April 24, 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 24, 2023

This Week’s Podcast -2023 1st Quarter Economic Update

Learn why you shouldn’t worry about the US debt ceiling and its impact from a market standpoint. You will also learn why inflation might last longer and cause a recession if the federal reserve doesn’t prioritize the inflation fight.

 

This Week’s Blog – 2023 1st Quarter Economic Update

Andrew Opdyke was our special guest on this past week’s podcast. If you’ve read through our blog or listened to our podcast before, you know that Andrew is who we rely on to gain insight into the economy. In December 2022, we asked him how is the economy doing right now?

2023 1st Quarter Economic Update

Andrew Opdyke was our special guest on this past week’s podcast. If you’ve read through our blog or listened to our podcast before, you know that Andrew is who we rely on to gain insight into the economy. In December 2022, we asked him how is the economy doing right now?

And now, at the end of Q1 2023, we’re asking him the same question. A lot has changed in the last quarter that everyone in the middle of retirement planning or in retirement must keep up to date on. P.S. You can also listen to this episode of the podcast here.

Major Points of Interest in Q1 2023

The first quarter of the year started off with a lot of unknowns. Fear of a recession and inflation were hot topics, and now, we have some clarity going into Q2. The year started with high inflation and questions about the Fed raising rates. 

  • How much will the Fed raise interest rates?
  • How long will rates stay elevated?

Finally, we’re seeing some break in inflation. Jobs also came in strong, although the numbers are starting to slow, and we still have a little time before GDP figures are released. We are noticing a divergence in the goods and services of the market.

If you remember, during COVID, the focus seemed to turn to goods.

The goods side is moderated at the moment and may even be in recession territory. However, the services side of the economy is picking up the slack and performing very well. The question on the Fed’s mind is why hasn’t inflation come down yet? And when it does, will economic growth be prioritized or inflation?

No one knows for sure.

On the market side, things are looking up. Many of the companies that struggled at the end of 2022 are leading the way in 2023. The question is whether the market can sustain itself.

Bank Situation in 2023

A lot of people reading this remember the financial crisis, but the new banking issues center around the US Treasury. The Treasury has been known to be one of the safest investments that you can make, but banks got hit from holding assets in an environment with rising interest rates.

Even banks like Silicon Valley Bank, which no one really heard of because the average person didn’t bank with them, have been hit. That’s because Silicon Valley Bank offered loans to many companies that thrived during COVID and sort of fizzled out or was less attractive after COVID.

Small and regional banks started to tighten up lending activity, leaving many small- and medium-sized businesses with less funding after the debacle with Silicon Valley Bank. Tightening in these banks led to a sort of “additional Fed hike” for non-public or large companies.

Larger entities work with major lenders, which are less impacted by the banking situation.

  • Hire
  • Invest
  • Expand

Andrew doesn’t believe that the banking side of things will be long-lasting. We will see the effects of these issues over the next 3 – 6 months as the banks pull back. The result? That’s what we’re unsure about. Growth may slow due to these banking issues. 

US Dollar and Losing Its Place as the Reserve Currency

For 200 years, the US dollar has been the world’s most important currency. International transactions needed the US dollar when trading. The world’s most stable currency becomes the reserve currency status.

The US benefits from being the reserve currency in a few ways:

  • Keeps interest rates lower
  • Higher demand for debt
  • Easier ability to trade on international markets

Every few years, we hear that the USD will fall out of being the reserve currency. This time around, China and Brazil made a deal, and China asked for the payment to be made in the Renminbi. Another deal in the Middle East requested the same, and this has led to speculation that the Renminbi will overtake the US dollar as the reserve currency.

If this happens, it will lead to:

  • Higher interest rates
  • Consumer impacts

Every few years, we hear this same story of the USD losing its reserve status. Even with these changes, over 60% of international reserve balances are held in USD. Between 60% to 80% of international transactions are in the US dollar.

China accounts for around 2% of transactions, primarily because businesses do not trust communism for their reserve currency.

Debt Ceiling Concerns

The US has printed a lot of money in recent years, leading to major concerns about being able to service the debt. While the US has a lot of debt, the numbers do not show the full picture without looking at both sides of the balance sheet.

On both the corporate and consumer sides, we’re at or near all-time debt levels.

