September 3, 2024 Weekly Update

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

Portfolio Update:  Murs and I have recorded our portfolio update for September 3, 2024

Navigating Your Social Security Retirement Benefits

Radon and Murs discuss the intricacies of Social Security retirement benefits and answer some of the most commonly asked questions. They break down key topics such as when and how to apply for Social Security benefits, understanding the taxation implications, and how to maximize your benefits.  

Navigating Your Social Security Retirement Benefits

When it comes to planning for retirement, few topics generate as much curiosity and concern as Social Security. After all, Social Security benefits can form a significant part of your income in retirement. Many people find the rules surrounding Social Security confusing and even intimidating. Questions like “When should I apply for Social Security benefits?” “How does Social Security work?” and “What happens if I make a mistake?” are common concerns.

Social Security Retirement Benefits

When it comes to planning for retirement, few topics generate as much curiosity and concern as Social Security. After all, Social Security benefits can form a significant part of your income in retirement. Many people find the rules surrounding Social Security confusing and even intimidating. Questions like “When should I apply for Social Security benefits?” “How does Social Security work?” and “What happens if I make a mistake?” are common concerns. In this guide, we will explore the ins and outs of Social Security retirement benefits to help you maximize your payout and avoid costly mistakes.

One of the most critical decisions you’ll make as you approach retirement is determining when to start drawing your Social Security benefits. Timing your application correctly can mean the difference between a comfortable retirement and having to make unnecessary sacrifices. This blog will walk you through everything you need to know—from the optimal time to apply for Social Security benefits to how your benefits might be taxed, reduced, or even withdrawn. Whether you’re considering early retirement or planning to wait until age 70, understanding these nuances will empower you to make the best decision for your future.

Common Questions About Social Security Retirement Benefits

When it comes to Social Security, there are several commonly asked questions that can affect your retirement strategy significantly. These include:

  • When and How to Apply for Social Security Benefits: Knowing the right time to apply for Social Security can maximize your benefits. The application window opens four months before your desired start date, which can be as early as age 62. However, the longer you wait—up to age 70—the higher your monthly benefit will be. It’s generally advisable to start the application process three to four months before your chosen start date, especially since the Social Security Administration (SSA) can experience backlogs. The smoothest way to apply is online at the SSA website, which offers various tools to help you calculate your benefits based on different starting ages. Alternatively, you can apply over the phone or in person at your local Social Security office, though these methods may take longer and could require waiting for an appointment.
  • Understanding Maximum Social Security Retirement Benefits: Your Social Security benefits are based on your highest 35 years of earnings, with a cap on how much you can earn each year that contributes to Social Security taxes. For example, in 2024, someone who has consistently earned at or above the maximum taxable amount (around $160,000-$170,000 annually) could receive up to $2,710 per month if they start benefits at age 62, $3,822 at full retirement age (67), or $4,873 if they delay benefits until age 70.

Full Retirement Age and Its Impact

Your full retirement age (FRA) is the age at which you are eligible to receive 100% of your Social Security benefits. FRA used to be 65, but it has gradually increased to 67 for those born in 1960 or later, reflecting longer life expectancies. Deciding when to apply for Social Security benefits can be influenced by your need for income, health, and whether you plan to continue working. It’s important to note that if you claim Social Security benefits before your FRA and continue to work, your benefits could be reduced if your earnings exceed certain limits. However, once you reach your FRA, you can earn any amount without affecting your Social Security benefits.

IRA Withdrawals and Their Impact on Social Security Benefits

One common concern is how withdrawals from IRAs or other retirement accounts might affect Social Security benefits. While earned income (such as wages or self-employment income) can reduce your Social Security payments if you start benefits before FRA, withdrawals from IRAs, pensions, annuities, or rental income do not count against your Social Security benefits. However, it’s essential to understand how these withdrawals might affect the taxation of your Social Security benefits. Depending on your overall income, including withdrawals from retirement accounts, up to 85% of your Social Security benefits could be subject to federal income tax.

Withdrawing Your Social Security Claim

What happens if you decide to start receiving Social Security benefits and then change your mind? Perhaps you took benefits early because you were out of work, but now you’ve found a new job, or maybe your financial advisor has recommended a different strategy. The SSA does allow you to withdraw your Social Security claim, but there are conditions. You must withdraw your claim within 12 months of your initial application, and you must repay all the benefits you and your family received. This can be a complex and time-consuming process, so it’s critical to be sure about your decision when you first apply.

Protecting Yourself Against Social Security Scams

Unfortunately, Social Security scams are on the rise. These scams can come in many forms, including phone calls, emails, and even text messages, where scammers impersonate SSA officials. They may threaten legal action, claim your Social Security number has been suspended, or demand immediate payment. Remember, the SSA will never threaten you or ask for personal information or payment over the phone or email. If you receive a suspicious call or message, it’s best to hang up and contact the SSA directly through their official channels. Never give out personal information unless you are sure you are dealing with the SSA.

Tax Considerations for Social Security Benefits

Many people are surprised to learn that Social Security benefits may be taxable, depending on their income level. The IRS considers “provisional income” when determining the taxation of Social Security benefits. Provisional income includes your adjusted gross income, nontaxable interest, and half of your Social Security benefits. If you are single and your provisional income is between $25,000 and $34,000, up to 50% of your benefits may be taxable. For married couples filing jointly, this range is $32,000 to $44,000. If your income exceeds these amounts, up to 85% of your benefits could be subject to tax. It’s crucial to factor this into your retirement planning to avoid any unexpected tax bills.

