Category: Retirement - PFwise.com

5 Ways to Protect Retirement Income

10/21/2020

1. Plan for health care costs
Solution: Consider long-term-care insurance
Insurers base the cost largely on age, so the earlier you purchase a policy, the lower the annual premiums, though the longer you'll potentially be paying for them. It is also important to research the strength of the company you select, as well as investigate other potential options for funding LTC costs.

2. Expect to live longer
Solution: Consider annuities
To cover your income needs, particularly your essential expenses (such as food, housing, and insurance) that aren't covered by other guaranteed income like Social Security or a pension, you may want to use some of your retirement savings to purchase an income annuity. It will help you create a simple and efficient stream of income payments that are guaranteed for as long as you (or you and your spouse) live.

3. Be prepared for inflation
Solution: Consider cost of living increases
Social Security and certain pensions and annuities help keep up with inflation through annual cost-of-living adjustments or market-related performance. Choosing investments that have the potential to help keep pace with inflation, such as growth-oriented investments (e.g., stocks or stock mutual funds), Treasury inflation-protected securities (TIPS), real estate securities, and commodities, may also make sense to include as a part of an age-appropriate, diversified portfolio that also reflects your risk tolerance and financial circumstances.

4. Position investments for growth
Solution: Consider diversification
Build a diversified mix of stocks, bonds, and short-term investments, according to how comfortable you are with market volatility, your overall financial situation, and how long you are investing for. Doing so may provide you with the potential for the growth you need without taking on more risk than you are comfortable with. But remember: Diversification and asset allocation do not ensure a profit or guarantee against loss.

5. Don't withdraw too much from savings
Solution: Consider a sustainable withdrawal plan
Develop and maintain a retirement income plan or consider an annuity with guaranteed lifetime income as part of your diversified plan, so you won't run out of money, regardless of market moves.

The Best Retirement Asset Withdrawal Strategy

10/7/2020

Most new retirees face the same conundrum - how best to spend down assets? There are many rules out there but none is ideal.

For example, one rule of thumb is to spend only portfolio interest and dividends. But this strategy could lead to retirees to put more assets into risky bank stocks.

Another rule of thumb is to withdraw 4% of the initial balance and adjust the dollar amount annually by inflation rate. But this strategy doesn't respond to realized investment returns, for example, withdrawing fixed amount in a sinking market will soon run into trouble.

A 2010 Vanguard Group paper points to a third strategy - a combination of an immediate inflation-adjusted annuity with an RMD approach to retirement asset withdraw yields stable cash flows that grew at a faster rate than those of other rules of thumb.

What is RMD-based Withdrawal Strategy?
It calculates the annual withdrawal as a percentage of the remaining portfolio (therefore it is responsive to investment returns). The withdrawal percentage increases with age, allowing retirees to use more of their portfolio as their life expectancy decreases.

What is the drawback?
This strategy may result in withdrawal rates too low, especially in early retirement time, causing retirees to leave behind money that they may have preferred to spend.

6 options for passing down your home - Part C

10/6/2020

In previous blogpost, we discussed 4 options to pass down your home to your children. Now final 2 options.

5. A beneficiary designation—a transfer on death (TOD) deed
Some states offer a TOD designation on a deed which essentially names a beneficiary for that property. With a TOD designation, assets pass outside probate, so it's quick and private, and the heirs still get a step-up in basis for tax purposes, which means the value of the house is adjusted to current market value. It may also be less expensive than setting up a trust.

There are some drawbacks to a TOD designation. It only allows individuals or charities as beneficiaries, not a trustee under a trust. That means that if a child is still young at the time of the transfer, they would directly own the home, which may not be practical. There is also no contingency, so if the child named as beneficiary dies before the original owner, there is no provision to skip a generation and pass the asset to their children—the TOD deed would have to be updated by the owner. Additionally, if the home is passed to an adult receiving government benefits, it could affect their eligibility.

Tip: TOD deed options are limited by state law, and many states do not offer this option at all. Check with your attorney or tax advisor to determine whether this option is available and would be appropriate for your circumstances.

6. Through selling
If it's unlikely that children will want the home, consider selling it and renting a home later in life. Issues like maintenance, health, and lifestyle may be more important than the financial considerations here, but be sure to consider the tax impact of this decision.