We’re also at all-time asset levels, too. However, how much GDP percentage does it take to service the debt? Roughly around 1.9% of the GDP is necessary to pay these debts. In the 80s and 90s, we paid about 3% of GDP.

The balance sheet is in a better position now than in the past. 

However, we should raise our debt ceiling and pay our debtors. A US default is unlikely this year, and these talks will swirl again in a year or two because it’s very interesting and sells a lot of advertising to media viewership. 

What is Andrew Worried About in 2023?

A major concern is the Fed and if they will remain hesitant in the inflation fight. If the Fed remains slow to ease inflation, Andrew expects a recession in Q3 or Q4 of 2023. He does point out that not all recessions are created equal, and he thinks it will be like the 1990 – 1991 recession.

What is Andrew Optimistic About in 2023?

Progress is taking place in the market. He expects earnings to remain around the highest levels in history. Production and output growth are expected to pick up once the Fed gets inflation under control.

The service side of things is expected to keep the economy running.

In the second half of 2023, the economy is very likely to slow, but it will strengthen the economy going forward.

Andrew does believe that market volatility will occur towards the end of the year and in 2024, rate cuts will begin. The net effect is a short recession, and the market will be roughly flat by the end of 2023.

If Andrew is right, the US economy will slow down and then pick up steam in 2024. Overall, he is confident that next year will look a lot better in terms of production and growth.

Click here to join our free course: 3 Keys to Secure Your 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.

Why Review Beneficiary Designations Annually

Retirement planning is a long process. When you first start trying to secure your retirement, your life may be entirely different than it is today. One topic that we’re passionate about is the need to review beneficiary designations annually.

Backtracking a little bit, we decided to discuss this topic in-depth with you after reading an article on MarketWatch.

The story begins with a man who has a market account worth around $80,000. Suddenly, this man passes away, and the beneficiary of his account is his prior wife. However, his prior wife was deceased.

What Happens if the Beneficiary of an Account is Deceased?

In the scenario above, the man’s prior wife is deceased already. When he passes on, the account then goes to his estate. His account must then go through probate and into the estate, too.

However, in this man’s case, he had a daughter who was meant to inherit the account. Her stepmother even sent the daughter a text message stating that her father wanted her to have the money in the account.

Fast forward a bit, the stepmother becomes the executor of the estate after the account goes through probate and says, “She thinks the girl’s father changed his mind and that the money is meant to go to her, the stepmother.”

The daughter feels like the stepmother betrayed her father.

Unfortunately, a text message isn’t enough legal grounds for the daughter to fight back against her stepmom.

This is an example of someone who didn’t review beneficiary designations annually. Instead of the father’s wishes being upheld, someone else decided what they thought was best for the funds in the account.

Key Takeaways from this Example

Beneficiary designations are very important. We don’t know what the father wanted to happen to the funds in his account, nor do we know what may have been written in his estate plan. What we do know is that the daughter does have a message from her stepmother stating that the funds were meant for her, but something changed along the way.

We can speculate that perhaps the stepmom found estate documents mentioning that she received the estate, or maybe she fell on hard times financially and wanted to keep the funds.

In all cases, this could have been avoided by:

  • Reviewing beneficiaries annually
  • Updating beneficiaries when major life changes occur

Many accounts that you have often allow you to add beneficiaries, even if you don’t know that you can. For example, you can add beneficiaries to IRA, 401(k) and life insurance. You can even add beneficiaries to checking accounts.

We recommend that you:

  • Gather all of the accounts that have money in them
  • Inquire with all of these accounts if you can add a beneficiary

Probate and state law can vary from state to state dramatically. The daughter in the case above wanted to know if she could use the text message as evidence and file a lawsuit.

Contesting Probate 101

We don’t know the logistics of the case the daughter has or if a text message will mean anything in her scenario. Likely, the text will not hold up in court. What we are certain of is that contesting probate is:

  1. Lengthy and can be very difficult to do
  2. Costly

Avoiding any probate contestation is always in your best interest. The father in the example above may have been able to add a contingent beneficiary to his account. What this does is say, “If the first person is no longer living, the next beneficiary should be this person.”

Contingent designations would have helped this family avoid probate court and animosity between the daughter and stepmom.

7 Steps to Manage Your Beneficiaries Throughout Your Life

1. Review Your Beneficiaries Annually

For our clients, we do a beneficiary review each year. We show them who is listed on their accounts as a beneficiary, including:

  • Beneficiary name
  • Percentage to each beneficiary
  • Contingents
  • Etc.