Maximizing Your Social Security Benefits

To maximize your Social Security benefits, it’s vital to understand how your earnings history, age, and life expectancy impact your payments. Delaying benefits until age 70 will result in the highest monthly payout, but this strategy may not be suitable for everyone. Health considerations, the need for immediate income, and other personal circumstances must be weighed against the potential financial gains of delaying benefits. Additionally, coordinating benefits with a spouse can add another layer of strategy. For example, one spouse might claim early while the other delays, providing a balance between immediate income and future growth.

Preparing for Social Security in Your Financial Plan

Incorporating Social Security into your retirement plan is more than just knowing when to apply. It’s about understanding how it fits into your overall financial picture, including how it interacts with other income sources, impacts your tax situation, and supports your retirement goals. Consulting with a financial advisor can provide personalized guidance, especially when dealing with the complexities of Social Security and retirement planning. They can help you navigate decisions around the timing of benefits, tax implications, and potential withdrawal strategies.

Conclusion

The complexities of Social Security retirement benefits can be daunting, but with careful planning and a clear understanding of the rules, you can make informed decisions that best suit your needs. Remember, there are no one-size-fits-all answers. The best approach is to consider your personal financial situation, health, and retirement goals.

Have some questions about this blog? We offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need. Schedule your complimentary call with us to learn more about Social Security Retirement Benefits in Retirement.

July 15, 2024 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for July 15, 2024

Social Security at 62 vs 67 in Retirement

Radon and Murs discuss whether to take Social Security at age 62 or wait until the full retirement age of 67. This is one of the most frequent and challenging questions they encounter from clients. They emphasize that the decision involves multiple factors and cannot be answered by simply searching online. Through a detailed example featuring their colleague Taylor, they explore the considerations that influence this significant choice.

 

Social Security at 62 vs 67 in Retirement

Retirement planning is a multifaceted and often complex process, especially when it comes to deciding the right age to start drawing Social Security benefits. This blog aims to dissect the pros and cons of taking Social Security at 62 versus waiting until 67, using insights from a detailed financial planning podcast discussion.

Social Security at 62 vs 67: A Comprehensive Guide

Retirement planning is a multifaceted and often complex process, especially when it comes to deciding the right age to start drawing Social Security benefits. This blog aims to dissect the pros and cons of taking Social Security at 62 versus waiting until 67, using insights from a detailed financial planning podcast discussion.

Introduction to the Decision

Retirement is a significant milestone, and deciding when to start drawing Social Security benefits is a critical part of that journey. Social security benefits can begin as early as age 62 or as late as age 70. The later the begin date, the higher the benefit amount. For that reason, the choice of when to begin benefits is a common dilemma faced by many. Each option has its own set of advantages and potential drawbacks, and the best choice depends on individual circumstances, financial goals, and life expectancy.

The Scenario

Let’s consider a scenario where a couple, Jim and Jane, are both 61 years old and planning to retire at 62. They each earn $150,000 per year, have prioritized saving for retirement, and as such, have managed to accumulate substantial assets in their retirement accounts. Their primary question is whether to start taking Social Security benefits at 62 or to live off their savings and wait until their full retirement age of 67.

Understanding Social Security Benefits

Social Security benefits are calculated based on your highest 35 years of earnings. The Social Security Administration (SSA) provides an online tool where individuals can view their estimated benefits at different retirement ages. For Jim and Jane, their estimated benefits at full retirement age (67) are $3,800 per month each.

Financial Considerations

  1. Income Needs and Expenses: Jim and Jane’s current monthly expenses are $8,000, which includes living expenses, travel, and leisure activities. Their home is paid off, simplifying their financial needs somewhat.
  2. Retirement Savings: Both have IRAs worth $750,000 each, making a total of $1.5 million in retirement savings. They are also contributing the maximum allowable amount to their 401(k) plans.
  3. Social Security at 62 vs 67: If they start taking Social Security at 62, their benefits will be reduced by approximately 30%, resulting in around $2,660 per month each.

Analysis of Different Scenarios

Taking Social Security at 62

  • Immediate Income: Starting benefits at 62 provides immediate income, reducing the need to draw down their retirement savings.
  • Reduced Benefits: The benefits are reduced by 30%, impacting the total amount received over their lifetimes.
  • Impact on Assets: By starting benefits early, Jim and Jane can preserve more of their retirement savings. However, the lower monthly benefits could result in less overall income if they live a long life.

Waiting Until 67

  • Higher Monthly Benefits: Waiting until 67 increases their benefits to $3,800 per month each, providing a more substantial income.
  • Drawdown of Assets: They will need to rely on their savings to cover expenses from 62 to 67. This could significantly deplete their retirement accounts.
  • Long-Term Impact: Higher benefits from 67 onward can provide more financial security in later years, but this assumes they live long enough to benefit from the increased payments.

Detailed Financial Projections

Using financial planning software, we can project the impact of each option on Jim and Jane’s retirement assets:

  1. Retiring at 62 and Taking Benefits at 62:
    • Initial drawdown from savings to supplement reduced Social Security benefits.
    • By age 90, their projected net worth is $3.1 million, assuming no major unforeseen expenses or market downturns.
  2. Retiring at 62 and Waiting Until 67:
    • Larger drawdown from savings to cover expenses until 67.
    • By age 90, their projected net worth is $2.9 million, slightly less than if they had taken benefits at 62.
  3. Waiting Until 70:
    • This option maximizes Social Security benefits but requires substantial drawdown from savings until benefits start.
    • By age 90, their projected net worth is $2.8 million, the lowest among the three options.

