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Mapping Out Financial Success with Retirement Planning

Planning your retirement can be overwhelming, but it is also one of the most important things you can do for yourself. You may think that this happens later in your life when you’re about to retire. However, it starts earlier than you think.

Here’s everything you should know about retirement planning to help you build a financially stable future.

READ — Choose Your Own Adventure: What’s Your Investment Path?

Why Should You Consider Retirement Planning?

Retirement planning is setting up your finances so you’ll have enough money to cover your living expenses after you stop working. Determining how much money and income generated from investments you’ll need are all part of the plan. This will ensure that your needs are met, and your savings can sustain your day-to-day in retirement.

There are many reasons why you should consider retirement planning as early as you can. Here are some of them:

  1. Planning your retirement early can help determine when you can stop working and how much money you’ll need to live comfortably without working.
  2. This can also help you decide the type of retirement lifestyle you want.
  3. It may even relieve some of your stress and anxiety concerning your financial security after retirement.

What Do You Need to Consider?

Retirement Age

You don’t want to be working until your bones are frail and brittle. As such, it’s essential to know when you want to retire and how much time you have until then. Knowing when you plan to stop working will help guide you through the rest of the process.

Income Needs

After determining when you want to retire, it’s time to consider how much money you’ll need each month. This is where income concerns come into play. This includes the cost of necessities like housing and food or other expenses like entertainment and travel.

If you plan on taking up a new hobby or pursuing a sideline entirely different from your career path, your income needs may be higher than others.

When planning your income needs, consider your current financial situation. This will help you determine how much money you can save and what expenses to eliminate. Also, don’t forget to leave some room for inflation as this can affect the prices of your needs.

Investment Options

The investment options available vary from person to person based on their needs, goals, and risk tolerance levels. If you’re a risk-taker and have disposable income that you don’t mind losing, stocks may be a good option. But for those who like to keep it safe, government bonds are one of the best options for you.

The best investment strategy is not to put all your assets in one basket. You can split your money into stocks and the other 60% into bonds. This means you have more chances of generating a greater investment. Make sure you follow the strategy that suits your needs for the present and future.

How Much Do You Need for Retirement?

The first step in figuring out how much money you’ll need for retirement is how long you’ll live. The longer your retirement period, the more money you’ll have to save and invest. This ensures you have enough income when the time comes to stop working.

Your age is also important. If you’re in your 20s or 30s, it might make sense to focus on saving up as much as possible. Doing so can take your worries away about running out of cash later in life if something unexpected happens, like a medical emergency.

On top of this, your retirement savings should keep pace with your lifestyle. Although there will be changes to it when you grow old, you may have non-negotiables that you’d want to spend on.

Also, don’t forget to leave some room for inflation and tax rates since these will significantly affect your expenses.

READ — What Does a Recession Mean for Your Finances? 

What are the Types of Retirement Plans?

Employee-Sponsored Retirement Plans

The money you contribute to these plans is tax-deferred. This means you don’t have to pay taxes on your contributions until you withdraw the money later. Additionally, many employer-sponsored plans offer matching contributions that help boost your savings even more.

It has several types, including thrift savings plans, 401(k)s, 403(b)s and 457, all of which are tax-advantaged savings plans, giving you tax benefits for contributing money.

Individual Retirement Accounts

This is one of the most popular methods for retirement savings. It allows you to save money tax-free and deduct contributions from taxable income depending on the account type.

You can choose from two types, varying in their tax benefit. Traditional IRAs don’t let you pay taxes when withdrawing during retirement. However, when you remove them, you’ll need to pay any growth within the account.

Meanwhile, Roth IRAs require you to pay taxes at your rate when withdrawn during retirement. However, withdrawals are made tax-free once retired, giving Roth IRAs a better advantage over traditional ones if your tax rate is expected to be higher when retired than when working.

Pension Plans

Pension plans provide long-term income in exchange for contributions made by both the employee and employer. They’re meant to supplement other retirement savings vehicles such as an IRA or 401(k).

Self-Employed Retirement Plans

Self-employed retirement plans allow you to set up your retirement plan and save for your future without relying on other people or companies. This can be a 401(k) or an IRA; the only difference is that it is flexible and customizable to suit your needs.

Save Up for a Financially Stable Future

Having a financial game plan is essential for any young professional. Whether you’re a stay-at-home parent looking to build a retirement fund or have several decades of work, having a plan can often be the difference between retiring financially stable and retiring with financial headaches.

By outlining an action plan and taking steps to maximize your retirement contribution, you’ll be able to make the saving process for retirement easier and more rewarding. But that’s a big part of it—it’s up to you to create your roadmap for success.

 

MarcdanerMarc Daner is a Registered Investment Advisor with three decades of experience. He is a staunch and knowledgeable advocate for financial success. He can help plan for a secure retirement; manage assets, liabilities, and cash flow; and avoid or defer income, capital gains, and estate taxes.

What Does a Recession Mean for Your Finances? 

For some advisors, two negative quarters of Gross Domestic Product means we are in a recession. Other advisors are waiting for the National Bureau of Economic Research (NBER) to officially declare one. NBER defines a recession as “a significant decline in economic activity that is spread across the economy and lasts more than a few months.”

The problem with waiting for the NBER to proclaim a recession is that by the time they do, it may be too late to improve your finances since there is typically several months of lag time before their announcement. Although recessions are challenging, there are actions you can take today to help mitigate the potential long-term damage.

READ — Does an Inverted Yield Curve Portend a Recession?

