

Both 401ks and IRAs are set up to encourage you to plan for your retirement, and you should have an analysis and a conversation on which one is good for you.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –401k Versus IRA–

If you’re saving for retirement, you’ll need to know the difference between a 401k versus IRA. You may even have both types of accounts. While trying to secure your retirement, it’s crucial to know what each account type offers you.

CLICK HERE TO READ THE BLOG

401k Versus IRA: Which is Better for Your Retirement?

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If you’re saving for retirement, you’ll need to know the difference between a 401k versus IRA. You may even have both types of accounts. While trying to secure your retirement, it’s crucial to know what each account type offers you.

We’re going to discuss a few important details of each:

  • What is a 401k?
  • How does a 401k work?
  • What is an IRA?
  • Should I transfer to an IRA?

What is a 401k?

A 401k is an employer-sponsored plan. It’s set up by a business, and you can contribute money to it for your retirement.

What is an IRA?

An IRA is an individual retirement account. Virtually anyone can open this type of account and contribute to it.

Both a 401k and IRA are meant for anyone planning for retirement.

401k Versus IRA

A 401k and IRA have two main types:

  1. Pre-tax, or “traditional” 401k/IRA
  2. Tax-free, or “Roth” 401k/IRA

The main difference between pre-tax and tax-free is that contributing pre-tax has tax benefits. However, when you take a withdrawal in the future, you’ll pay taxes on these withdrawals.

With a Roth account, you pay taxes now and don’t have to pay taxes on withdrawals. Roth accounts allow your money to grow tax-free. Many companies are beginning to offer these types of accounts because they’re advantageous, as their money grows without further tax liability.

Let’s say that you have tax-free investments at 20. You can grow your money for 45+ years tax-free.

Funding a 401k vs IRA

When it comes to a 401k or IRA account, a 401k allows you to fund the account a little more than an IRA. An IRA allows you to contribute $6,000 – $7,000 per year. However, a 401k will enable you to put up around $19,500 per year.

Additionally, a 401k may have an employer contribution or an employer match.

If an employer puts money into your account, you may reach $50,000 a year in contributions in a single year.

Rules for a 401k

A 401k is started by an employer, and they choose:

  • Which brokerage the account is handled in
  • What types of investments are available

Employers make the rules for 401k accounts. It’s crucial to understand that these rules may change or be a bit more specific to the employer. However, the general rules that are followed by most employers include:

  • As long as you’re an employee of the company, you cannot move the money from the 401k to an IRA until you’re 59 and a half. At this point, you can do an in-service rollover. You can choose this option to take full control of your investments.
  • In-service rollovers keep the 401k account open to allow your employer to keep making contributions on your behalf.
  • You do not have to pay taxes when rolling over funds in these accounts because you’re not withdrawing the funds yet.
  • If you’re under 59 and a half and you have a 401k from another employer, you can move the money into an IRA.

One thing we hear a lot is that many people think that their employer negotiates better rates for them for their investment accounts. However, this is not the case. Mutual funds, which most people are investing in with their 401k, charge the fees and don’t lower them for employers.

Your employer may have fees, and the company can absorb these fees, but you wouldn’t have these fees with an IRA.

Quick Note on In-Service Rollovers

An in-service rollover is a simple process and not something that you need to be overly concerned about. The rollover is a basic decision that requires:

  • Advisor calling the 401k
  • Ask the rep for an in-service rollover
  • Walk through steps with the rep
  • Funds are sent to you directly
  • Funds are then deposited into your IRA

You may need to sign a paper every once in a while, and that’s really it. A rollover is straightforward and something that we do all the time.

Rules for an IRA

An IRA is an individual retirement arrangement, which means that as an individual, you’re 100% in control of the account. You can choose what brokerage to open an account with and where you want to invest your money to help it grow.

When you have an IRA, you can invest in:

You don’t lose any benefits when going to an IRA. Most of our clients opt for an IRA because we’re able to direct their investments.

How an Advisor Can Help You with Your Retirement Plan, Even If You’re Younger than 59 and a Half

For a long time, advisors couldn’t really help people who were younger than 59 and a half with their retirement accounts, aside from taking an advisory role. There are a lot of rules and regulations in place that make this process very difficult, specifically with sharing account usernames and passwords. 