Holistic Approach to Decision Making

When deciding on the optimal age to start taking Social Security benefits, it is crucial to consider several factors:

  1. Life Expectancy: If there is a family history of longevity, it might make sense to delay benefits to maximize lifetime income.
  2. Current Health Status: Poor health might favor taking benefits earlier to ensure some benefits are received.
  3. Retirement Lifestyle: Desired lifestyle and spending patterns during retirement play a significant role in this decision.
  4. Tax Implications: Social Security benefits are taxable, and the timing of withdrawals can impact overall tax liability.
  5. Other Income Sources: Availability of other income sources, such as pensions or rental income, can influence the decision.

Conclusion

The choice between taking Social Security at 62 versus waiting until 67 is not a one-size-fits-all decision. For Jim and Jane, starting benefits at 62 appears to be slightly more advantageous in terms of preserving their retirement assets. However, this decision is highly individualistic and should be made based on a comprehensive analysis of personal financial situations, health, and retirement goals.

Financial planning tools and consultations with financial advisors can provide valuable insights and help make an informed decision. Ultimately, the goal is to ensure a comfortable and secure retirement, with Social Security benefits complementing overall financial plans effectively.

For personalized advice and detailed financial planning, consider consulting with a retirement planning expert. Understanding the nuances of Social Security and integrating it into a broader financial plan can significantly impact the quality and security of your retirement years.

By considering the various factors and projections discussed, you can make a more informed decision about when to start taking your Social Security benefits. This comprehensive analysis should help you weigh the pros and cons and choose the best path for your unique situation.

If you want to understand all this a little better, we offer a complimentary phone call that you can schedule with us on our website. If we can’t answer all your questions in just 15 minutes, we’ll guide you to the next steps to find the answers you need.

Schedule your complimentary call with us and to learn more about holistic wealth management.

April 1, 2024 Weekly Update

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

Portfolio Update:  Murs and I have recorded our portfolio update for April 1, 2024

Sequence of Returns – How It Could Affect Your Retirement Plan

In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the impact of the sequence of returns on your retirement plan. The sequence of returns is the risk associated with how your money makes or loses money, and it can significantly impact your retirement plan.  

Sequence of Returns – How It Could Affect Your Retirement Plan

Sequence of returns is how long your money will last in retirement. If you’ve been reading our blog or a Secure Your Retirement podcast listener for any length of time, you know that we have a unique approach to how we set up assets to avoid the negative consequences of sequence of returns.

Sequence of Returns – How It Could Affect Your Retirement Plan

Sequence of returns is how long your money will last in retirement. If you’ve been reading our blog or a Secure Your Retirement podcast listener for any length of time, you know that we have a unique approach to how we set up assets to avoid the negative consequences of sequence of returns.

How Do We Approach Your Money Setup?

Our approach to discussing your money set up often starts with three main bucket types:

  1. Cash Bucket (ex: cash in the bank, easy to get to and emergency money).
  2. Income and safety bucket (provides income in retirement and is not impacted by stock market risks)
  3. Growth bucket (equities, stocks, bonds, structured notes and similar).

These three buckets are used to help visualize and plan for your retirement financial goals.

What is Sequence of Returns?

Keeping the buckets in mind, let’s take a closer look at “sequence of returns” and how it impacts your retirement planning.

Sequence of returns is a risk that we consider when building our retirement strategies.

In a nutshell, it asks the question: over the years, how much money will you make and lose?

If you put your returns into a chart by year, this is a sequence of return. You may:

  • Earn 10%
  • Earn 5%
  • Lose 4%
  • Earn 3%

Your withdrawal strategy will depend on these returns.

If you’re invested and working, you have time to recover from down years. If you have 10 –15+ years until retirement, you can recover from these down years.

But if you’re closer to retirement or in it, you don’t have the same luxury of time and income to spur recovery.

For example, imagine begin retirement in a bull market, where growth is high and the market is going strong. Growth years before having issues in the market is ideal.

Then, imagine going into retirement in 2022 with a bear market, when major indexes were down 20% – 30%.

The 12-month decline of 2022 still requires you to draw on your assets. So, if you have a down year and take $50,000 out of the account, it makes it all that much harder for you to grow your money again.

Note:

  • If you lose money, it takes longer to make it back
  • Withdrawals will make recovery harder because you’re not putting money back into the account

Remember, you’re not saving for retirement any longer. You rely on returns for income.

Using our bucket strategy, we help safeguard clients from the sequence of returns.

How?

If you experience a major drop in your investments, the income bucket can cover your bills and you don’t have to touch the growth bucket. Not touching the growth bucket is ideal because it allows you to recover from losses faster.

Once the growth bucket is growing nicely again, you can take money out of it and replenish the income bucket. Let’s take a look at how this strategy could help in different markets.

Scenarios of Sequence of Returns

We’re going to outline two scenarios for you where you have $100,000 in a growth bucket and need to withdraw $5,000 per year from it.

In this case, you’re withdrawing 5% of your bucket per year.

We’ll be looking at these two scenarios over a 15 year period:

  1. Upmarket return
  2. Down market return

In both scenarios, when you add up all the returns earned on the $100,000 and divide by 15, the average rate of return is 4.5%. The withdrawal for both scenarios will be $5,000 a year. Both sides have the exact same growth percentages.

Keeping that in mind, let’s walk through both scenarios.

Upmarket Return

In this scenario, the $100,000 has an 8% return, and you’re withdrawing $5,000 per year, so at year 15 you’re left with $103,000. Again, it earns:

  • +11%
  • +18%
  • +14%
  • +12%
  • +9%
  • +11%

And like markets do, some down numbers start to pile up at this point. You’re frontloaded with positive years and then hit with some down years.