Current federal tax law allows a capital gains exclusion of either $250,000 (for an individual) or $500,000 (for a married couple filing jointly) on the sale of a house, provided that they have lived in that house for 2 of the previous 5 years, and that the home meets the residency requirements. Gains above that amount are taxed. Inheriting a property comes with a step-up in basis (which means it's reassessed at current market value) potentially eliminating capital gains tax.

The bottom line
A home can be the most valuable asset in an estate. If you don't take any action and die without a will or having made any other arrangements, your assets will pass according to your state intestacy laws, which may or may not reflect your wishes. This may include going through probate—a process that is potentially expensive, public, slow, and complicated.

The transfer of real estate assets can pose unique legal, tax, and emotional issues for a family, so it may be beneficial to work with a professional to help protect yourself and your loved ones. It's important to come up with a plan that makes sense for you, and your heirs, and to create an efficient strategy to execute it.

6 options for passing down your home - Part B

10/5/2020

In last blogpost, we shared 2 options to pass down your home to your children. Now we will discuss the next 2 options.

3. A revocable trust
A revocable trust is a legal structure that allows the "grantor" or "trustee" to retain control over their assets during their lifetime, as well as specify exactly how and when their assets pass to their beneficiaries. After the trustee's death, the trust acts as a will substitute and enables the assets to be privately and quickly distributed without going through the time and expense of the probate process. This will allow the trustee full control and use of their home during their lifetime while providing for efficient distribution at their death.

Due to the complexity of trusts and the variation in state-level rules, it is important to work with a professional to set up a trust, which costs money, but may be the only way to help ensure that the trust works effectively. It is also important to remember that it may be necessary to change the titling of your assets for the trust to function as intended.

Finally, a trust may be particularly beneficial for families that own properties in more than one state. Without a trust, an estate may pass through probate in multiple states.

4. A qualified personal residence trust (QPRT)
A QPRT is a way to move a primary or vacation residence out of your estate at a reduced gift tax cost. With a QPRT, the home is transferred to the trust right away, but it allows the original owner to retain the right to live in the home for the duration of the QPRT term. During that time, they are responsible for rent, maintenance, taxes, and other aspects of ownership. The trust has an end date after which ownership of the house is transferred to the beneficiary (generally children or a trust for their benefit) and the original owner no longer has the right to occupy the house (although a lease may be negotiated with the beneficiary).

In order for this strategy to be effective for tax purposes, the original owner must outlive the term of the trust. Otherwise, if they die before the trust terminates, the value of the home is included as part of their taxable estate and could be pulled back into the estate. While a QPRT may be used for a primary residence, it can be challenging for a person to lose the right to occupy their home, or pay rent to do so, and thus QPRTs may often be used for vacation homes.

Two big benefits of a QPRT include the reduced gift tax cost of the transfer (because the owner retains the right to live in the home for a period of time and keeps some of the value of the house), and that the value of the home is frozen for estate tax purposes at the time the trust is created. This means that for estate tax purposes, the value of the home is established at the time it enters the trust—and future price appreciation won't affect the estate's tax bill. For a family facing estate tax issues, this strategy may help to limit taxes in the event that the property value increases over time.

Tip: A property that is subject to a mortgage can be difficult to handle from a gift tax perspective, and therefore it is often suggested that any debt be paid off prior to the transfer to a QPRT.

In next blogpost, we will discuss 2 more options to pass down your home to your children.

6 options for passing down your home - Part A

10/4/2020

We will discuss 6 different ways to pass down your home to your children.

1. Co-ownership
One common idea that people have about passing the home to kids is seemingly simple: Just add the heirs as co-owners on the current deed. If the deed lists someone else as a joint tenant, they will become co-owners at the time the deed is changed, and they will automatically take ownership of the home at the time of the original owner's death.

There are some downsides to this approach, however. First of all, if a child is added as a co-owner, there are gift tax considerations. There is a limit to how much someone can gift another person without paying a gift tax, both yearly and in a lifetime. When a house is given as a gift through co-ownership, the portion transferred is considered a taxable gift and counts toward the lifetime exemption, so it has to be reported for gift tax purposes. Say a single parent adds a child to the deed, the parent would need to report 50% of the value of the home as a taxable gift (based on the fair market value of the home at the time of the transfer).

Secondly, gifts made during a lifetime are subject to carryover cost basis (the value of the house for tax purposes). Thus, the cost basis used for capital gains tax purposes doesn't get a step-up at the time of death—instead, the child may get a larger tax bill on the portion of the house that was given to them if they eventually sell the house after the co-owner's death.