Here’s a concept that we’ve been using as an advisor to manage a 401k:

  • You set us up with a login
  • We monitor and make trade allocations for you

We’re able to take a peek at your 401k and the options available to make allocation changes. We’re not granted the power to change contribution amounts or anything of that sort. These accounts are an overlay of your account that allows financial advisors to make trades on your behalf.

Our clients love the 401k option that allows us to manage a 401k on your behalf.

Moving from a 401k to an IRA is often ideal for clients, but you may find the tax advantages of a 401k to be the better option for you. The tax advantages include being able to deduct contributions from your current year’s taxes, but when your money grows, it will be taxed, which is something to consider.

If you’re trying to secure your retirement and aren’t an expert in retirement planning, we can help. We have a wealth of information available for free on our podcast (sign up here), or you can feel free to schedule a call with us.

June 6, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 6, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast -How Required Minimum Distributions and QCDs Work?–

When it comes to taking your money out of your IRAs and 401ks after retirement age, you might need to understand the terms RMDs and QCDs.

At age 72, you’re required to start taking distributions out of your 401k and IRAs with a formula based on your life expectancy. The key here is to be tax-efficient or even go tax-free in any way you can without breaking the law.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –How Required Minimum Distributions and QCDs Work?–

It’s important to understand how required minimum distributions and qualified charitable distributions work, even if you’re under 72. We’re going to discuss a strategy that is crucial to you, even before you can begin taking your RMDs.

CLICK HERE TO READ THE BLOG

How Do Required Minimum Distributions and QCDs Work?

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Today we’re going to discuss two main, important aspects when trying to secure your retirement: RMDs and QCDs. But before we go any further, it’s important to define these acronyms for you:

  • RMDs: Required minimum distributions
  • QCDs: Qualified charitable distributions

It’s important to understand how required minimum distributions and qualified charitable distributions work, even if you’re under 72. We’re going to discuss a strategy that is crucial to you, even before you can begin taking your RMDs.

So, if you’re under 72 and don’t think this post is for you, trust us: it is.

Understanding Required Minimum Distributions

RMDs are attached to your 401(k), traditional IRA and other retirement accounts that are out there. If you have an account where you defer taxes until the future, the IRS requires you to take money out of these accounts and pay your taxes.

When you place money into these accounts, the deal is, “I don’t want to pay taxes now, but I will later.”

At age 72, you’re required to begin taking RMDs out of these retirement accounts, using a formula that is based on your life expectancy. These figures are generalized, and right now, at age 72, you have a life expectancy of 27.4 more years.

Using your balance from December 31 of the year prior to taking the distribution, you would do the following:

  • Balance / 27.4 = RMD

For example, let’s assume that your IRA had a balance of $500,000 on December 31, 2021. When you take the distribution in 2022, you’ll receive $500,000/27.4 = $18,248.18. However, you may not need to take your distribution at 72.

When you turn 72, you’re required to take a distribution for the year. So, for example, if your birthday is in November, you’ll still take the distribution in January of that year.

However, on your first RMD, you can decide to take the RMD in the next calendar year by April 1.

Delaying Your First RMD Until April 1

If you want to delay your first RMD, normally for tax reasons, there are some pros and cons that go along with it. For example, let’s assume that you must take an RMD in 2022, but because you turn 72 this year, you decide to take your first RMD by April 1, 2023.

In the 2023 calendar year, you’ll take two RMDs of:

  • approximately $18,248.18
  • approximately $18,248.18

After this period, all RMDs must be taken by December 31 of the calendar year.

You can also withhold taxes from your RMDs, so you won’t need to worry about:

  • Quarterly payments
  • Surprise tax bills

However, it’s up to you to decide whether you want to pay taxes quarterly or not. You can also opt to take a monthly distribution from your account. The main goal is to take out the full amount required by the end of the year.

Custodians of your account will take care of the calculations on your RMD amount, so we suggest following the amount they recommend for distributions.