Down Market Return

A down market return doesn’t have this 8% – 18% growth like the person entering retirement did with the up market. You enter with five years of negative returns of:

  • -5%
  • -6%
  • -15%
  • -8%
  • -4%

During the first five years, the returns are down. You’re not making any returns, but then you hit a growth spurt and have returns of:

  • +5%
  • +7%
  • +9%
  • +11%
  • +9%

In the second-half of this retirement outlook, you have some great returns. Since both scenarios have an average growth of 4.5%, you might assume that the accounts would be similar in the end.

What were the results for the two scenarios of the growth bucket account?

  • Upmarket Return Account: Started with $100,000, withdrawing $5,000 annually. At year 15, the ending balance is $105,944.
  • Down Market Return Account: Started with $100,000, withdrawing $5,000 annually. At year 15, the ending balance is $35,889.

As you can imagine, the down market account leaves the person with significantly less money in their accounts.

The key difference? Stock markets have positives and negatives. Unfortunately, the stock market doesn’t care when you retire.

Had the three-bucket strategy been used, the down market scenario could have reduced losses by withdrawing from the income bucket rather than the growth bucket.

Buckets provide us with predictability rather than the stress and anxiety that comes with sequence of returns.

If you want to talk and discuss your retirement plan further, we’re here to answer your questions and help you find peace of mind in retirement.

Click here to schedule a complimentary call with us.

October 9, 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 October 9, 2023

This Week’s Podcast – Social Security Taxation – How it Works in Retirement

Learn the importance of understanding your sources of income, social security benefits, and how they’ll be taxed, and have a long-term perspective. You will also learn why some people with low income in other areas can have their social security untaxed.

 

This Week’s Blog – Social Security Taxation – How it Works

Social Security taxation is complex. You may need to pay taxes on your benefits, or you may not have to pay taxes. Ultimately, your combined income will determine if you pay taxes and will include the sum of….https://pomwealth.net/social-security-taxation-how-it-works/

Social Security Taxation – How it Works

Social Security taxation is complex. You may need to pay taxes on your benefits, or you may not have to pay taxes. Ultimately, your combined income will determine if you pay taxes and will include the sum of:

  • Adjusted gross income
  • Non-taxable interest
  • Half of your Social Security benefits

Often, clients of ours are taken aback because they paid into Social Security their entire lives, and then they find out that they may be taxed on their benefits. For many of our clients, the benefits that they receive are not enough to live the lifestyle they want in retirement, so they’ll need other sources of income, such as distributions from their IRA.

We brought Taylor Wolverton, a member of our team, to our podcast to discuss how your Social Security is taxed because there are a lot of moving parts to consider. Taylor is our lead tax strategist and an Enrolled Agent, so she’s hyper-focused on individual taxation.

P.S. We are going to go through a lot of numbers, so take your time and reread this post a few times. However, if you do have questions about your specific situation, feel free to schedule a free 15-minute call with us.

Breaking Down the Figures

We have three main factors in determining how much of your benefits are taxable, but what do these really encompass?

What is Adjusted Gross Income?

Adjusted gross income (AGI) includes:

  • Interest from savings accounts
  • Dividends
  • IRA or other distributions

Your AGI includes any type of income that you’ll be taxed on in a given year.

What is Non-taxable Interest?

Your non-taxable interest comes from things like municipal bonds. Now, you must combine all this income plus half of your Social Security benefits. It’s a lot to consider.

Example of Taxation on Social Security

Someone has other sources of income of $75,000. Bob and Jane each receive $3,000 per month from Social Security ($6,000 total). Based on this example, there is:

  • $75,000 AGI
  • $0 tax-exempt interest
  • 50% of Social Security benefits, or $36,000 annually

Other sources of income are now $75,000 + $36,000 or $111,000. Now, it gets a little more complicated because of your tax filing status and the various thresholds that this may include.

Married Filing Jointly

If your income is between $32,000 and $40,000, up to 50% of your benefits may be taxable. However, if the couple’s income is more than $44,000, up to 85% of benefits will be taxable.

In the example above, the couple has $72,000 in Social Security benefits, so $61,200 will be reported on the couple’s tax return and will be taxable.

Going over these figures again, based on these calculations, the couple would have:

  • $75,000 AGI
  • $61,200 (85% of $72,000) from Social Security

Total taxable income is $136,200.

Note: For people who have income less than $32,000, you might not pay any taxes at all on your Social Security. However, taxation is on a sliding scale. At the most, 85% of your benefits are taxable.

Thresholds for Single, Head of Household, Qualifying Widow(er), or Married Filing Separately (and you did not live with your spouse during the year) 

A single person will have a different threshold for Social Security. You’ll be taxed up to 50% if you have income of $25,000 – $34,000. You may be taxed up to 85% if you have income of more than $34,000.

You’ll want to keep in mind that taxes are a bit more complicated than the examples above. We used approximations for these figures, but you’ll also need to consider credits, deductions, and special financial situations, which can lower your tax bill, too.

Variations Based on States

All the taxation above this point is based on the federal level. Every state has different rules that you must consider when retirement planning because some may follow federal rules, while others may not tax Social Security.

In North Carolina, where our office is located, there is no tax on Social Security, and this can be advantageous when trying to secure your retirement. 