Credit Card Debt

According to LendingTree, the average annual percentage interest rate offered with a new credit card today is 21.59%. This is the highest interest rate since LendingTree began tracking rates monthly in 2019. There is no reason to pay this rate if there are other ways to pay for credit card debt. 

It may be prudent to pay your monthly bill early so you can avoid being charged this outrageous amount of interest. If you need to borrow from somewhere else to pay credit card bills, it could mitigate the amount of interest you will pay. Home equity lines, brokerage margin accounts, or personal bank lines of credit will only cost 5-6%, a mere fraction of what credit card companies charge.

Retirement Accounts

As tempting as it might be, try to avoid taking money out of your retirement accounts to cover your monthly bills. Your 401k account(s) and IRA(s) are for retirement only.  There are substantial penalties for taking money out of retirement accounts before age 59 1/2. Early withdrawals are subject to inclusion when calculating gross income; additionally, there is usually a 10% penalty.

However, you may be able to use IRA funds to pay your medical insurance premium after a job loss. You can take a hardship withdrawal from your 401k if the plan is held by your employer. It may be best to leave your retirement accounts intact growing tax-free until age 72. At that point, you are required by law to begin taking annual withdrawals.

Adding to your 401k out of your bi-monthly paycheck, particularly if your employer matches, may be beneficial. You could also make the maximum annual contribution to your IRA at the beginning of the year if you are able. Additionally, you could split the maximum annual contribution limit between a traditional IRA and a Roth IRA, or just go all-in on either. If you expect your tax rate to increase in the future, a Roth IRA would be your best bet.

Cash

The general rule of thumb is to have some mattress money or cash to cover up to six months of living expenses. This money is set aside for the purpose of weathering emergencies. During a recession, you may want to increase this amount.  If possible, stashing away a year or 18 months’ worth of savings for living expenses could help provide peace of mind.

The good news is that for the first time in years, you can buy the one-year treasury bond yielding over 3%. Better than that, you can buy I-Bonds, which are referred to as inflation-protected bonds. The current yield on I-Bonds is 9.62%; however, there are some limitations. You can only buy these bonds in $10,000 increments per individual family member in a given calendar year. Also, they can’t be redeemed for a year, and if you withdraw funds within five years, you will owe three months of interest.

Spending

Recessions give all of us a great excuse to cut back on our extra big-item spending. Ask yourself if you really need to take that trip, buy a new car, or remodel the house this year. Frankly, you probably don’t need to do any of those things. Now is not the time to take on extra debt or spend more than you make. If the recession lasts long enough, odds favor inflation coming back down, and if you can wait another year or two, airfare, new cars or remodeling expenses could be much lower than they are today. 

Although economists have varying opinions about whether or not we are in a recession, the stock, bond, and housing markets are signaling that we are in one currently or are rapidly heading in that direction. We are in a bear market, the yield curve is inverted, and the bidding wars for new homes are long gone.

Now that you know this, it may help to curtail your spending on large-ticket items, pay off your expensive credit card debt, keep contributing to your retirement accounts, and save 12-18 months of your living expenses. Also, you could invest emergency cash into I-Bonds or the 1-year treasury bond. Recessions don’t last forever, but it is better to be prepared when they inevitably come.

 

Thumbnail Fred Taylor HeadshotImportant Disclosure: 

Frederick Taylor is a Partner, Managing Director at Beacon Pointe Advisors, LLC. The information contained in this article is for general informational purposes only. Opinions referenced are as of the publication date and may be modified due to changes in the market or economic conditions and may not necessarily come to pass. Forward-looking statements cannot be guaranteed. Past performance is not a guarantee of future results. Beacon Pointe has exercised all reasonable professional care in preparing this information. The information has been obtained from sources we believe to be reliable; however, Beacon Pointe has not independently verified or attested to the accuracy or authenticity of the information. The discussions, outlook, and viewpoints featured are not intended to be investment advice and do not consider specific investment objectives or risk tolerance you may have. All investments involve risks, including the loss of principal. Consult your financial professional for guidance specific to your circumstances. 

Happy 401(k) Day!

In response to the 940,000 Colorado private-sector workers that lack access to an employer-sponsored retirement savings plan, the Colorado SecureSavings Program will allow those who need it the most to access this essential benefit.  A retirement savings benefit is proven to increase the likelihood that employees consider saving. Additionally, access to educational resources and employer support creates the opportunity for those that do not traditionally invest to understand the true value it could bring to securing their financial futures.

There is a retirement savings crisis on the horizon with many across the United States relying on an uncertain Social Security benefit. Now, more than ever, individuals must learn how to manage their own retirement savings. So, how does the state requirement support this effort and what are the viable alternatives?

What is the Colorado SecureSavings Program?

Unlike a defined benefit plan, the Colorado SecureSavings Program is a portable IRA that Colorado private-sector workers fund by payroll deductions through their employers. Because it is portable, the account follows the employee no matter how long they stay with their employer, which encourages continued retirement saving. Employers are required by law to enroll their employees, but employees may opt out of the Program or re-enroll at any time. When the Program launches in January 2023, employers must choose to participate in the Program or to obtain a qualified retirement plan for their employees.

If a business already offers a qualified retirement plan to some or all of its employees, it can certify its exemption through the Program’s online portal and is not required to participate. Participation in the Program requires the following three actions by Employers: register, upload employee roster, and remit employee payroll contributions. The lawmakers required that the Program design minimizes the time burden on employers; therefore, registration is expected to only take minutes by inputting a few data points. Depending on what type of payroll system a business uses, uploading the employee roster and remitting can be automated through the Program’s online portal and will likely only require 15 minutes per month.