If you’re 65 and retired, you can still take money out of your account for:

  • Living expenses
  • Placing funds into a Roth account
  • Lowering your future RMDs

When clients opt for this strategy, they can grow the money in their Roth accounts tax-free, which is very beneficial.

Sometimes, people have five different IRA accounts with $100,000. You can take the RMD from a single account. The IRS doesn’t care as long as you take the money out of the account. However, if you have a 401(K) and 4 IRAs, you need to take the portion out of the 401(K) and then the remaining from your IRA.

When retirement planning and trying to secure your retirement, you’ll find a lot of buzz around RMDs and QCDs.

Why?

Let’s find out.

Understanding Qualified Charitable Distribution

QCDs are another tool that you can use in retirement planning, and it’s one that the IRS allows you to begin using at 70 ½. If you want to give money to a charity that qualifies for a QCD, you can donate a portion or all of the RMD to the QCD.

Many people will take the RMD, pay taxes, and then give the money to charity.

However, with a QCD, you can:

  • Skip paying taxes
  • Setup a QCD directly to the charity

Since the check goes directly to the charity, you’re erasing the taxes on the distribution and helping a charity with the full amount of the RMD.

You can begin using the QCD strategy at the age of 70 ½ and above.

If you’re interested in QCDs and RMDs but have more questions, we’re more than happy to help. You can schedule a call with us.

We also have two great courses that you can sign up for today for free: 4 Steps to Secure Your Retirement and 3 Keys to Secure Your Retirement Master Class.

May 31, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 31, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast -6 Considerations for Your Estate Plan–

When it comes to estate planning, some things are essential and required at all times to simplify the process for your family when you’re no longer here.

Learn the purpose of having the durable and healthcare power of attorneys to make things simpler for your family in case you become incapacitated.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –6 Considerations for Your Estate Plan–

Have you thought about your estate plan? If not, it’s a crucial element of retirement planning because it dictates how you’ll save and plan for the future. And even if you already have an estate plan in place, it can and will adapt and change over time.

CLICK HERE TO READ THE BLOG

6 Considerations for Your Estate Plan

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Have you thought about your estate plan? If not, it’s a crucial element of retirement planning because it dictates how you’ll save and plan for the future. And even if you already have an estate plan in place, it can and will adapt and change over time.

In our most recent podcast, we walk you through six things to consider for your estate plan.

If you’re thinking, “I don’t need an estate plan,” you do. In fact, creating an estate plan is something that we recommend for all of our clients because they’ve worked hard during their lives and should have a say as to what happens to their estate when they pass on.

The six things that we recommend you consider for your estate plan are:

6 Considerations for Your Estate Plan

1. Will

Everyone needs a will, but why? A personal story I remember from school is that the #1 thing to do is to have a will. They drilled it into our heads that everyone needs a will. Why?

  • Wills dictate who gets what in an estate.
  • Wills dictate how assets get into someone else’s name.

In a will, you outline how your heirs will receive your assets and who gets what. If you don’t have a will, the courts will decide who gets what assets and how they receive them. Without a will, your assets may go to someone you don’t want.

Additionally, in 30 minutes or so, we can have most questions answered that populate your will and make your death much easier on your estate. Without a will, you’ll leave a mess for your estate and family that you leave behind.

2. Healthcare Power of Attorney

A power of attorney (POA) is someone who has the power over decisions. A healthcare POA can make decisions on your behalf while you’re alive. The individual steps in to make decisions for you if you’re unable to make them yourself.

For example, if you’re in a coma, this person could dictate your healthcare.

When you create a healthcare power of attorney, you can outline:

  • What care you would like
  • What care you reject
  • How someone can make decisions on your behalf

No one wants to be left with a decision that can impact their loved one’s life. When creating this document, you outline the care you would like and not like. Perhaps you don’t want to be on life support.

If you put in this document that you don’t want to be on life support, you’re saving someone else a lot of heartache because you’ve made the decision yourself.

It’s crucial to remember that a healthcare POA only allows the person to decide if you cannot make the choice for yourself. A stroke or brain damage are just two times when the person given power of attorney can step in and make decisions for you.