How Social Security Taxation Impacts Retirement Planning

When looking at Social Security taxation, it’s important to know:

  • Sources of income
  • Taxes

Often, one of the largest expenses people have is the taxes that they need to pay in retirement. You’re not saving money for retirement any longer – you’re living off what you saved.

You need to understand how Social Security benefits will impact your taxes this coming year.

It’s possible to withhold taxes in some areas to lower the pending tax burden, but this is something that you need to consider well ahead of time. You never want to have a surprise when filing a tax return because you didn’t realize that Social Security is taxed.

Example of the Impact Social Security Had On One Client

One client of ours has the goal of leaving a tax-free legacy behind when she retires. She turned on Social Security, but she didn’t realize that she would be taxed on her benefits. 

What did she do?

  • Turned off Social Security
  • Paid it back
  • Leveraged Roth conversions for a few years
  • Turned benefits back on

She wants to leave a tax-free legacy behind, so it was crucial to make the most out of tax-free Roth conversions.

While she did have to pay back the benefits she received, she does benefit from higher Social Security benefits when she does decide to take them in the future.

Working with an advisor allows you to take the long-term approach to your Social Security and maybe avoid 85% of your benefits being taxable. A long-term perspective, based on your goals, needs to be considered.

Our goal is to limit the amount of taxation over a lifetime rather than a short period of time.

You may find that paying more taxes this year allows you to lower your burden over your lifetime. If you pay a bit more in taxes today but save 10% every year, it’s often in your favor to take the tax hit immediately.

Where to Learn How Much of Your Benefits Were Taxable

Pull out your most recent tax return and find your 1040 form. Often, this is the first page of your return. You’ll want to go to line 6a. This will show you how much of your benefits were for that year. If you look to the right to 6b, you’ll see how much of your benefits were taxable.

IRS officials do like to update income tax brackets and change percentages around for inflation. You’ll need to consult with us or a tax professional to learn the current year’s guidelines for income ranges and maximum taxation percentages.

The IRS does have an online calculator (here) where you can plug in data and learn how much of your benefits are taxable.

Do you want to talk to us about your tax situation?Schedule a free 15-minute call today.

September 5, 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 September 5, 2023

This Week’s Podcast – Integrated Wealth Management Experience in Retirement

Learn more about the elements of an integrated wealth management experience: a retirement financial plan, specific-to-the-client investment process, and tax planning. You will also learn how we’re involved in every step of the wealth management process, in-house or with a partner.

 

This Week’s Blog – Integrated Wealth Management

Integrated wealth management experiences are our way to help clients have the type of retirement planning assistance that is provided in a “family office.” If you don’t know what this term means or who it applies to, we’re going to cover that in great detail before explaining the concept of integrated wealth management to you.

Integrated Wealth Management Experience

Integrated wealth management experiences are our way to help clients have the type of retirement planning assistance that is provided in a “family office.” If you don’t know what this term means or who it applies to, we’re going to cover that in great detail before explaining the concept of integrated wealth management to you.

Note: Click here to listen to the podcast that this article was based on using Spotify, Apple Podcasts, Google Podcasts and Amazon Music. 

What is a “Family Office?”

A “family office” caters to what can be considered ultra-high net worth. You have enough assets that you require an entire team to help manage your assets. These offices will help you with:

  • Family businesses
  • Taking care of budgets
  • Paying bills
  • Managing cash flow, credit cards, real estate

Individuals in a family office have assets of $50+ million. Anyone who falls into this category can be their “own client,” meaning that the entire team works for you to manage your wealth. Extensive assistance is offered, including tax and estate planning, to the degree that 99% of people will never require. You’ll also work with attorneys and CPAs.

All these employees work for you, they’re registered with the SEC, and they assist with managing your “family.” If a person has this high of a net worth, they may need to have a chief financial officer (CFO) who will handle hiring or working with certain experts to meet their family’s needs.

Often, with a family office, they have a CPA working with them full-time.

The family office works solely for the family and will handle all their financial and wealth management needs. If a lawyer needs to be hired to work on estate plans, that’s all handled for you behind the scenes.

Integrated Wealth Management Experience

In our office, our average client doesn’t have $100 – $200 million or a billion dollars. We can’t create a family office for these individuals, but we wanted to create a system that offered the same experience as a family office for all our clients.

What we devised is known as our integrated wealth management experience.

What Does an Integrated Wealth Management Experience Look Like?

Instead of working with one individual, we work with many and take on the role similar to a “CFO.” We look at the person’s entire financial picture and beyond to help you secure your retirement. We partner with multiple professionals on a range of services, in addition to in-house wealth management.

For simplicity, we’ll break this down into a few of our in-house and partnered services.

In-House Wealth Management

In-house, we specialize in wealth management. We are financial advisors, and fiduciaries- which means we’re required to put your best interests first. The majority of our clients are people close to or retirement, and we’re big on the retirement-focused financial plan.

In a few words, the retirement-focused financial plan:

  • Analyzes where you are today
  • Outlines retirement goals
  • Identifies changes that need to be made to reach your goals

Reaching your financial goals will often mean investing in some sort of return. We may invest in the market, bonds, annuities, or a wide range of other financial vehicles. We invest for a return that is comfortable for the client and is based on individual risk tolerance.

Next, we offer tax planning. Some of the tax planning is in-house and some of it is done by working with outside experts. We have checks and balances in place to understand:

  • What your taxes look like today
  • What strategies we can implement before the end of the year to lower the tax burden
  • What to do to save you money next year

We can also handle the tax return for you, and we have partnered with CPAs to lead this process. CPAs will also provide a stamp of approval for all the tax planning strategies that we prepare to ensure that everything moves along smoothly.