Unlike a 401(k) plan, the participating employer is not a fiduciary in the SecureSavings Program. This means the employer does not bear responsibility for the administration, investment, or investment performance of those participating in the state program. Participating employers do not have any liability for an employee’s decision to participate in, or opt out of, the Colorado Secure Savings Program or for the investment decisions of the Board or of any enrollee.

How Does the State Requirement Differ from a 401(k)?

Both a 401(k) and the state program offer employees a means to a more financially secure future. However, there are a few advantages of a qualified alternative like a 401(k) that employers should consider as the deadline approaches. Employers have the choice to “match” a percentage of employee contributions to retirement savings in a 401(k). Matching employer contributions appeal to jobseekers and benefit employees because matching contributions grow the savings account quicker than one without an employer match.

Employers should also consider the cost of qualified plans, whether they are suitable for their employees, and the legal and administrative requirements for sponsoring a plan. The Colorado Secure Savings Program contribution limits align with federal standards for IRAs (which are considerably lower than 401(k) contribution limits), employers are prohibited from matching, and the Program is provided to employers at no cost. While this public option may appeal to some businesses, other plans may offer more robust benefits, opportunities for employer matching, small business tax credits, and more employer control over the investment lineup.

Next Steps for Colorado Employers

Colorado SecureSavings launches in 2023, so now is the time for business owners to explore all options in the private market and consult competent tax advice. Employers are encouraged to consider the full range of options before enrolling in a retirement program, whether that be the state program or a qualified alternative like a 401(k).

Shelton Capital Management is a Denver-based 401(k) provider working in conjunction with the Colorado Department of the Treasury’s Colorado Secure Savings Program to increase awareness of the importance of retirement savings. With the approaching state-requirement, it is essential that small business owners across Colorado are aware to avoid potential penalties for non-compliance and understand alternative options that may be more suited to their businesses’ needs.

 

Carrie Della Flora manages the Client Experience team and is responsible for providing authentic client service and support to Shelton Capital Management’s 3(38) Fiduciary clients. Della Flora joined Shelton in 2018 with 16 years of industry experience, having recently worked at Matrix Financial Solutions.

 

 

How much is enough when it comes to retirement savings?

No matter how much attorneys love their jobs and the clients they serve, most are looking forward to retirement one day. Their retirement dream may be as simple as sleeping late or riding a bike on a sunny afternoon, or something more adventurous such as traveling the country in an RV or as daring as skydiving at age 90. 

What’s essential is saving now and saving enough. This way, the money won’t be a concern when retirement dreams can finally come to fruition.  

How Much Retirement is Enough? 

Determining how much to save for retirement can be tricky. Many financial advisors and other economic experts advise that most Americans will need between 55 and 80 percent of their pre-retirement income when they retire if they want to keep their current lifestyle. 

One quick rule of thumb is to save at least 15 percent of annual pre-tax income for retirement, including any employer match. Assuming this amount of annual savings between the ages of 25 and 67 when combined with other steps can help ensure attorneys have enough to maintain their current lifestyles well into their retirement years. 

Another way to quickly calculate how much to save for retirement is using the 25x rule. Consider that to stop earning new income, it’s necessary to have 25 times the amount spent annually in retirement. Here’s how to figure that out. 

To calculate this: 

  1. Begin with thecurrent monthly budget. 
  2. Multiply by 12 to getarough yearly budget (if the plan is to keep spending at the same pace). 
  3. Multiply theyearly budget by 25.

Retirement as an Attorney 

Retirement as an attorney can look different than retirement from other professions. One survey revealed that in law firms with mandatory retirement: 

  • 38 percent mandate retirement at 65 
  • 36 percent at age 70 

Even still: 

  • 27 percent of lawyers plan to retire early 
  • 29 percent plan to retire at retirement age 
  • 29 percent plan to retire later 
  • 11 are unsure as to when they will or want to retire 
  • 4 percent don’t plan to retire at all 

In fact, 61 percent of respondents plan to continue working in some capacity after retirement; 48 percent in the legal field. Some attorneys work to maintain an income or keep their minds sharp, and still others because they want to stay busy and enjoy what they do. There are many options for attorneys who desire to keep working well into their retirement years. They may work as legal consultants, professors, writers, or even take on completely different career paths.  

Planning for the Unexpected 

Just like other matters in life, it’s crucial to plan for the unexpected when it comes to retirement planning.  

Early Retirement 

Some attorneys end up taking early retirement—be it due to a lucrative retirement package or health concerns. For those who think an early retirement might be in their future, the following steps are worth considering: 

  • Increasing retirement savings by 10 to 20 percent 
  • Living on 50 percent or less than current income and saving the rest 
  • Learning about other income streams accessible after retirement 

Other Considerations 

Retirement is often best planned for in conjunction with other possible life circumstances. For example, what happens to retirement accounts or saving for retirement if someone has a long-term sickness? Will they need retirement care? Is there an insurance policy in place for retirement care? 

Will they still have financial dependents at the time they reach retirement age? If so, how will they provide for them? Will their retirement savings be enough, or should they be calculating that into the equation for saving now? 