Everyone, even if you’re just turning 18, should have a healthcare POA because you just never know what the future holds.

3. Durable Power of Attorney

A durable power of attorney involves decisions outside of healthcare, such as:

  • Accessing retirement accounts
  • Writing checks for you
  • Controlling your finances and assets

The individual is acting in your interest, and you can outline how this individual may act. Perhaps you don’t want them to have the power to take money out of a retirement account.

If you have an IRA, you need to have a durable power of attorney in place. Why? An IRA is an individually held account. Your spouse has no right to access these accounts, even if you have a stroke and cannot access them yourself.

Instead, many IRAs will require you to have a durable power of attorney with them so that they can allow your spouse to access these funds.

4. HIPAA Form

HIPPA forms are for medical purposes, and they augment the healthcare power of attorney. The form allows access to your medical records. If you have a spouse or a child who needs access to your medical information, a HIPPA form is crucial.

Once your child turns 18, the hospital will not share your child’s medical information with you.

Filling out a HIPAA form allows someone access to your medical records so that they can know the status of your condition and how to make the best decisions on your behalf.

5. IRA/401(k) Beneficiaries

Your IRA and 401(k) have beneficiary forms that you ought to review annually. These beneficiaries are who will receive your assets upon your demise. Often, a person assumes that their will dictates who receives the assets.

However, there are more costs involved with a will than if you just added a beneficiary to your accounts.

Also, you can add:

  • Primary beneficiaries
  • Primary contingent beneficiaries
  • Secondary contingent beneficiaries

In this case, the funds go to the primary beneficiaries if they’re alive, then the contingent beneficiaries and then the secondary contingent beneficiaries if the other beneficiaries are no longer alive.

You can also add a charity or other entity as a beneficiary.

We recommend filling out a person’s full information, Social Security number and so forth. You can also leave money to a person, and if they’re no longer living, it will go to their heirs instead. Adding beneficiaries makes transferring these accounts much easier when you pass on.

6. Transfer on Death Brokerage and Bank Accounts

First, there are two types of accounts. Joint accounts are the easiest because if you have a joint account with someone and you die, the account becomes 100% their account. However, what happens if:

  • Both of you die at the same time?
  • You don’t have a person to have a joint account with?

A transfer on death or beneficiary is the easiest way to transfer these assets from your account to your heirs. Otherwise, the assets will be divided by the courts, which can take time and money in many cases.

Filling out a transfer on death makes it super simple for the person inheriting the account because they only need to fill out a form and supply your death certificate to receive the funds.

Yes, you can create your estate plan and add in a trust, but a trust is not an essential item of every estate plan. However, these six items above are the six that we believe are essential to an estate plan and must be included in every plan.

If you would like to learn more about estate plans, schedule a call with us today.

Don’t need help with an estate plan and want to begin securing your retirement? Sign up for our four-step course on securing your retirement.

May 23, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 23, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast -When is Cash Good?-

Why would cash be able to beat other types of investments? When dealing with a volatile market like we’re currently experiencing, cash can become an important asset class.

Going to cash means selling investments and putting the money on temporary hold as you evaluate the markets.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –How to Avoid Losses in Stock Market–

“Cash is king” is a phrase that many people say. And while many people put their money into investments to grow, there are times when cash is a good asset to have. For example….

CLICK HERE TO READ THE BLOG

When is Cash Good?

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“Cash is king” is a phrase that many people say. And while many people put their money into investments to grow, there are times when cash is a good asset to have. For example, we’re five months into 2022, and with the way the markets have played out this year, cash may be a good option for you if you’re trying to secure your retirement.

Investor concerns this year have shown a lot of people who are getting into retirement planning that there are times when holding cash is good.

When is cash good?

We’re going to dive into this topic and explain why active management is so important and when you may want to hold cash rather than put more money into the market.

When is Cash Good?

Cash doesn’t grow on its own, but it’s a strategic asset that everyone needs to utilize. It’s crucial also to understand that there’s a difference between a passive and active money manager.