Our team helps clients understand where their income is coming from and ensures that their retirement-focused financial plan is operating to reach their goals.

Estate Planning

Estate planning is a crucial part of retirement planning that folks really struggle to talk and think about. However, we incorporate this planning into the experience because it provides you with peace of mind that your estate matters are all handled in a legal manner.

Without an up-to-date estate plan, it can be difficult for you to leave assets in your desired way for heirs and beneficiaries. If you’ve had a major life change since you’ve created or looked at your estate plan, it is a good idea to have your estate plan professionally reviewed and updated. 

For our clients, we have a system in place for the state they live in to create a:

  1. Trust
  2. Will
  3. Power of Attorney
  4. Healthcare Power of Attorney
  5. HIPAA form

We believe this aspect of your retirement-focused financial plan is urgent, and strongly encourage our clients to review and update these documents on a regular basis.

Social Security

We work with a Social Security consultant, so our clients have an expert look at avoiding mistakes when filing for Social Security. Some clients have an easy process for Social Security, and we can help them apply for their benefits. However, other clients do not have as easy of a time.

Our consultant is on retainer and will help consider:

  • Complex decisions
  • Divorce
  • Optimizing for certain forms of income
  • Survivorship

She assists us when running the numbers for Social Security to help you make the best decision on when to take your benefits and how to reach your financial goals.

Insurances

Insurance includes many different options, but one of the major ones is health insurance. When you retire, you’re responsible for your own health insurance, which will be Medicare.

Medicare can be overwhelming when it comes to options, plans, and thresholds. We work with our clients and partners to help them find the best Medicare options for their health scenario and budget. We may be able to structure things to avoid IRMAA surcharges on Medicare, too.

Additionally, we help clients during open enrollment to find plans that may be more affordable or a better overall option for them. 

Long-term Care Planning

Speaking of healthcare planning, we also dive into long-term care planning. Hopefully, you’ll never need this level of care, but you just never know what the future will hold for you. We recently had a podcast on long-term care planning.

We’ll analyze your long-term care options and even help you secure the insurance you need to pay for a nursing home or assisted living facility.

Life Insurance

We’ll work through the question of life insurance and how to structure it for you and your family. 

These are just some of the insurance options that we can use to help build our clients retirement-focused financial plan. As we’ve outlined, we do our best to mimic the “family office” so that it works in your best interests.

What Getting Started with Our Integrated Wealth Management Experience Looks Like

If you call us to discuss your options, we already have:

  • Ongoing, up-to-date research to aid in building plan for your goals
  • Multiple estate planning methods in place
  • Many in-house Insurance and Wealth Management strategy options

We’re involved the entire time, working to have all your questions answered. We will do the research with the estate planner or Social Security expert to have your questions answered.

Since we work with the outside experts, you bypass the extra step to make sure your financial, tax, and estate planning professionals are all on the same page when it comes to your retirement-focused financial plan. We’re very much involved with every aspect of your plan to help you make sound financial decisions.

Want to learn more about our Integrated Wealth Management Experience? Schedule a free call with us today.

June 20, 2023 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for June 20, 2023

This Week’s Podcast – Mid-Year Tax Planning – Why So Important in Retirement?

It’s important to look at the previous year’s tax situation because some things, like Roth conversions and qualified charitable distributions, need to be done before the end of the year in order to be reported on your tax returns.

Listen in to learn the importance of coming up with a good tax withholding strategy to avoid tax liabilities and bills during tax season. You will also learn about the tax benefits of donor-advised funds and qualified charitable distributions.

 

This Week’s Blog – Mid-Year Tax Planning – Why So Important?

Why are we talking about tax planning in the middle of the year? Mid-year tax planning allows you to get everything in order before the end of the year to lower your tax obligation as much as possible.

In June of 2023, we’re doing a lot of work to get ready for our tax planning and strategy meetings we’ll be having later this year. A lot of prep work goes into these meetings because it’s one of the most intense that we’ll have all year.

Mid-Year Tax Planning – Why is it So Important?

Why are we talking about tax planning in the middle of the year? Mid-year tax planning allows you to get everything in order before the end of the year to lower your tax obligation as much as possible.

Note: We are not giving specific advice. We’re talking in general terms and advise you to discuss your own tax planning with a professional who can recommend the best method to reduce your tax burden.

In our most recent podcast (listen to it here), we have two members of our team with us, Nick Hymanson, CFP® and Taylor Wolverton

In June of 2023, we’re doing a lot of work to get ready for our tax planning and strategy meetings we’ll be having later this year. A lot of prep work goes into these meetings because it’s one of the most intense that we’ll have all year.

Why Do We Do Tax Planning and Tax Strategy Before the Beginning of the Year?

First, we want to review your tax situation from last year so we can understand potential moves we can make before the end of this year.

For example, Roth conversions or qualified charitable distributions (QCDs) need to be made before the end of the year to be reported on your tax return. Changes to your contributions or account conversions must be completed before December 31st of the year to be claimed on your taxes.

Mid-year tax planning helps us get everything in order to have a discussion with our clients on which strategies we can employ to lower your tax burden.

How Financial Planning Ties into Tax Planning

Financial, tax, and retirement planning are all linked together, or they should be if they’re done professionally. We have clients who first retire and live on cash in the bank, and then they start taking money from an IRA or a required minimum distribution.

In our process, at the beginning of the year, we have a financial planning meeting to update where their income is coming in this year, and we review what happened in 2022 (or the year prior).