Questions about Retiring as a Lawyer? Contact a Wealth Advisor 

In general, attorneys do a good job of saving for retirement. The Economic Policy Institute (EPI) estimates that the mean average retirement savings in the United States is $95,776. A source from ABA Retirement reveals that the average law firm 401(k) account balance is more than double that sum. In fact, several well-versed law firm partners have even worked their way up to seven-figure retirement savings accounts. Maybe you want to be on par with this or already are. Either way, there’s always room to improve when it comes to retirement savings. 

Contact a wealth advisor if you aren’t sure you’re doing enough to save for your retirement dreams and ambitions or if you simply want to know what more you can do to increase your retirement savings. They can assess your current retirement savings to determine if you should be saving more or what more you can do to maximize what you are already saving.

A financial advisor can also help you with any special considerations—such as planning for early retirement or planning to care for a dependent into your retirement years. Reach out today to learn more. 

Mark Candler and Dave Owens of Maia Wealth are go-to wealth advisers for lawyers and law firms in Colorado. Specializing in debt reduction, investment management, retirement efficiency, and legacy planning, Mark Candler and Dave Owens are trusted professionals for attorney-focused wealth management strategies in the Denver metro area. 

Where should you put your retirement money?

During the times of uncertainty and political turmoil, many of us start thinking about how to protect and grow our assets and make sure we lease them to our loved ones in the most efficient way possible.

There are as many opportunities to grow money as there are people with great ideas. Some people choose to save for retirement outside of the conventional vehicles like 401(k)s and IRAs.

When systemic market failures surfaced around the globe in 2008 and caused massive market turmoil, seasoned investors as well as novices were caught off guard.

What was supposed to be safe turned out not to be. Many Americans who were counting on the appreciated value of their homes to convert to a stream of income for retirement were left vulnerable, finding themselves with far less to work with than they expected.

Another example of misreading risk has to do with asset allocation, which is a risk reduction strategy where you divide your money among a variety of investment types that do not go up or down in value at the same time. Diversification reduces risk.

However, when markets stopped functioning and there were few, if any, buyers of anything, pretty much everything dropped in value. In a severe down market asset allocation does not necessarily protect you very well from loss the same way it does in an up market. For many people, all their assets declined in value.

Without succumbing to fear, it is generally prudent to assume you are facing greater risks than meet the eye. This means staying alert, vigilant and knowledgeable and, most importantly, being open to changing direction if need be.

Following is a survey of types of investment what you might consider before making choices on saving for retirement. It is important to know your criteria. What is important to you? What is going to allow you to sleep comfortably at night?

Businesses have long been used a ticket to retirement. There are many ways to use a business to fund retirement. These include crafting company retirement plans that permit the owner to direct sizeable assets to fund his or her retirement to growing a business with an eye to either selling or stepping back from day-to-day operating responsibilities and taking some form of distribution or compensation. Consider buying a business to run in retirement. Obviously, operating a business is not for the faint of heart, but if your skills and comfort match up well with a business opportunity, it may be right for you. Related to ownership of a business is ownership of rental property where you can generate enough cash flow to cover property expenses with enough left over to supplement retirement income. Another way to generate income is to receive royalties or licensing fees for intellectual property you created and protected.

Financial institutions

If you are looking for tax benefits as you save for retirement, invariably you will need to work with one or more financial institutions, such as banks or brokerages. The IRS requires you to put tax-qualified retirement savings in the hands of an approved custodian—usually a financial institution.

Whatever funds you have placed in their hands are known as custodial holdings. In this day and age of mergers and acquisitions and rapid invention of new investment products, there are increased unknowns around institutional reliability.

Fortunately, unless the investment itself goes sour, there is a fairly robust firewall between the fortunes of the custodial institution and the safety of your investment.

However, when the public perceives institutional weakness they may want to pull assets out and, if they do, this could drag down investments you have with the custodian in question for no good reason.

It is more difficult to identify good companies given that large financial institutions are becoming one-stop shops with a huge variety of types of products and services.

For example, insurance companies buy and sell lines of products from one another, which means that your insurance policy or contract may not stay with the company from which you purchased it. In addition, servicing companies are often hired to handle customer relations.

The primary institutions that handle retirement investments are insurance companies, banks, investment and asset management companies, and governments—local, state, and federal.

Insurance companies offer products protecting against loss. For retirement purposes, annuities, along with long-term care insurance, are the main insurance company products of interest.

For the most part, annuities do not benefit from sitting inside retirement plans since they already enjoy certain tax advantages.

Capital gains, interest, and dividends occurring within any annuity go untaxed until funds are paid out of the contract. There is no “double” tax-deferral benefit from having an annuity within an IRA or 401(k).

Insurance products can be purchased from the companies directly but more commonly are available through brokers—some who sell products from different carriers and some who sell only for one company. You should either visit different companies for quotes or use an independent broker.

In addition, you can put your insurance policy into an irrevocable life insurance trust (“ILIT”) to make sure it’s protected from estate taxes, creditors, and divorces.

Investment and asset management companies comprise the institutional backbone of retirement saving. These companies are regulated by the federal Securities & Exchange Commission (SEC) and by state securities divisions.

Investment and asset management companies serve three functions: custodians of your accounts, providers of services and investments, and “making a market” (where a sufficient number of buyers and sellers trade goods, services and securities).

You may have a custodian who has no direct involvement with your actual investment. For example if you own 10 shares of stock XYZ and it is held in an IRA brokerage account at ABC Investments, ABC has nothing to do with XYZ directly but must keep tabs on your account and find a buyer for your stock should you elect to sell it and execute the transaction.