  • Passive money managers use a buy-and-hold strategy that doesn’t take the ebbs and flows of the market into account. In a passive scenario, you never hold cash because it doesn’t produce a return.
  • Active money managers continually work on readjusting your portfolio and making changes to negate potential losses due to market fluctuations.

Wait. What Does Going Cash Really Mean?

Before we go any further, it’s crucial to grasp what “going cash” really means. When we go cash for our clients, that doesn’t mean that we have a pile of cash that we tell someone to put under their mattress.

Instead, the cash remains in the person’s brokerage account (IRAs and Roth accounts), but it’s not invested in anything.

So, we may sell of a bunch of stocks and keep the cash in the account until the market corrects itself and you can go back to investing the money. Cash is kept in a temporary hold and can be redeployed when the numbers tell us that it’s safe to go back into securities.

Why Would We Ever Recommend Going to Cash?

Why would you ever go to cash if you’re trying to secure your retirement? Because it’s neutral. Cash is king when other assets are going down and cash remains neutral. For example, let’s imagine that your investments are making 6% – 10% returns per year.

In this case, your investments will beat out CDs and other short-term investment vehicles.

However, let’s imagine a 2008 scenario when the market busted. If you had $100,000 in investments and lost 50%, then you would have $50,000 left. The following year, if your investments were up 50%, did you break even?

No.

You’ll have $75,000, or 25% less than you had initially. If you lose 50% of your money, you need a 100% return to break even. Many investors lost over 50% in 2008, but they would have made money if they had pulled their money out of the market and sat in cash when it was down just 10%.

Why?

Because they would have had $90,000 left rather than $50,000 if they kept their money in the market. In this case, cash protected these investors. You also have $90,000 that you can put back into the market, earn a little over 10% returns, and you’ll be back to even.

For people who left all their money in investments during this time, it took years to get their portfolios back to what they were before the 2008 crash.

Holding Cash is Short-term

When you hold cash, it’s a short-term strategy to protect against losing money. It’s very rare that you’ll sit on cash for months on end, but if the markets continue falling rapidly for many months, holding cash for this duration is a possibility.

The positioning of cash should be used to protect against a significant loss.

In fact, let’s look at an example of holding cash in a real-world scenario.

March 2020 Example

March of 2020 is a prime example of going to cash, and it’s a date that is still fresh in everyone’s minds. The date is when the coronavirus first appeared around the world and really started disrupting the world’s:

  • Supply chains
  • Businesses
  • Workforce

In January 2020, the markets were doing fine, and we really didn’t know a pandemic was heading our way. Sometime in February, we started hearing about a virus popping up overseas, but the month started well. Then, near the end of February, the markets started to drop a little before March, when they really took the market into a downward spiral.

It took just a matter of a few weeks before the S&P 500 fell 34% in March.

Markets hadn’t seen such a steep decline in decades. Many people saw their 401(k) and IRA accounts lose over 34% in value in weeks. What we did was go 100% cash for all our clients. We didn’t hit it perfectly and protect against all losses, but we went fully risk-off by going cash.

The S&P 500 fell 34%, while our most impressive portfolio fell just 9%.

Putting this into real-world figures, if you had $1 million in your investment accounts, you would have ended with:

  • $760,000 if you didn’t do anything
  • $910,000 by going cash

Our data showed that after about 35 days, the markets started to recover, and with $910,000 in cash rather than $760,000, it’s easier to get back to the $1 million, pre-pandemic funds in your account.

Going back into the market was difficult because the news didn’t look good, yet our numbers told us it was time to go back. For our clients, they didn’t suffer from the anxiety of a 34% loss and made a great return on their investment in the interim.

2022 Example

The start of 2022 was also difficult for investors because we started off with a sell-off at the beginning of the year. Then, things started to go sideways for a couple of months. Next, the reality of inflation hit us, and the market became even more volatile.

The Fed also came out and told us that they were going to raise rates, which also caused volatility.

On May 4th, the Fed stated that they were going to raise rates by 50 basis points. That day, we decided to go 100% cash, but the decision was based on indicators rather than the rise in interest rates.

