Win the Retirement Race

Eng-WEBA 401k account through your employer is one of the best tools to use for retirement savings. It’s an investment account that allows your money to grow tax-deferred or, in the case of a Roth 401k, tax-free. It can help you win the retirement race.

These retirement savings accounts make it very simple to put your saving and investing on auto pilot. It even gives you options to rebalance your investment portfolio on a regular basis.

If you’re just starting out and have less than $50,000 in your 401k, a target date retirement fund is a simple option. These funds “target” your retirement year based on your age and invest accordingly; the investment vehicle provides a diversified portfolio all-in-one fund using a variety of stocks and bonds. They’re professionally managed and therefore require very little monitoring.

As your account balance grows, you may consider adding more funds to the mix.

How many years before retirement?

Your time horizon calculates how long you will be investing and when you want to retire and begin withdrawing money from your account. It’s a key factor in how and where you invest. In general, the longer amount of time you have, the more aggressive you can afford to be and the more stock market volatility you can withstand.

Many young people believe they need to be “safe and conservative” with their retirement accounts. Really, the opposite is true. Investors in their 20s and 30s can afford to take some risk with an account they will not use for 30 or 40 years.

How comfortable are you with risk and stock market volatility?

Even if you’re young and have a long time-horizon, you may find watching your retirement account bounce up and down to be unnerving. In that case, a more conservative strategy makes sense. You can add bonds to your investment mix to help bring income and stability to your portfolio.

Either way, staying invested in the market – rather than jumping in and out, and trying to time the markets – is a key to long-term success. Think of investing is a marathon, not a sprint, if you want to win the retirement race. Even after you retire, keeping investments in the stock market will help your money continue to grow and outpace inflation.

Win the Retirement Race

 

By |2021-10-12T10:39:00-07:00October 12th, 2021|Retirement, Taxes|

Helping Aging Parents Manage Finances

Helping aging parents manage financesHelping aging parents manage finances: it’s a sticky situation. As our parents age, we worry about their ability to make sound financial decisions. We know they’re targets for financial fraud. How do we protect them, while also respecting their desire to remain independent?

Carrie Schwab-Pomerantz, CFP®, is president of the Charles Schwab Foundation and has served two White House administrations on financial capability policy. In a recent article, she offered the following insights.

Helping Aging Parents Manage Finances

Communicate: Talking about money can be hard, but it’s the most important first step. Let your parents know you are willing to help and why. Be upfront about the fact that seniors are targets for financial exploitation. Ask them if they have any concerns and in what areas they might welcome some help. Look for cues that might indicate they’re confused or vulnerable. The more two-way conversations you have about money, the easier it will become.

Collaborate: Offer to become part of their team. Beginning a dialogue with their financial advisors and health care professionals will help you spot any troubling signs as your parents age. If you establish clear roles and responsibilities before troubles arise, your parents will be less likely to feel you’re hovering or controlling them. Instead, they’ll know you’re available and informed to offer specific support when needed.

Evaluate: Offer to help assess their assets and liabilities, income and expenses, and insurance needs. If they already have a financial plan, suggest a review. Once you understand their needs, remember to check in with them regularly. Their needs may change. By laying the groundwork now, you’ll be better prepared to help them. And knowing that may make your parents more willing to let you.

Early IRA Withdrawals

Larriva-WEBAs you approach retirement, conventional wisdom is to spend down taxable assets and delay IRA & 401k withdrawals until the Required Minimum Distributions (RMDs) begin at age 72. This can be an effective strategy. Yet, in many situations, it may be better to start early IRA withdrawals.

Counter-Intuitive Advice and Early IRA Withdrawals

When does this counter-intuitive strategy make the most sense? It’s relative to your marginal income tax-brackets over a seven- to 10-year period.

For example, a married couple both age 62 can earn up to combined income $106,150 (gross) before the $25,100 standard deduction and still be in only the 12 percent marginal federal tax bracket. If they have $800,000 in IRA/401ks, they can withdrawal some of that money and still be in a low marginal bracket.

If that couple waits until age 72, those retirement assets with 7 percent growth may double to about $1.6 million, and RMDs would start at $62,800 per year. That RMD income along with $57,000 per year for Social Security would put them in a 25 percent marginal tax bracket in the future. (See table.)

Another trap is related to future Medicare premiums (Part B), which typically begin at age 65. The more income you have in retirement, the more you will pay in Medicare premiums. If your adjusted gross income plus municipal bond interest is more than $176,000 for a married couple, then monthly Medicare can increase from about $148 monthly per person up to $505. Paying attention to the nuances in Medicare rules could save a couple up to $8,500 per year.

early IRA withdrawalsDetermining the best time for retirement distributions can be complicated. It’s smart to come up with a plan before you hand in your resignation. Your Perspective advisor will crunch the numbers and help you create the optimal strategy.

By |2021-08-16T13:12:45-07:00September 6th, 2021|Advisors, Health Care, Retirement, Taxes|

Timing Your Social Security Benefits

timing your social security benefitsThere are many factors to consider when timing your Social Security benefits. Every person’s situation is different.

If you’re thinking about early retirement and you have sufficient resources (investments, pension, and so on), you’ll have more flexibility in when you begin claiming Social Security. Your marital status, overall health, life expectancy, employment wishes and retirement goals are also key factors in timing your Social Security benefits.

Full retirement age (FRA) for Social Security is between 66 and 67 years (depending on the year you were born). Waiting until then guarantees your full monthly Social Security benefit, based on your employment history.

You can claim benefits up to five years early, though your Social Security income would be 30 percent less. Waiting to claim benefits after FRA will provide an additional 8 percent income per year, up to age 70 years.

Your Perspective advisor can help you evaluate your options and create a Social Security plan. It’s one of our Core Client Services. That’s the value of Perspective.

Schedule a Complimentary Meeting with a Perspective Advisor

 

To learn more about he many facets of retirement planning, click here for another article.

 

By |2021-06-11T16:55:20-07:00June 28th, 2021|Retirement|

Long-Term Cost Planning

Did you know that spending often decreases at retirement? One reason is simply that our habits and desires may change. According to Genworth’s annual Cost of Care Survey, people spend less on transportation, vacations and food as they age. They often spend more on donations and gifts. Health care costs also consume a larger percent of spending as we age. That’s why long-term cost planning is critical. Understanding and planning for long-term needs can help you make the most of your finances today, while providing for your comfort and security down the road.

Unexpected events can also lead to a significant drop in spending. For example, a layoff or health event that causes early retirement can lower lifetime resources and force spending cutbacks.

Planning for expected and unexpected changes in your income and expenses down the road will help you maintain your desired lifestyle. There are many elements that inform such planning, such as:

  • Pensions, retirement accounts, other potential future income
  • Disability and long-term-care insurance
  • Medicare, Medicaid, private insurance
  • Projected inflation, rising costs of care

Most people will require some level of support services later in life. About 60 percent of seniors will need a cane, walker or wheelchair to remain mobile, according to the U.S. Health and Retirement Study (an ongoing project of the University of Michigan’s Institute for Social Research). And 20 percent will need help with bathing, eating and dressing. Cognitive decline will require more intensive care.

Knowing the full range of potential costs have been considered as part of your long-term financial plan creates peace-of-mind for you and your loved ones.

Long-term cost planning is part of our Core Client Services. That’s the value of Perspective.