Part of making a wise selection around who you want to be the custodian and manager of your money is knowing how much help and guidance you want and need. You may find yourself with multiple custodians and investments if you have had several employers with different 401(k) plans or have inherited portfolios. It may take some doing to organize your holdings so they are manageable.

Banks (including commercial banks, cooperative banks, and credit unions) offer savings products that can be appropriate for retirement planning. Many of the largest ones now provide investment and insurance products and services as well.

Types of investments

Just because there are tax-qualified retirement programs does not mean you must use them to fund your retirement. Remember, the objective is always to create a stream of income to handle your expenses from the day you retire until the day you die. If you have a different way of creating sufficient passive income to take care of you in retirement, then do it!

Cash and cash equivalents are the starting point for investing. This category includes cash in your pocket, checking and savings accounts, money market accounts and, when you own mutual funds, the cash portion of the fund that is usually invested in short-term debt.

Typically, these investments pay low interest rates. They make sense when safety and liquidity are the prime objectives, giving you instant access to your money.

However, even money markets can be vulnerable if demand dries up for whatever investments it holds during skittish markets.

Fixed income investments are debt instruments, meaning they are asking to borrow money from you and in return they will pay you interest plus return the principal at a specific date in the future.

The simplest form this takes is Certificates of Deposit (CDs) which have maturity dates ranging from three months to five years. All government offerings are fixed income investments. The U.S. Treasury sells Treasury

Bills, Treasury Notes, Treasury Bonds, Treasury Inflation-Protected Securities (TIPS), Savings Bonds, and EE/E Bonds. Municipalities, states, various special purpose authorities, and quasi-governmental authorities all sell debt. In addition, corporations raise money selling bonds in the open market. The riskier the venture issuing the bonds, the higher the interest rate you should expect to be paid.

Equities or stocks come to mind whenever you think of long-term investing. They are securities which, when owned, give you actual ownership of the company. Today, institutions (like other businesses, pension funds, mutual funds, investment houses, etc.) own most of the shares of the largest, most prominent publicly-traded companies. Equities are considered a good place to invest in a rising economy. Some pay dividends, providing income even if the value of the stock has dropped.

There are also groupings of stocks, called indexes, based on some classification characteristic. These are helpful to get a quick indicator of how well a grouping is doing as a proxy for that segment of the overall economy. Size is used as one classification characteristic. Another is industry sector.

Mutual funds were invented to tap into that large pool of capital sitting in the hands of the less well-to-do. In the United States, mutual funds were created in Boston in the 1920s. The new industry did not recover from the Depression until the mid-1950s. Since then it has continued to expand, with trillions of dollars invested today and more than 10,000 mutual funds available to consumers.

The mutual fund concept pools dollars from many investors into one investment vehicle comprised of a grocery basket of individual securities, including stocks or bonds or other investments, all depending on the objective of the fund. Investors enjoy the benefits of diversification and can put together a portfolio to match their risk tolerance, goals, and financial situation. 401(k) and similar programs offer enormous choice in funds for participants.

Exchange traded funds (ETFs) trade like individual stocks but are a collections of many stocks or other securities. ETFs experience price changes throughout the day as they are bought and sold, whereas the price of a mutual fund changes only once, at the close of business each day.

Rather than redeeming shares from the mutual fund company, owners of ETFs who sell receive their money from ETF buyers on a stock exchange. Like mutual funds, ETFs offer diversification and are typically structured to represent an index of underlying stocks, bonds, or commodities. You get the benefit of 20, 30, or more individual holdings you might not be able to afford to buy individually.

A disadvantage of ETFs is that trading volume can be erratic, which can result in large spreads between what a seller wants and what a buyer is willing to pay. An advantage is no minimum purchase is required, although you do have to pay a commission to buy or sell.

Separate accounts are mutual fund-like accounts managed by a brokerage company or financial advisor. They differ from mutual funds in that the individual actually owns the individual securities, which are pooled with those of other investors. (Separate accounts are not to be confused with subaccounts or separate accounts in insurance products.)

Precious metals are an investment often held by true believers. People who trust the physicality of a metal are attracted to it as a reliable, dependable investment that has a tangible, measurable, marketable value no matter what is going in world economies or in high finance. Precious metals are perceived as a hedge against inflation or trouble in the financial markets.

Precious metals can qualify for inclusion in a retirement account like an IRA, but under the IRS rules you must invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the U.S. Treasury. You can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion. And you can avoid the rigmarole of direct ownership by purchasing precious metal mutual funds.

Collectibles are essentially prohibited as investments in tax-qualified retirement accounts. This would include such items as artwork, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and other collectibles. However, that is not to say you cannot earmark them for your retirement and sell them on the

open market when the time is right. Be aware that highly appreciated items may incur a significant capital gains tax, especially if the items were acquired for next to nothing and have now become extremely valuable.

Real estate is one of the overlooked allowable investments for tax-qualified retirement purposes. Real estate can be purchased directly using money already within an IRA, although you cannot live on the property or incur any direct benefit. These are somewhat complex transactions and you give up tax benefits typically associated with real estate ownership; however, in the right circumstances with the right guidance a real estate IRA could be appropriate.

Aside from a tax-qualified real estate venture, the most common retirement savings strategy is to invest in one’s own home, eventually paying off the mortgage and then coming up with an exit strategy since the IRS permits a tax-free gain of $250,000 on the sale of one’s residence for an individual or $500,000 for a couple as long as certain requirements have been met. But with housing markets barely recovering from the slide in values, it may mean rethinking one’s dependence on equity in a primary residence as the cornerstone of funding retirement.