On May 5th, the market fell over 3% and over three trading sessions, the market dipped 6.5%. Our clients sat in cash, didn’t lose 6.5%, and when the data shows us it’s time to go back into the market, we’ll go back in.

We buy when we see demand and sell when the demand goes away. Cash positioning allows us to pad against significant losses in the market.

So, when you’re trying to secure your retirement and are during retirement planning, don’t forget that going cash can be beneficial for you. It’s better to protect against significant losses rather than keep your money in the market when it’s rapidly declining.

If you enjoyed this article and want to listen to us weekly, we invite you to join our podcast.

You can also schedule a free call with us to discuss your retirement plan and learn more about going cash.

May 16, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 16, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast –Tax Planning Versus Tax Preparation-

Did you know that you can legally and ethically avoid paying unnecessary taxes by working with the tax code? With tax planning, you can avoid tax risk.

Tax preparation is about being reactive while tax planning is about being proactive all year round every single year.

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –Tax Planning Versus Tax Preparation–

One thing that most people are concerned about is their taxes. People work hard for their money and want to keep as much of it in their pockets as possible. However, taxes come along and take a major chunk of your earnings.

CLICK HERE TO READ THE BLOG

Tax Planning Versus Tax Preparation

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One thing that most people are concerned about is their taxes. People work hard for their money and want to keep as much of it in their pockets as possible. However, taxes come along and take a major chunk of your earnings.

Today, we’re going to discuss tax planning versus tax preparation.

Why?

They’re often lumped into the same definition, although they’re two completely different things. Tax preparation is when you put all of your numbers on a tax form or add it into TurboTax or something similar, and you pay the amount you owe to the IRS.

However, if you’re in retirement and on a strict budget, tax planning works to save you money on the taxes you need to pay.

We recommend tax planning for everyone because it saves you a lot of money.

Tax Preparation Basics

When you have your taxes prepared, it goes something like this:

  • You file your own taxes, use software or hire a CPA
  • Based on the calculations, you pay the taxes for the previous year

In 2022, you’re paying your 2021 taxes. All of the preparation happens the following year after the money is earned, and there’s no real planning involved.

This is where tax planning could have helped.

How Tax Planning Differs

Tax planning happens for the tax year. For example, if you want to save money on your taxes when you file in 2022, planning needs to occur in 2022, not 2023. Tax planning is a proactive approach taken during the year to reduce taxes.

Otherwise, there are only so many ways to reduce your tax burden in April if you didn’t plan for it throughout the year.

For example, let’s assume that you made a ton of money in 2022, received a great bonus and will need to pay a lot of money in taxes. If you engage in tax planning, you may be able to reduce your taxes when you file in 2023 by:

  • Using charitable contributions
  • Roth conversions
  • Etc.

And if done correctly, tax planning can be done over the course of years to reduce your taxes drastically.

Tax Planning Strategies to Save You Money

Reduce Taxes on Social Security

Many people entering retirement don’t understand that they have to pay taxes on their Social Security income. While there are some exceptions to this rule, many of you reading this will still need to pay money to the IRS based on the benefits you receive.

If you make an income in retirement, somewhere around $40,000 for a married couple filing jointly, you will have to pay taxes on up to 85% of your Social Security benefits.

Tax planning can help you reduce your tax burden.

Let’s step back for a moment and consider how people plan for retirement. Many people save for retirement using:

  • 401(k)
  • Traditional IRA

Using these accounts, people plan to supplement their Social Security benefits. However, when you paid into these accounts, you didn’t pay any taxes. You’ll now need to pay taxes when you withdraw from these accounts.

Let’s assume that you take $30,000 out of the IRA per year to supplement your income.

Now, you have $30,000 of income that is taxable and $40,000 in Social Security benefits. Since you “earned” an income from these retirement accounts, you’ll need to pay higher taxes. Utilizing the right strategy, you can move money out of these tax-deferred accounts into accounts where you pay taxes first, but when you make withdrawals in the future, you don’t have to claim the income.

If all you have in income is your Social Security, you’ll:

  • Pay less in taxes
  • Pay less in Medicare premiums

However, tax planning in this scenario needs to take place 5 or 6 years before you plan to retire.