Finally, as co-owners, the home becomes an asset of the child, creating several potential issues. First, if the child runs into financial trouble, gets divorced, or has other issues, your home may be put under a lien or become subject to other action. Second, the co-owner would need the child's permission to sell the home, take out a new mortgage, or refinance an existing one. And finally, the child may decide they would like to sell the home, which can create challenges.

2. A will
A will can be used to pass on a home. This process helps ensure that the owner decides who inherits the property. However, assets that transfer through a will still pass through the probate process, which can be time-consuming and expensive. In addition, a will is a public document, so anyone can review the decedent's assets and see who inherited them, so this can create a privacy concern.

We will discuss the next 2 methods in tomorrow's blogpost.

A Financial Planning Road Map For A Typical Family

10/2/2020

The starting point
The starting point is the current holdings and sources of funds and how they add up. In other words, a financial inventory that includes total income, tax rates, credit score, expenses, debt load, account balances, assets, real estate and total net worth.

The baseline
A financial plan must be based on reality to be successful. The baseline is an all-encompassing examination of actual spending, saving, and giving.

The next step
The next in a financial plan is to identify the destination. Here are some examples of financial destinations:

Debt free
College funds
Seasonal home
Retirement at a certain age
Charitable legacy

The process
The process of financial planning is applying known elements that have proven to be successful. These elements include:

Annual review of the financial plan
Establishment of an emergency fund
Systematic savings and investments
Diversification matched to risk tolerance
Dollar cost averaging
Discipline
Tax minimization
Protection against downside risks
Regular rebalancing
Insurance to prepare for the unexpected

Annuity Wealth Transfer Strategy - Part II

9/23/2020

In last blogpost, we introduced annuity wealth transfer strategy. Now we will discuss the details.

Annuity Wealth Transfer
The Annuity Wealth Transfer Strategy is appropriate for some individuals who are in or near retirement and do not believe they will need any of the money from the annuity for retirement income. For those individuals who wish to pass these assets to loved ones at their death, this concept may dramatically increase the benefits they can provide their loved ones through the purchase of life insurance.

First, determine the after-tax income available either through annual withdrawals from the deferred annuity or from transferring the deferred annuity to a Single Premium Immediate Annuity (SPIA) to ensure the premium dollars will be available for the life insurance premium pay-in period whether it is a lifetime premium or a limited pay premium. Once the after-tax income is determined, illustrations can be run to determine what the maximum death benefit would be and how best to fund, i.e. ten pay, lifetime pay, etc. Keep in mind the exceptions to avoiding the 10% penalty on early distributions prior to age 59½.

For individuals with taxable estates, an Irrevocable Life Insurance Trust (ILIT) should be used to hold the policy in order to avoid taxation of the death benefit. The Irrevocable Life Insurance Trust will keep the death benefit out of the insured’s estate thereby allowing all of the death benefit to be available for loved ones. An ILIT allows present interest gifts of $15,000 per beneficiary to the trust as of 2020. If there are insufficient beneficiaries to fund present interest gifts to the trust, the individual can use a portion of their $11,580,000 (2020) lifetime exclusion for gift tax purposes to fund or could also make private loans to the trust if that was more taxadvantaged.

The Annuity Wealth Transfer Strategy can help individuals who do not need income from deferred annuities and would rather use this unneeded asset to maximize what they are able to provide for loved ones. It can take an asset that may be heavily taxed at death and use the advantage of life insurance to dramatically increase what beneficiaries receive. However, if the client needs the money for their own retirement, this is not an appropriate strategy for that client.

The after-tax income from the annuity will fund a larger death benefit than one realized from just leaving the annuity alone and passing it to your loved ones at death.

What happens if the insured winds up needing the money for their own retirement in later years? All of the well-meaning plans can go awry if markets decline dramatically and there is not sufficient retirement income available from the life insurance policy cash value. If that event should occur, the insured can choose a paid-up policy or take loans to pay premiums on the policy. The income stream from the annuity used to purchase the life insurance policy can then be redirected to the insured to fund lifestyle shortfalls.

Annuity Wealth Transfer Strategy - Part I

9/22/2020

Below is an article from American National that discusses annuity wealth transfer strategy. It's a great strategy if you fit the situation it describes.