From an income perspective, we want to understand where your income came from last year. We want to understand any unique changes that may have transpired this year and your income last year.

During the year, you may have income coming in from multiple sources, and it’s crucial that you have a good tax withholding strategy in place.

Proper tax withholding will allow you to avoid any unexpected tax surprises the following year. Having conversations throughout the year allows us to position our clients to pay less taxes by making smart financial decisions.

For example, if you want to sell a highly appreciated stock, we may recommend holding off until the beginning of the coming year because there are tax advantages.

We perform a full software analysis of our clients’ past year taxes to look for:

  • Filing status
  • Social Security number accuracy
  • Sources of income (interest, dividends, etc)
  • Withholdings 

We look through all these figures with our clients to help you better understand the tax obligations of each form of income. If you want to adjust your withholdings or make income changes, we’ll walk you through this process.

For example, you may not want a refund at the end of the year and want to withhold just enough taxes to be tax-neutral. You won’t pay or receive anything at the end of the year from the IRS.

With a mid-year tax plan, we have a better understanding of the steps that must be taken to reach your goals in the coming year.

Things to Do Before December 31st

Retirees must do a few things before the end of the year by law. Here’s what you need to know:

Donor-advised Funds

Sometimes we learn from a tax return or through a conversation with our clients that they give $10,000 to charity per year. Can you itemize? Sure, but the standard deduction is so high that it often doesn’t make sense to do this.

What’s the Standard Deduction

For your reference, the standard deduction in 2023 is:

  • Single: $13,850
  • Married filing jointly: $27,700 (65+ goes up by $1,500 per spouse)

Itemization won’t make sense if you have less than the standard deduction amount in contributions.

If you do a donor-advised fund, you can stack charitable contributions and use the multi-year contributions as a deduction this year.

Let’s assume that you put $40,000 into a donor-advised fund. You can still make $10,000 contributions to your favorite charity, but you can then take a $40,000 deduction this year to negate your tax burden. Itemizing is the best course of action if you have more deductions than the current standard deduction amount.

We may recommend this strategy if you expect a very high tax burden and want to lower your tax obligation.

Opening a Donor-advised Fund

We use Charles Schwab for our funds, but you can use a custodian of your choosing. A donor-advised fund looks just like any other account held at Charles Schwab, except for a few differences. Checks are written directly to a Schwab charitable account and funds are held directly in this charitable account. You can assign contributions to charities of your choice.

Funds remain in the account and can be withdrawn and moved to the charities in the future. Once you put money into the fund, you cannot reclaim it in the future. You can decide annually on who you want to distribute contributions to.

However, it is very important that Charles Schwab has information on the charity that you want to disperse the money to and that everything is in order for the distribution to be made problem-free.

Qualified Charitable Distribution

Qualified charitable distributions (QCDs) are another tactic that you can use if you’re over the age of 70-and-a-half. Age requirements and the time of your distribution are crucial and one of the reasons that people often work with a financial planner.

We can make sure that you’re making the QCD properly and get all the tax benefits that go along with it.

Note. If you have a required minimum distribution (RMD), you can set up the QCD to be taken directly from this. A key benefit is that if the RMD never hits your bank account, you don’t have to pay taxes on it.

Making Out Your QCD Check

In terms of Charles Schwab, we want to make sure that the QCD check is made out directly to the charity and not the account owner. If the check is written to the tax owner, it is considered taxable income.

We need a few things when writing out the QCD check:

  • Name of charity
  • Charity’s tax ID
  • Charity address
  • QCD amount

One important thing to note is that there’s an option to send the check directly to the charity or to the account owner, who can then hand-deliver the check to the charity.

The most important thing is to have the check written to the charity itself with the tax ID.

What You Need to Gather for a Tax Planning Strategy Meeting

Whether you work with us or someone else on a tax planning strategy meeting, you’ll need a few documents to get started:

  • Last year’s tax returns
  • Income for the coming year
  • Changes to income in this year
  • Change to cost of living on Social Security

We really need to know your sources of income and if any changes to this income have occurred in the last year. Cost of living adjustments are a big one and will impact your taxes, but all of this is information necessary for a tax planning strategy meeting.

IRMAA is another thing that we want to consider, and we have a great guide on the topic, which you can read here: IRMAA Medicare Surcharges.

Medicare looks back two years to determine your surcharges, which is something we can plan for with enough time and a strategy in place. We want to manage your Medicare surcharges so that you don’t need to pay more than necessary for your Medicare.

Tax strategy can help you better prepare for your taxes and make strategic moves that will save you a lot of money in the future.

We have a team of people working with us to handle all these moving parts and walk our clients through the process.

Want to learn more about retirement planning?

Click here to view our latest book titled: Secure Your Retirement.

May 22, 2023 Weekly Update

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

Here are this week’s items:

Portfolio Update:  Murs and I have recorded our portfolio update for May 22, 2023

This Week’s Podcast – Important Age Milestones in Retirement

Listen in to learn about the different financial milestones that happen in the life of a child from birth all the way to retirement. You will also learn when to work on your catch up contributions, the social security eligibility age, when to withdraw all your retirement assets and much more.

 

This Week’s Blog – Important Age Milestones

Important age milestones seem to come in waves, especially once you secure your retirement.  A lot of rules around financial planning and tax issues impact people at different ages, which everyone should know about when retirement planning.

Important Age Milestones

Important age milestones seem to come in waves, especially once you secure your retirement.  A lot of rules around financial planning and tax issues impact people at different ages, which everyone should know about when retirement planning.

Important Age Milestones for Parents or Grandparents

Some of the most important age milestones may or may not apply to you, so keep this in mind.