Roth Conversions to Reduce Taxes

Roth conversions are one of the best ways to get your tax-deferred money out of your 401(k) and Traditional IRA and into an account that allows you to have income in retirement but not pay taxes on it.

In fact, using this strategy, most of our clients earn the same or even a higher income in retirement than when working.

But here’s the problem.

  • Tax-deferred accounts mean you pay less taxes now and more taxes when you make withdrawals
  • People assume that when they’re in retirement, their income will be lower, so they’ll pay less taxes
  • Based on this assumption, people think a tax-deferred account is the best option to pay less taxes

The problem is we’re seeing people earn more in retirement than when they’re working, causing them to pay higher taxes because they’re in a higher tax bracket.

And you have to start taking a required minimum distribution (RMD) at 72 and a half due to tax laws. 

Instead, a Roth conversion works like this:

  • Roll pre-taxed money into a taxed account
  • Convert money into a tax-free bucket
  • Reduce your long-term taxes

Let’s assume that you have $1 million in a tax-deferred account. When you convert to a Roth account, you’ll pay taxes on the $1 million. However, the money can now grow tax-free, meaning as the account grows, you don’t have to worry about taxes.

We know that if tax laws do not change, everyone is going to pay higher taxes in 2026.

If you convert to a Roth account, you’ll pay taxes today and avoid the higher taxes that are coming in just a few years.

Tax planning helps you account for all of these factors, save money when you’re in retirement, and have a lot less to worry about as a result. Tax-free buckets are ideal for everyone planning to retire because your money can grow tax-free.

And we have one last tax planning strategy that we must discuss: planning for your surviving spouse.

Planning for Your Surviving Spouse

In 99.99% of marriages, someone is going to outlive their spouse. Of course, there are the rare occasions when spouses pass on the same day, but this often involves a very tragic occurrence. Tax planning for your surviving spouse is not something many people want to think about, but it’s a way to ensure your spouse is financially stable when you’re no longer here.

When you pass, your spouse needs to file as a single person, and this does a few things:

  • Increases tax burden
  • Reduces standard deductions

Setting up a tax-friendly account for your spouse is the best option if you don’t want to transfer money to the IRS. Planning ahead allows you to save your spouse money on taxes and ensure that they have the income necessary to live comfortably after you’re gone.

Work with a CPA or us (click here to book a conversation) to start working through in-depth tax planning to save you and your spouse money on their taxes.

One last thing before you go:

Click here to subscribe to our Secure Your Retirement podcast for more great information on retirement and tax planning.

May 9, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 9, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast –The Retirement Bucket Strategy-

Have you given thought to how you’d like to structure your retirement plan? How about a strategy that ensures you have both income and growth in retirement?

The bucket strategy is a simple strategy that will give you peace of mind through your retirement. The goal for your retirement should be to have access to money, an income stream, and growth on your money.

  

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –The Retirement Bucket Strategy–

Structuring your retirement plan is key if you want to secure your retirement. If you’re younger and still earning a healthy income, your goal is likely to have more risk. However, if you’ve been retirement planning and are just a few years away from finally reaching your milestone, your plan’s structure will be different.

CLICK HERE TO READ THE BLOG

The Retirement Bucket Strategy

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Structuring your retirement plan is key if you want to secure your retirement. If you’re younger and still earning a healthy income, your goal is likely to have more risk. However, if you’ve been retirement planning and are just a few years away from finally reaching your milestone, your plan’s structure will be different.

One thing we talk about a lot on our podcast is buckets, and today, we really want to go more in-depth on the retirement bucket strategy and how it works.

Here is the strategy we use to:

  • Build wealth
  • Generate income

And the retirement bucket strategy is simple. In the next few minutes, you can learn how to use the same strategy we use to be comfortable in retirement.

How Do I Structure Everything I Have in Retirement?

If you’ve been putting money aside for retirement and making your money work for you, you will come to a point where you need to structure your accounts differently. Structure provides security, emergency money, income, and growth.

When people are working, they generate income and it’s easier to put money away.

However, when you retire, you flip a switch and then must use the money you saved to generate an income. Stopping work is a major shock for most people, and the vast majority are often concerned about whether they have enough.