Regardless of what you choose to put your money into, you should consider talking to a qualified professional. Sometimes business owners and their families rely on the business alone, without the thought of succession planning, insurance, or what happens if the main “producer” is out of the picture.

Diversifying your assets and investment will make sure you are prepared for any situation.

We anticipate that 2021 will be a year during which many people will turn to planning or revising their current financial, business, and estate plans, as the change of administration will likely bring many changes in taxes, interest rates, and retirement savings laws.

It’s important that you review your options and make informed decisions in a proactive manner.

Retouched 75 Anastasia Fainberg is the managing member at Legacy Law Group Colorado, PLLC and advises clients on family estate and business matters. Anastasia helps businesses succeed through proper planning and strategic guidance. To learn more and connect with Anastasia, go to: www.legacylawgroupcolorado.com.

Did you lose your job?

You are planning to leave your current employer. Maybe you’ve lost your job or are making a voluntary job change. Maybe you’re ready to retire.

You may have a 401k and are needing to figure out if you want to leave it in your current plan, rollover the balance to an IRA, or take a withdrawal and pay taxes now.

This may seem like a straightforward decision. Rolling over your 401k is the obvious move, except that perhaps it is not. Maybe rolling it over isn’t the answer. Each option has pros and cons and mistakes could be expensive.

A number of significant issues call for consideration when making this decision. Some of those include:

1. How old are you? If you’re retiring or have lost your job, you may need access to this money before 59.5 years-of-age. If you’re at least 55, 401k plans allow you to access your investments without penalty. Unless you have non-retirement assets you can access, you may want to play it safe and keep the money in the plan.

2. Do you need creditor protection or are you thinking about bankruptcy? In general, both 401ks and IRAs are protected assets from creditors in bankruptcy. It’s the non-bankruptcy creditor protection for IRAs that can get more complex, as this is governed by state laws. Consequently, if you roll over your 401k into an IRA, you may have less protection from creditors in a non-bankruptcy situation. If this is a potential issue, be sure to get the appropriate legal advice before the rollover.

3. Do you have outstanding loans? If you’ve left your job, most require that you pay back the loan quickly. If you don’t, then the balance will be taken from your account and it’s considered a taxable distribution. If you’re under 59.5 years old, then you’ll not only pay taxes but the 10 percent penalty as well.

There is no “one size fits all’ answer to the question. There are many other issues that you should review before making the decision. Get some help from someone with your best interests in mind before you make the decision.

There are many good reasons to rollover your 401k to an IRA. Those include:

1. You want personalized, professional advice. You want help developing and monitoring a plan to help you get into retirement and stay there.

2. You want to have a wider array of investments to choose from and an advisor that can help you choose investments that will work for you.

3. You want to simplify your life by having all accounts managed by one advisor.

4. You may want increased distribution flexibility. IRAs make it easier to take normal distributions. There’s typically minimal paperwork and you can choose how much, if any, you’d like to be withheld for taxes. Withdrawals from 401ks can be more cumbersome and they have a mandatory 20 percent federal income tax withholding.

5. You can also make charitable contributions after 70.5 years old from an IRA – not available in the 401k.

Teresa R. Sanders, MBA, RICP, CFP, Aspen Wealth Management, Inc.

Securities offered through LPL Financial, Member FINRA/SIPC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

Managing retirement planning during the pandemic

From job layoffs, furloughs and shuttered businesses—the COVID-19 pandemic has undoubtedly impacted our economy, forcing many to make the hard decision about whether or not to dip into their retirement savings to pay the bills and put food on the table. In fact, research from MagnifyMoney found three in 10 Americans withdrew money from their retirement savings and more than half who did used the money to cover daily expenses like groceries and bill payments.

In addition to withdrawing money from their retirement savings accounts, some are decreasing or pausing contributions to them. FinanceBuzz found 27% of Americans have decreased the amount of money they are setting aside for retirement savings or stopped saving for retirement altogether.

It’s important to remember that everyone’s financial situation, retirement timeline and immediate needs are different. However, there are a few alternative loan options to consider before making the decision to withdraw money directly from your retirement accounts.

  • 401(k) loan: Unlike a withdrawal, a 401(k) loan allows you to stay invested in the market and the interest you pay with your loan payment goes back into your retirement plan. The downside is that you are not investing as much money in the market as you were prior to the loan and the maximum loan amount is $50,000.
  • Personal loan: With interest rates at an all-time low, a personal loan gives you the money you need to cover expenses without high interest rates. But be sure you can make your payments – otherwise, you may experience serious financial consequences.

If you have already withdrawn money from your retirement savings accounts, there are some new relief measures that could help you recover. Under the Coronavirus Aid, Relief and Economic Security Act (CARES Act) the federal government has implemented new tax laws to help ease the burden and limit the penalties for withdrawals as long as you qualify for the exemption.

  • Prior to COVID-19, an individual was taxed 10% on early distribution from a retirement plan or IRA. This fee was waived under the CARES Act up to withdrawals of $100,000.
  • If you withdraw from a retirement account, you are still subject to income tax; however, it is now spread out over the next three years. Prior to the CARES Act, you had to pay taxes in the year the withdrawal took place.
  • You can repay all or part of the amount of a coronavirus-related distribution to an eligible retirement plan as long as you complete the repayment within three years of the date the funds were received.

If you have not been financially impacted by the pandemic, it is important to continue saving for your retirement. Also, make sure you are not missing out on an employer contribution match.