If you’re not a client of ours, you can easily do this review on your own. Reach out to all of your account holders and ask them who you have listed on your account as a beneficiary. It is possible that you sent in a form to change a beneficiary and it was never filed.

It’s so important to verify your beneficiaries annually, even if you have a form sitting in front of you naming the beneficiary, because you just want that peace of mind that everything has been filed properly.

2. Consider Tax Implications

When you leave accounts behind, they may have certain tax implications that you need to worry about. For example, an IRA is taxed one way and a Roth IRA is taxed another way. It’s important to know the implication of each account to make it easier to understand who best to leave the account to when you pass.

If you leave an account to a high-income earner, they may take the money out of the account and pay the tax burden. Then, they may decide to give the money to your grandkids.

However, there are ways that you can set up these accounts to avoid this high tax burden and leave the funds to your grandkids directly. You can do what is known as “disclaiming,” which would allow your son or daughter to divide the money how they see fit with fewer potential taxes.

3. Understand the Impact on Your Overall Estate Plan

Let’s assume that you’re leaving $1 million behind with most of it in an IRA or 401(k) and have beneficiaries attached to it. The remaining part will go through the estate plan. In this case, you may be disinheriting a child if:

  • In one area, you split the funds 50/50
  • Another area you split the funds 80/20

When going through a beneficiary review, it’s important to look at the dollar amounts that are given to each child. You may decide to leave $500,000 to one child and $1 million to another child.

In this scenario, one child would need to receive the house and an additional $250,000 and the other $750,000 to split the inheritance evenly. Of course, you can divide your estate up however you see fit, even if that means one child receives far less than the other.

4. Consider Beneficiary Needs

Beneficiaries may have different needs. If one beneficiary is a high-income earner and the other is not, the high-income earner may not need as much money. You may even want to allow the high-income earner to disclaim the inheritance to give to their kids without the high tax burden.

If you have a special needs child, you also need to consider how the inheritance may impact their benefits. In this case, you may want to consider a trust account so that the child still receives their benefits and the help they need.

Another common scenario is that:

  • Your child is not good with money
  • The child may spend all of their money at once

In this case, a trust and a discussion with an attorney can empower you to leave money behind and dictate how it is used with greater control.

5. Be Specific 

For example, your intent is to leave 25% of the money to your grandchildren. It’s better to name the grandkids as primary beneficiaries. The reason for this is that people may forget how you want the money divided, and being very specific in your documentation can help clear any potential confusion.

6. Consult with an Attorney

An attorney is a second set of eyes who will look through all of your beneficiaries and estate plans with you. We know quite a few attorneys who are highly skilled and still hire others to review their documents with them in case they overlook something.

If you need a trust, the attorney can also assist with that.

Legally drafted documents will hold up far better in court than you writing a will on a piece of paper.

7. Consider Contingencies

In our story of the daughter and stepmother above, a contingent would have been immensely helpful. The reason why adding a contingent is so important is that if, for some reason, you get sick and do not check your beneficiaries, you already have a contingency in place.

The father could have listed the mom as the primary and the daughter as a contingent, which would have helped those he left behind avoid arguments and disagreements along the way.

What if the father set the contingent so long ago that both the primary and contingent are no longer living at the time of his death?

He could have left the funds to his grandkids if the institution allowed him to mention “per stirpes,” which means if the primary is not alive, the funds will go down the line to the person’s descendants equally.

Per stirpes is a powerful designation because you don’t even need to know the names of the person(s) to whom you’re leaving the funds. 

Annual beneficiary reviews and putting contingencies in place are powerful tools that we firmly believe are worth using. You can help your family avoid grief and any potential arguments if you spend the time going through your accounts and putting all these measures in place.

Are you curious about retirement and want to gain more insight into the process? Click here to browse through books we’ve authored on the topic.

April 10, 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 10, 2023

This Week’s Podcast -Why Review Beneficiary Designations Annually?

Listen in to learn the importance of naming contingent beneficiaries after your primary beneficiaries to ensure everything is clear. You will also learn why you need to consider the tax implications of each account, the needs of your beneficiaries, and its impact on your overall estate plan.