Whether clients have $1 million or $10 million in their retirement accounts, they’re always concerned that they’ll run out of money. Many people rely on the growth of 7% to 10% in the market, and then when you have the Ukraine / Russia war and pandemic, anxiety sets in due to market volatility.

The retirement bucket strategy helps you structure your retirement in such a way that you don’t have to rely 100% on volatile markets.

Introducing the Retirement Bucket Strategy

Our bucket strategy has three main buckets, each with its own roles and purposes.

Bucket 1: Liquid Cash

You can view liquid cash as sort of an emergency fund or a feel-good fund. Many clients have this cash tucked away, often in an FDIC-protected bank account, for when any of life’s unexpected events that pop up.

Bucket 2: Income

You rely on the income bucket to generate income now that you’re no longer part of the workforce. Many people have the following in this bucket:

Income buckets often do not generate enough income for all your needs and wants if they only include Social Security and pension. However, when appropriately structured, these buckets do generate nice income streams that allow you to pay your bills.

Income Buckets Disconnect from Markets

Your income bucket is crucial to your survival. If you’ve been looking into retirement for a long time, you may have heard of the 4% rule. The rule states that you can take 4% out of your retirement each year because it will be made back up with market gains.

However, let’s assume the following:

  • $1 million in retirement funds
  • 4%, or $40,000, taken out of these accounts to live each year
  • Market slump cuts retirement down to $600,000

In the above scenario, when the market fluctuates and you’re using the 4% rule, you’ll either must live on $24,000 a year or take out 7% that year to live.

These risks are far too great when you’re not in the workforce or generating income. Instead, we recommend all the accounts in your income bucket be 100% detached from the markets so that you can be confident that you have the money each month to pay for your necessities.

Bucket 3: Growth

A growth bucket is designed to help you grow your retirement over time. These buckets have risk and volatility. In many cases, the growth bucket is a long-term bucket that often includes investing in the market.

Retirement Bucket Strategy in Practice

After structuring these buckets, let’s assume that you have:

  • $1 million in retirement accounts
  • Social Security/pension
  • Need an additional $2,500 a month in income

In this case, we may recommend the following retirement bucket strategy:

  • Put $50,000 in your liquid cash bucket that’s easily accessible
  • $450,000 goes into your income bucket
  • $500,000 into your growth bucket

With this structure, we can run some modest numbers here and see how all of this works out in the long term. In your income bucket, let’s assume that you want a 3% rate of return on your $450,000, and this would generate $2,500 a month for you for 20 years before the money in this account runs out.

At the end of 20 years, the bucket is eliminated if the rate of return is just 3% per year.

Now, during this 20-year period, you’ve had your $500,000 growing at a very conservative rate of 6%. The growth bucket would have $1.7 million in it if you didn’t touch it at all.

If you retired at 65 (you’re now aged 85), you would have $1.7 million left in your growth bucket to do a few things. Ideally, you’ll place some of this money into your income bucket to help fund your lifestyle for the next 10 – 15 years – easily.

The retirement bucket strategy makes it simple and easy to retire with peace of mind.

If you want peace of mind, this simple strategy can provide it. Of course, we are always here to help you with an individualized retirement plan that better fits your needs.

Click here to start our 3 Keys to Secure Your Retirement Master Class.

May 2, 2022 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 2, 2022 

CLICK HERE TO WATCH THE UPDATE

This Weeks Podcast –Lynne Bowman – Brownies for Breakfast-

How conscious are you about what you eat? Your health is indeed your wealth; staying healthy is one of the best financial strategies you can have.

Eating for health and wealth means eliminating sugar and bad ingredients from your diet and choosing to eat whole plant-based foods.  

CLICK HERE TO LISTEN TO THE PODCAST

 

CLICK HERE TO WATCH ON YOUTUBE

This Weeks Blog –Enjoying a Healthy Retirement-

After all, once you secure your retirement, you want to live as long as you can in optimal health. If you want to change your health drastically, one of the things that you can begin doing right now is to stop………..

CLICK HERE TO READ THE BLOG