Retirement planning is crucial for everyone’s future and can be a confusing and emotional experience—even when there is not a pandemic impacting the economy. It’s important to work with an advisor who understands your retirement goals and can take the emotion out of making smart financial decisions. Your future self will thank you.

Mary Lucas is the Senior Vice President and Director of Financial Planning at UMB Bank.

So, your retirement’s all set?

 

You are all set to retire in the next year or two. Your retirement date is set. You believe you are ready.

Here comes 2020 and global health and economic crises are in full swing. Suddenly all the plans swirl around your mind: Should I work a few more years? How long is this crisis going to last? Am I fully prepared to retire? These are challenging questions and you want to be confident that the choices you make are right for you.

It is not uncommon for people to change their retirement date. COVID is only one reason people are reconsidering their retirement date, and it’s not always a delay.

According to a 2019 Wells Fargo retirement survey, 55 percent of workers retired earlier than they planned, primarily due to health conditions or a job loss.

Perhaps you’ve lost your job due to the pandemic and feel that the prospects of getting a new one are not good in the current environment. This suggests that retirement might be a good option, but how can you best evaluate this decision?

Retiring is all about income. A good place to start is to identify your sources of income and whether they are fixed or variable. Fixed income includes social security, pension, and annuity payments. You should try to cover your fixed expenses or at least most of them with fixed income.

Next, inventory expenses that cannot be covered with fixed income sources. Do you have control over whether you incur those expenses – and can you cut those expenses in years when you have less income potential in your portfolio?

How much do you currently spend to maintain your lifestyle? Do you expect to maintain your current lifestyle in retirement?

It can be daunting to estimate all future needs and wants, but you must be honest with yourself about income and expenses. If you still have a significant mortgage, or if you have significant debt, perhaps you need to continue to work, even if it is not in your chosen field.

If you are not 65 and eligible for Medicare, what is your health insurance strategy? Individual health insurance is different from your policy with your employer and it is more expensive. As an alternative, consider finding a part time job with health insurance benefits.

Next, evaluate your portfolio – is it set up for withdrawals? Has your portfolio taken a tumble this year and not come back? Do you need a new strategy to help you limit declines in your portfolio due to market losses? Evaluate what withdrawals now will do to your portfolio over time. Withdrawals from a portfolio that is suffering can cost you in the long run.

How much do you need or want to work during retirement? According to an AARP survey, 29 percent of retirees expect to work more than planned in retirement. It is even higher in the 50-64 age group, 40 percent of whom expect to work more in retirement than expected because of the current downturn.

Retiring early and unexpectedly can introduce new sources of risk to your income throughout your life. Working with your financial advisor to rigorously evaluate what might happen is critical to your success.

But there’s another angle: You are thinking about delaying your retirement because of the economic crisis. You are not alone if you are considering a delay. The Simplywise Retirement Confidence Index states that 26 percent of Americans are considering postponing retirement due to the current economic crisis.

If you are healthy and employed, retiring later is typically a smart move. It allows you to delay social security payments until your full retirement age or later which will increase monthly benefits. Waiting may also increase the payouts from your annuities and pensions. You will also have more time to prepare doing such things as reducing debt or adding to your retirement accounts.

Will retiring later reduce your risk? Perhaps, but it is not certain. For example, you have decided to work five more years because you’re

concerned about the pandemic and its effect on the economy. Do you know for sure that the economy will be better in five years? Of course not, because there is always something. Retirement is a 20- to 30-year journey, so there are going to be periods when the economy is suffering or there is some kind of crisis. Expect it and plan for it.

The time to retire, whether earlier than expected or later, is all about preparation. It is about knowing the facts about your situation and what specific risks you may encounter.

If you feel nervous about retiring right now, then delay, but make sure that you use that time to prepare your financial situation for a successful and happy future.

Teresa R. Sanders, MBA, RICP, CFP, is a partner at Aspen Wealth Management, Inc.

Outmaneuvering uncertainty: preparing for retirement during turbulent times

What Matters Most?

These past six months have been exceptionally challenging. Health has been threatened, freedoms restricted, and activities diminished. However, many people report that this period has also caused them to rethink and reprioritize what really matters in life, and spending quality time at home with family members is an old-fashioned recipe for happiness that seems to have made a big comeback during the pandemic.

This period of uncertainty has also highlighted what matters most from an investment perspective – especially when preparing for retirement. What kind of investment approach will enable retirees to successfully ride through turbulent periods like we have experienced with COVID-19 with confidence and peace of mind?

Growing Income for Life

The key to a successful retirement strategy is to replace earned income with retirement income, but of course this is easier said than done. In today’s low interest rate environment, traditional fixed income is not providing enough income for most retirees to live on. Also, due to inflation, a fixed income stream will decline in purchasing power over time. An ideal retirement solution will provide a reliable income stream that can fund current living expenses and that will grow each year at a rate greater than inflation – even during turbulent years like 2020.

A diversified portfolio of high-quality stocks with reliable and growing dividends can deliver a growing stream of annual investment income while keeping savings invested to grow in value over time. The dividend income can be used to fund living expenses which prevents the need to eat into principal during retirement. This is especially important during periods like we have just experienced when market valuations are depressed. If the income is not needed for withdrawals, it can be reinvested as additional savings.

There are three keys to building a dividend growth portfolio that can weather turbulent times:

1. Own high-quality companies. High quality companies have established market positions, experienced management teams, conservative balance sheets and consistent earnings growth over extended periods of time. These companies are built and positioned to not only weather difficult periods but ideally to come out stronger on the other side.