Age 0: Birth of a Child

If you have younger kids or grandkids, you can set up a 529 account for the child. These accounts are college savings accounts for the child. You can also set up a UTMA or UGMA account, which are types of custodial accounts that you can set up for minors.

Age 13: Child and Dependent Care Credit

At age 13, a child is no longer eligible for the child and dependent care credit.

Age 17: No Longer Eligible for a Child Tax Credit

When a child reaches age 17, the tax credit helps you deduct as much as $2,000 per child from your taxes if they’re a dependent.

Age 18: Age of Majority

Children reach the age of majority at age 18 in most states. The government now sees the child as an adult and the accounts you set up for them, such as the UTMA or UGMA, are now transferred to the “new adult.”

You’ll revoke your power over these accounts and need to go through the transfer process.

Age 21: Age of Majority

In some states, the age of majority is 21, and this is when all the custodial transfers for these accounts must take place.

Age 24: Full-Time Student Loses Kiddie Tax

A full-time student is no longer eligible for a “kiddie tax” at 24.

Age 26: Child No Longer Eligible for a Parent’s Health Insurance Coverage

When the adult child reaches age 26, they’re no longer eligible for their parent’s health insurance under the Affordable Care Act. We hear about this one a lot. Parents help get their kids through college, the child stays on the parent’s health insurance and then they’re shocked to learn that they’re no longer eligible to be on their parent’s plan.

Important Age Milestones for Retirement Planning

Age 50: Retirement Contribution Catch-ups

As young as age 50, there’s an important milestone that occurs. You can make “catch-up” contributions for your 401(k), 403(b) and 457 plans. In 2023, if you’re under 50, you can contribute $22,500 each year.

If you’re 50 or older you can add an additional $7,500 to the account, for a total of $30,000 per calendar year.

IRAs also have a catch-up contribution that you should consider.

Age 50: Social Security Benefits for Disabled Widows and Widowers

If you are a disabled widow or widower, you can file for Social Security benefits.

Age 55: HSA Catch-up Contribution

If you have a health savings account (HSA), you have catch-up contributions of an additional $1,000 on top of regular limits of $3,850 for a single person and $7,750 for a family.

Age 59 1/2: Reach the Age of Retirement Asset Withdrawal Without Penalties

In most cases, if you take money out of your retirement account before the age of 59 ½, you’ll be penalized for doing so. The early withdrawal penalty is 10%. Now that you’re 59 ½, you still pay taxes on many of these accounts, but you aren’t penalized for the withdrawals.

You also have the option, in most cases, to rollover from a 401(k) to an IRA. When you do a rollover, you now have the option to invest in stocks and ETFs. An IRA frees up the option of investing your retirement money in a way that is not possible with an employer retirement account. 

You can work with an advisor to help you with the retirement planning at this point.

Age 62: Social Security Eligibility at a Reduced Rate

You’ve paid into Social Security your entire life, and now you can begin taking from this account at a reduced rate. We are having major discussions with our clients on what to do at this critical age. In 2023, you have a limit of $21,240 in income.

If you make more than this amount, for every two dollars you make, one dollar in your Social Security is reduced. We don’t recommend that anyone making more than the $21,240 figure above take Social Security because of this reduction rule.

Age 65: Medicare Eligibility

You can receive Medicare at the age of 65, but you can apply for it at age 64 and 9 months. Now is the time to review plans and learn costs.

If you have an HSA that you’ve been funding, you can use your HSA for non-medical withdrawals because you’re eligible for Medicare. Before this age, any funds in your HSA are designated for medical and healthcare purposes.

Age 66 – 67: Full Retirement Age for Social Security

If you’re working and still bringing in income, you may want to wait until full retirement age to take Social Security. The income limit we mentioned at age 62 is now removed, allowing you to take your benefits while earning as much money as you can.

You can still work, receive good money, and still get 100% of your Social Security Benefits.

The full retirement age has changed a lot in the past decade or so, and the age for full retirement depends on the year you were born. The current ages are:

  • Born between 1943 and 1954: 66
  • Born in 1955: 66 and 2 months
  • Born in 1956: 66 and 4 months
  • Born in 1957: 66 and 6 months
  • Born in 1958: 66 and 8 months
  • Born in 1959: 66 and 10 months
  • Born in 1960 and beyond: 67

We believe that this age may be adjusted again in the future.

Age 70: Maximum Social Security Benefit

Deferring your Social Security until age 70 allows you to receive your maximum Social Security benefits. Your benefits will no longer increase after this age, even if you continue contributing to the system.

For 99.9% of people, this is the age when you want to take your benefits if you haven’t already.

Age 70 1/2: Charitable Contributions from Your Retirement Accounts

At the age of 70 and a half, you can begin taking contributions from your retirement accounts, such as your IRA, and then give them to charity using a qualified charitable distribution. If you use this method of charitable contributions, the key is that the money never hits your bank account.

The money goes from the retirement account directly to the charity, allowing you to avoid any taxes on it while also maximizing the amount you give to charity.

Age 73: Required Minimum Distributions (RMDs)

Age 73 is when you start taking your RMDs. This used to happen at age 70 and a half, but now you can wait until age 73 to take RMDs. You must begin taking RMDs at age 73 if you were born before 1960.

If you were born in or after 1960, the required age is 75.

For us, when it comes to retirement planning, these are some of the things that we like to discuss. A lot of milestones change and are easy to miss. If you would like to have a review of important milestones for you, be sure to reach out to us.Click here to talk to us about important age milestones.