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There are several ways to help guide clients to a financially secure future through the sale of an annuity or life insurance policy. However, steering individuals to the right plan can be a difficult task without the right preparation. Check out this new series on product sales tactics to brush up on your skills and learn how you can enhance your clients’ portfolios!

Annuity Wealth Transfer Strategy
Deferred annuities are one of the best places to grow assets tax-deferred because the build-up is not taxable until distributed. Assets grow faster if they are not taxed annually and can compound free of taxes. Many of our clients purchased deferred annuities many years ago and the growth of the account has dramatically increased the value of these annuities.

For those individuals who will not need their deferred annuities for retirement income, there is a way to use these funds to provide a larger benefit for their families. Using distributions from the deferred annuity, the Annuity Wealth Transfer Strategy leverages up these distributions into a significantly larger death benefit upon the annuitant’s death.

Double Taxation Trap
While deferred annuities are a good place to grow money, there can be issues. The reason is that if you have a large estate you may pay taxes twice on the money. First, the entire annuity is taxable in the individual’s estate. Secondly, after a partial deduction for any estate taxes paid on the deferred annuity, the remaining gain in the annuity is taxed to the beneficiaries of the annuity, potentially leaving a fraction of the deferred annuity for heirs.

In next blogpost, we will discuss the annuity wealth transfer strategy.

Small Business Retirement Plan Q&As from American National

9/20/2020

You own a small business, but you may not be aware of all the positives of adopting a plan or the options available to you. Read the Retirement Plan related Q&A provided by American National below so you could fully understand them before making your decision.

“Retirement plans are only for big corporations. My CPA said the only type of plan I can have is a SEP.”
Not so! Just about any kind of business can adopt a plan other than a SEP. We have set up all sorts of retirement plans for businesses having as few as only one employee.

“These plans are always so expensive.”
American National offers low-cost administration and handles all your plan needs in one place. Most plans are only $600 to set up and can cost as little as $420 for annual administration. They offer a variety of investment options depending on the plan and your objectives. You may qualify for a tax credit for setting up a plan and when you take into account the tax deduction you get for making plan contributions it may be costing you money by not having a plan!

“My income fluctuates from year to year. I don’t want to get locked into anything I can’t afford.”
Several plan designs allow for flexible funding from year to year. They can let you fund more in years when you need the deduction or less in years when you don’t (or can’t afford it). What does it hurt to look at the options available and make sure you aren’t missing out?

“I don’t want to make large contributions for my employees.”
Of course you can’t exclude your employees from a plan altogether but depending on your particular situation some plan design options can limit what must be given to employees. Some designs can skew contributions specifically to a particular group if you want to favor yourself or a group of key employees. We can look at the options for your situation and see what might work for you.

“These plans are too complicated and too much work.”
American National handles all of the plan set up and administration. They will explain everything to you about your plan so that you understand the benefits, the features, and your responsibilities. They are great at walking a client through the steps, answering any questions, and handling the complex details.

“I need to talk to my tax advisor/attorney about this. “
That is a good idea. American National actually encourages that your professional advisors be involved and they would be happy to get on the phone with us and answer any questions your advisor/accountant/attorney might have.

Get More Out of Your Life Insurance Policy

9/17/2020

Many people work a lifetime to accumulate assets to pave the way for a comfortable retirement and to leave an inheritance for their children. The last thing anyone wants is to see their hard-earned savings depleted to pay for long-term care services.

Long-term care services, however, can quickly erode a person's assets. The Help Preserve Your Client’s Estate flyer from Mutual of Omaha below discusses the need for long-term care services. It also includes a case study that examines the impact a life insurance policy with a long-term care rider can have on a consumer's estate using two contrasting scenarios.

How to Estimate Your Life Expectancy In a Customized Way

9/15/2020

You can imagine that the time horizon of retirement is an absolutely essential input to determine what someone can safely spend in retirement and/or how much they need, so how do you estimate your life expectancy as accurate as possible?

It turns out that while in the aggregate we actually are pretty good at estimating life expectancy (i.e., ‘the wisdom of the crowds’ holds up quite well), at the individual level many people are drastically far off in their estimates, where some with health issues who predicted a ‘0% probability’ of surviving to age 75, and others with great health and thought they had a ‘100%’ chance really only have 80% odds.