2. Construct a diversified portfolio. Purchase positions in 45 to 55 high quality companies representing a diversity of industries and economic sectors. Challenges will come in many forms over time, and diversification helps ensure the portfolio will continue to meet long-term objectives even if some individual holdings face periods of heightened adversity.

3. Focus on companies with reliable and increasing dividends. Identify companies that have both the ability and the commitment to grow their dividend in all economic environments – especially those that have demonstrated this over an extended period of time. For example, Proctor and Gamble has increased its dividend for 64 consecutive years! An event like COVID-19 can provide a great litmus test for a company’s commitment to dividend growth. Companies that have increased their dividends in 2020, especially those that have announced increases since the onset of the coronavirus in February, have demonstrated that they have both the ability and commitment to raise their dividends in challenging economic environments.

What’s next?

There will always be something on the horizon to worry about – already talk is turning to concerns about the election and the possibility of another market downturn. While it is natural to be on the lookout for threats to our well-being, it is also important as a long-term investor to have confidence in the strength and resilience of our country. Building a retirement portfolio that provides a reliable and growing stream of dividend income makes it possible to weather turbulent times with greater confidence and peace of mind and, ultimately, to more fully enjoy the things that matter most in our lives.

Will  Will Verity is the President and CEO of Verity Investment Partners. Will and his wife Paula founded Verity Investment Partners (recently named to the Financial Times 300 Top Registered Investment Advisors) in 2002 and has over 30 years of experience in the investment industry.

In your 50s? It’s not too late to start saving for retirement

While it can seem daunting to start saving for retirement in your 50s, keep in mind, you are not alone. From paying for a child’s college tuition to taking time off work for health-related issues, there are a number of reasons why someone may not start planning for retirement until later in life.

Fifty-four percent of baby boomers have little to no savings according to the Insured Retirement Institute. If that sounds familiar, then you need to start shifting your mindset from wondering why you put off saving to thinking about what will make you the most successful in retirement. Luckily, there are multiple strategies you can employ to help get you started.

Your highest priority is to get out of debt. Entering retirement with significant debt may set you up for failure. Liquidating your debt, including your mortgage, and then remaining debt-free is one of the best moves you can make as you plan for retirement. The less debt you have, the less money you will need each month to cover your expenses.

You should also think about downsizing your home. You may still be living in the house where you raised your family. Is it too big? Does it cost too much to maintain? Are taxes too expensive? Can you live in your current home into your later retirement years? If you can, do you want to? Depending on your answers to these questions, you should consider selling and moving into a home that will allow you to still enjoy retirement but save some money as well.

Next, create a retirement budget by thinking critically about likely expenses. Don’t forget to factor in health care expenses, which may be vastly higher than you are currently experiencing. Think about what emergencies or life changes could derail your budget. Medical expenses, long-term care or the premature death of a spouse could all be potentially devastating financially. This budgeting exercise is not just about cutting expenses but also thinking realistically about your projected spending in retirement.

A common question people ask is, “how much will I need to fund my retirement?” First, ignore the “retirement calculators” on the internet. They are often not helpful and may discourage you from starting to save. Instead, think about saving in one of two ways. You can ask yourself how much you can save from your current budget and then estimate how much that money will grow over the next 15 to 20 years at a reasonable rate of return. This will give you an idea of what your financial footing will be when you start your retirement.

Next, determine how much you can spend. Estimates fall typically within the three percent to five percent range depending on how you are invested. The other way to think about it is to start by determining what you are likely to spend. After that, you can begin to calculate what you will need to save to maintain your standard of living.

Set some realistic financial goals and commit to regularly investing each month. Consistently putting money into your retirement account is a great habit. It is easier to accomplish financial goals by saving small amounts than by making a single contribution annually, and this strategy will also allow you to potentially capitalize on the ups-and-downs of the market.

Be sure to increase the amount you save each year and take advantage of your 401k if your employer offers one. After 50, you can contribute more to a 401k using the “catch up” contribution rule. The current maximum contribution is $26,000 per year. Even if you do not have access to a 401k, you can still open an IRA and “catch up” with a total annual contribution of $7,000.  

You will want to make sure you are investing wisely. Develop a reliable investment portfolio that fits with your tolerance for risk and allows you to stay invested when the market gets volatile. Now is not the time to take chances on crazy schemes or to move in-and-out of the market. Solid and reliable investments should be your guiding principles. Keep in mind there is no “magic number” you need to hit. Having some money generating additional income is better than having no money. If you are uneasy about whether you are setting realistic goals or have a strong portfolio established, call in a seasoned professional who can help you set up and monitor your investments.

It is also critical to maximize your social security or other benefits. Social security is an excellent source of income because there are cost-of-living adjustments throughout your life. You may need to work longer than planned, however, to ensure that you are fully leveraging the program. Your social security benefit is based on your best 35 years of income. Working just a little longer at a higher income tier may allow you to eliminate some of the lower-income years–increasing your overall benefit in the process.

If you have a pension, work long enough to maximize that as well. It may or may not have a cost of living adjustment, but any lifetime payment is advantageous to your long-term retirement goals. You may even want to consider working part time for a while after you retire to create a little bit more monthly income.

Ultimately, do not let the challenge of starting late on saving for retirement deter you. By setting realistic goals, concentrating on what you can control and practicing financial discipline, you can still build wealth and ensure a secure and sustainable retirement.