 

This Week’s Blog – Why Review Beneficiary Designations Annually?

Retirement planning is a long process. When you first start trying to secure your retirement, your life may be entirely different than it is today. One topic that we’re passionate about is the need to review beneficiary designations annually.

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.

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.

Do You Need a Trust in Retirement?

Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.

We teamed up with Andres Mazabel at Trust & Will to streamline the process for everyone, and it has worked out well for so many of our clients.

Andres was a special guest on our most recent podcast to answer a question many of you may have: do you need a trust in retirement?

Why Trust & Will was Founded

Trust & Will, Andres’ company, was founded five years ago because more than 60% of families do not have an estate plan. Traditionally, financial advisors that wanted to help their clients with estate planning had to use an attorney for this process.

Now, Trust & Will offers estate planning documents in all 50 states, making the process:

  • Easier
  • More accessible
  • More affordable

While Trust & Will doesn’t replace an attorney, they make the process easier for people to set up their estate plans from the comfort of their own homes. You can even update your plan through the platform and consult with some of the attorneys on the Trust & Will team.

If you have 30 minutes to an hour, you can have your estate plan in place, which is something our clients love. By removing the friction and procrastination in estate planning, we find more of our clients have these important documents in place to protect everything they worked for in life.

Documents Everyone Needs in Retirement

One survey found that the biggest gaps people have when working with a financial advisor are:

  1. Wealth transfer advice
  2. Estate planning advice

Unfortunately, there’s a big gap in consumer knowledge of probate, wills and what happens when they’re no longer around.

With all of this in mind, we believe everyone should have a:

In addition, some of you reading this may also need a trust.

Trust vs Will in Estate Planning

Basic will documents outline, on paper and in legal documents, your assets and how you want them to be divided up upon your death. Then in the middle of this is something called “probate.” 

Probate, or the court process of a judge settling the estate, allows the judge to make the decision of what happens to your assets if you don’t have a will. Let’s look at an example of this:

  • You die without a will
  • You have no contact with your children
  • You wish for your assets to be transferred to your fiancée

In the above scenario, your estate would be settled in probate. The judge, who has no knowledge of your family dynamics, will split the assets in accordance with the law, and a large portion will go to the children you haven’t heard from in years.

Of course, your parents and siblings may also receive some portion of your estate.

A trust helps your estate avoid probate.

Depending on the state you live in and the assets you have, you may or may not need a trust. In California, if you have taxable accounts above $184,500 (this figure can and does change), these assets will go through probate.

Without an estate plan, a person who exceeds these amounts would have their assets go into probate and then keep the family in probate for 12 months or more.

You don’t want to keep these assets from your family for a year or more.

A trust can be set up to allow you to direct your assets the way you want and at the time that you want. Additionally, the details of the trust are private, but probate is a public matter that anyone can see.

For example, with a trust, you can:

  • Give your kids all of the funds at once
  • Give your kids a percentage of a fund at certain age or life milestones
  • Set money aside for charity

What You Should Know About Creating a Trust

A trust, in its most simple form, is a legal agreement, in which some ways, creates a legal entity. A revocable living trust is the most common form of a trust, and while you’re alive, you can manage the trust, update beneficiaries and have a successor trustee in place.

When the trustee is no longer around, the successor trustee will step in and then be in charge of executing your wishes for the trust. You have a lot of options on who you can choose as your successor trustee, such as:

  • Family member
  • Spouse
  • Someone you trust

You also have the option of hiring a corporate trustee who you pay to execute the plan that you have for your trust. 

If you have an estate under $5 million, most people don’t need a corporate trustee. However, if your estate is worth more than this amount, it may be worthwhile to use a corporate trustee to manage the trust when you’re gone.

Trusts and estate plans can be modified and adjusted while you’re alive because your plans will change over time.

Example Situation of a Trust in Action

Visualizing the benefit of a trust in retirement is easier with an example. Let’s say that a person has:

  • An IRA with beneficiaries in place
  • A house or vacation home

Logistically, with the houses, they would go through probate if you didn’t have a will in place – if the asset was in your name only. Perhaps the asset was purchased before you were married, so it’s not part of your marital property either.

If you pass away suddenly, the real estate will go through probate because no one else is on the deed.

A trust would “own” the real estate, which transfers the deed of the property to the trust, and in a good number of states, you can do a deed transfer, too. Deed transfers allow you to pass the property to someone else without a trust.