Of course, the reality is that health conditions do vary, and as a result, the planned period of retirement should be personalized – both for individual preferences, and simply factual contextual data points like current health, smoking status, and even income (which is correlated to longevity) – which can easily result in one person having a life expectancy estimate that is 15+ years different from another (and in turn could change required savings to retire by 30%+!).

In practice, in most of financial planning tools, financial planners use a generic number such as 90 or 95 as someone's life expectancy,

Here is the good news - there are online tools available for you to use. The most popular option appears to be the site LivingTo100, which draws on data from the New England Centenarian Study to try to get a good picture of how likely it is for the client to live to age 100 and what his/her individualized life expectancy would be.

4 Phases of Retirement Life

9/14/2020

Historically, the classic definition of retirement was ‘life after work’. But as medical advances improve not just longevity and the age at which we die, but also our ‘productive’ years of an active lifestyle, the retirement phase itself is becoming longer, and a phase in which we are capable of doing more than simply ‘not working’.

In the article - 8,000 Days Of Retirement: An Entire Phase Of Your Life Waiting To Be Invented, author Coughlin suggests that the best way to think about retirement is as the fourth of a series of 8,000-day life segments.

The first 8,000 days – which is about 22 years – takes us from birth to adulthood, when we graduate college and become (hopefully!) productive adults.
The second 8,000 days takes us from college graduation to ‘midlife’ (age 44),
The next 8,000 days takes us from midlife to ‘retirement’ (at age 66).
And prompts the question: what do you want to do with those next/last 8,000 days?

The significance of framing this way – as 8,000 days – is that it’s a lot of days, and helps to emphasize to prospective retirees how much time they’ll really have… and how bored they may get without either a plan or at least a readiness for retirement itself to grow and evolve. After all, ‘play more golf’ may sound appealing as a retirement plan… but probably not if it’s going to be 8,000 days of golf! In fact, 8,000 days can actually be such a big retirement phase to tackle, that Coughlin suggests breaking it down further into four sub-phases:

the Honeymoon phase (what you do with the early active years of retirement, which might include more travel, more volunteer work, or even more ‘work’, as the labor force participation rate of those aged 65-74 is projected to hit 30% by 2026);
the Big Decision phase, as we transition into our 70s, when work really begins to fade from view, health may be less vibrant, but there’s an opportunity to make or renew social connections (e.g., grandparenting, volunteering, social hobbies), and the big question becomes, “Where will we live, and where will we go every day?”;
the Navigating Complexity phase, when health, unfortunately, deteriorates further, and health management itself can become a more full-time job with additional doctor’s appointments, medication management, and rising mobility challenges; and
the Solo journey phase, which sadly may entail the death of a spouse, or a fall or stroke that brings about a sudden and drastic change in needs and lifestyle… and thus requires making more of a plan about where Helping Hands (family, hired care, or otherwise) may come from.

Of course, not everyone will navigate the stages in the same manner and timeline, and some of them have sad challenges associated that may be tough to think about… yet ultimately, isn’t preparing for such situations what financial planning is really all about?

How to Take Advantage of Negative Income - A Case Study

9/13/2020

For people who have tax deductions that exceed their total income – in essence, having negative income – they can benefit from a 0% tax rate on Roth conversions or other ordinary income tax events (as increasing income from negative to zero still won’t owe any taxes on the additional income).

A Case Study

Blanche is a 60-year-old widow who lives in a fully-paid-off Florida home, living primarily off her husband’s Social Security survivor benefits of $24,000/year, plus $500/month that she generates via tax-free municipal bond interest from a $300,000 brokerage account (while she leaves her $300,000 IRA untouched until the RMD phase more than a decade from now).

For income tax purposes, Blanche’s Social Security benefits are not taxable (as her Social Security provisional income is 50% x $24,000 + $6,000 (bond interest) = $18,000, well below the $25,000 threshold that triggers taxation of Social Security.

As a result, Blanche’s total taxable income is $0 (as her $24,000 of Social Security benefits are not taxable, nor is the $6,000/year of municipal bond interest), which means with a $12,400 standard deduction, Blanche’s taxable income will actually be -$12,400!

Accordingly, Blanche decides to do a $10,600 partial Roth conversion, which increases her income by $12,400 (as it causes her Social Security provisional income to rise to $28,600, causing $1,800 of her Social Security benefits to become taxable). Still, though, Blanche’s actual tax liability is not increased, as her standard deduction of $12,400 is still enough to offset the $12,400 of additional income.