However, a trust ensures that the property is transferred before your death so that you can leave it to someone else via your trust’s plan.

You may also have taxable accounts that would undergo a very similar process, such as:

  • Bank accounts
  • CDs
  • Investment accounts (not under an IRA or Roth IRA)

Proper titling of these accounts (such as having named beneficiaries) can help you protect these assets.

A trust allows you to either transfer the asset to the trust or leave the trust as the beneficiary if you wish. Retirement accounts are often not included in a trust. Instead, these accounts often have a beneficiary listed who takes over an account.

Trusts can also help you with business succession, allowing you to pass your business to someone else or have it liquidated.

Do You Need a Trust?

You may or may not need a trust, but you always want to avoid probate. If you have cash assets that can have beneficiaries added to them, the account avoids probate. However, if you have real estate, a business or other assets that do go through probate, a trust may be in your best interest.

We find that a trust is in your best interest in certain states and not others.

Texas is a state that offers fast and efficient probate, so you likely don’t need a trust if you live in Texas. With that said, we recommend that you take the time to talk to your financial advisor or estate planning attorney to determine if a trust is in your best interest.

Our clients have access to Trust & Will as part of our service, but you can also visit https://trustandwill.com/ to set up your own trust and will online.

If you have any questions about your trust, will or financial future, contact us and we’ll help you in any way that we can.

March 13, 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 13, 2023

This Week’s Podcast – Do You Need a Trust in Retirement?

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the importance of having a trust as part of your retirement plan with Andres Mazabel. Trust & Will provides an “easy and secure” way to create estate plans and settle estates online, with the ability to customize legal documents.

 

This Week’s Blog – Do You Need a Trust in Retirement?

Estate planning is something we talk about a lot. For many clients, estate plans can be very complicated because it’s an extra step in their retirement planning process. However, we believe that this plan is so important that we talk to each and every client that we have about it – even prospective clients.

March 6, 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 6, 2023

This Week’s Podcast – How Secure Act 2.0 Could Affect Your Retirement

In this Episode of the Secure Your Retirement Podcast, Radon and Murs have Denise Appleby to discuss how the Secure Act 2.0 can affect your retirement plan. Denise is the CEO of Appleby Retirement Consulting Inc., a firm that provides IRA tools and resources for financial and tax professionals.

 

This Week’s Blog – How Secure Act 2.0 Could Affect Your Retirement

Denise Appleby was our special guest this past week. She’s our consultant for IRA and 401(k) planning, and she is an invaluable asset for our clients. However, this week she’s sharing her insights into the Secure Act 2.0, which could affect your retirement in a few significant ways.

How Secure Act 2.0 Could Affect Your Retirement

Denise Appleby was our special guest this past week. She’s our consultant for IRA and 401(k) planning, and she is an invaluable asset for our clients. However, this week she’s sharing her insights into the Secure Act 2.0, which could affect your retirement in a few significant ways.

Quick Background on the Secure Act 2.0

The Secure Act 2.0 was passed the last week in December 2022, and everyone is scrambling to:

  • Learn the rules
  • Changes that we need to know about
  • Who we need to contact

With thousands of pages to go through, the Act has a lot of significant rules that everyone needs to understand. Denise is here to help us understand some of the changes in 2.0.

Note: Even though the Act was signed very late in the year, the changes went into effect on January 1, 2023. 

Secure Act 2.0 Updates You Need to Know

Secure Act 1.0 changed the required minimum distribution (RMD) age from 70 ½ to 72. Secure Act 2.0 changes these dates further, but now there’s a calendar to deal with. If you have already reached 72 before 2023, you should be taking your RMD. However, if you turn 72 after 2022, the RMD starts at 73.

The problem is that a lot of custodians sent out letters stating that people turning 72 could wait to take their RMD until 73. Custodians simply weren’t given enough time to make changes on their end to stop these mails from going out.

What Happens If You Took Your RMD Even Though You Needed to Take It at 73 Instead?

The good news is that the distribution isn’t an “RMD” in this case. Instead, you can roll it over to next year. If you reach 72 in 2023, you have the option to roll the money that you take out.

Typically, when you take an RMD, you have to include it in your income for the year unless an exception applies.

In this case, the exception is that you can take the RMD and roll it back into your IRA or 401(k). You normally need to do the rollover within 60 days of receiving the funds. A rollover isn’t taxed, so you don’t need to claim this money. The IRS does permit a self-certification procedure that will allow for a rollover even if 60 days have passed.

There’s one issue: you can only perform one rollover per 12 months. If you rollover a traditional to a Roth account in the past 12 months, then you cannot rollover the RMD.

Missing the Deadline and an Excise Tax

Secure Act 1.0 had an excise tax of 50%. If you missed your RMD of $10,000, you would pay a 50% tax or a $5,000 penalty. Thankfully, Secure Act 2.0 has changed this excise tax to 25%. Additionally, there’s a correction period in place under the new Secure Act modification.

If you take your RMD during this correction period, you only pay an excise tax of 10%.

There’s also a chance that you can have the excise tax waived completely, and this is obviously something to pursue because you should never be paying more taxes than absolutely necessary.

We never want you to pay an excise tax. If you’re unsure whether you need to take an RMD or not, be sure to call your advisor.

Annuity and IRA Aggregation

Secure Act 1.0 states that if you have an annuity that has been annuitized and a regular IRA, you cannot aggregate these accounts. 

What does aggregation mean?

You calculate the RMD for IRA A and IRA B, and you can take the RMD that you want from these. However, in Secure Act 2.0, you can now aggregate these amounts, meaning you can aggregate your annuity and IRA now.

For many people, it’s a break if you have more than enough from an annuity and don’t need to take the RMD. Now, the person doesn’t need to take the RMD.

Designated Roth Account RMD Changes

Many people question why they need to take an RMD on their Roth accounts. Now, the beneficiary of the account needs to take an RMD but now the owner. Designated Roth accounts no longer need to take an RMD, starting in 2024.

Terminally Ill Provision

If you’re terminally ill and a doctor certifies that you have an illness that can result in death in 84 months, the 10% penalty for withdrawing funds early is eliminated under a special tax treatment.

Domestic Abuse Provision

In 2024, penalty-free distributions to anyone who experiences domestic abuse are now possible. Unfortunately, this rule only comes into effect in 2024, but it can help anyone in a domestic abuse situation find relief.

529 Provision to Rollover into a Roth IRA

One exciting change is with a 529 plan used for college savings. However, when you’re putting money into these accounts, it’s impossible to know whether the person will receive a scholarship. Under the Secure Act 1.0, any additional money left over that is not used for education expenses is subject to income tax and a 10% early distribution penalty.

A change in the Secure Act 2.0 allows you to rollover $35,000 (lifetime) into a Roth IRA account from a 529.

There are a few stipulations:

  • Annual amounts moved cannot be more than what you put into your regular IRA contribution
  • Contributions to traditional or Roth IRA must be added up to know how much you can rollover from the 529
  • Funds must be a direct transfer from the 529 account to the Roth account
  • Funds transferred from the 529 account must have been in the account for the past five years in hopes of stopping people from gaming the system

If you have the 529 company deposit the money into your account and then you transfer it to the Roth account, this will not count. You need the transfer to go from one institution to another without it ever touching your account.

Transferring the money from a 529 to a Roth account must be transferred back into the beneficiary’s account. You cannot transfer the funds from this account back into your own unless you’re going back to school and have the funds transferred to a 529 for you.

Biggest Mistakes in IRA Planning

We couldn’t help but ask Denise about the biggest mistakes she sees in IRA planning. She tells us that the biggest mistake she sees, which doesn’t happen often, is moving assets. Many people rollover their accounts multiple times in a single year, breaking the once-a-year rule for rollovers.

Once these multiple rollovers happen, it’s often too late to correct this year.

You’re allowed one 60-day rollover per year. However, this only happens if you have the check made out to you, the funds hit your bank account and then you put it into a new account via a rollover.

However, if the rollover goes from one institution to the next, such as Schwab to Fidelity, these types of transfers can happen as many times as you want.

Often, there are solutions that the IRS allows if something happens and you cannot meet deadlines. It’s important to speak to your advisor to understand your options and how you may be able to prevent penalties, taxes or other issues along the way.

Click here to schedule a call with us if you have any questions about the Secure Act 2.0.

P.S. If you want to learn more about changes to the Secure Act 2.0, head over to RetirementDictionary.com, where Denise shares her insights with readers.