Thus Blanche is able to move $10,600 from her IRA to a Roth IRA at a tax rate of 0%.

Income Tax Free Harvesting Case Study

9/12/2020

Income harvesting strategies can be especially appealing in scenarios where the income itself can actually be harvested tax free (i.e., at a 0% tax rate).

For instance, those who are in the bottom two ordinary income tax brackets (i.e., the 10% and 12% brackets) are eligible for a 0% long-term capital gains rate on any capital gains (or qualified dividends) that also fall within those tax brackets (at least for federal tax purposes).

A Case Study

Rose and Charlie retired early at age 55, living off $50,000/year of Charlie’s insurance trails (as a former insurance agent), plus $1,000/month from the dividends generated by a $400,000 brokerage account (which include $70,000 of embedded capital gains from recent market growth), while they wait for their Social Security benefits to begin (and wait to tap Charlie’s $300,000 IRA).

With a standard deduction of $24,800 in 2020, the couple’s ordinary income (after deductions) is only $50,000 – $24,800 = $25,200, placing the couple at the bottom end of the 12% tax bracket (which in 2020 runs from $19,750 to $80,250 of income after deductions). In fact, even with the additional $12,000/year of dividends, the couple’s income would still be in the 12% tax bracket… which means their (assumed-to-be-qualified) dividends are eligible for a 0% tax rate.

Accordingly, the couple chooses to proactively sell the most appreciated investments (a $90,000 ETF with a $50,000 cost basis) in their brokerage account to cause a $40,000 long-term capital gain. That brings their total income up to $50,000 + $12,000 + 40,000 – $24,800 = $77,200.

Because their total income after deductions is still below the $80,250 upper threshold for the 12% tax bracket, they will enjoy a 0% federal tax rate on both the qualified dividends and the $40,000 of long-term capital gains.

Why Defer Might Not Optimize Your Tax - A Case Study

9/11/2020

For people who are not already in top tax brackets, deferring income too aggressively can cause future tax liabilities to increase by more than the discounting benefit of deferring them in the first place. In such scenarios, it’s often actually better to take advantage of lower current tax rates instead.

Dorothy is a 60-year-old widow who recently retired with $25,000/year in Social Security widow’s benefits and an inflation-adjusting survivorship pension of $45,000/year. In addition, she has a $300,000 brokerage account, and a $1.5M IRA. When Dorothy turns 72, and RMDs begin, her IRA is projected to be almost $3.4M. That will produce an RMD of almost $132,000… which, stacked on top of her inflation-adjusted pension and Social Security benefits (which will rise to almost $100,000/year at a 3% inflation rate) will drive Dorothy up into the 32% tax bracket, with more and more of her future RMDs taxed at 32% as the RMD obligation grows with age.

To manage the exposure, Dorothy decides to begin doing partial Roth conversions today of $90,000/year, all of which will be taxed in either her current 22% tax bracket or the 24% tax bracket. By repeating this process every year, Dorothy is able to substantially slow the growth of her pre-tax IRA to be ‘only’ $2.1M by age 72, which will result in an RMD of only $84,000… similar to her ongoing withdrawals during the interim years, and leaving her room to avoid ever being subjected to the 32% tax bracket in the future.

In essence, the value of income harvesting strategies is tax-rate arbitrage — the opportunity to shift income from higher-tax-rate years (in the future) to lower tax rate years (today). For income that was otherwise inevitably going to be recognized and taxable someday, triggering that income in lower tax rate years instead of higher tax rate years is effectively ‘free’ wealth creation (in that it doesn’t require taking on risk to generate the additional wealth, simply harvesting the available tax rates).

Free Financial Planning Tools from Schwab

9/6/2020

Many people don't have access to financial planning, either due to failure to meet minimum balance requirements or fees are out of reach or because financial planning experience is just to overwhelming ... to solve this problem, Schwab has a free tool will generate customized financial plans for people in as little as 15 minutes, the offering has no minimum asset requirement.

The tool, dubbed Schwab Plan, will be similar to what professionals use, but streamlined for people wanting to start a plan on their own.

One Powerful Policy That Meets Retirees' Many Needs

9/3/2020

Do you want retirement security? How about a solutions that addresses your concerns with guarantees, flexibility and protection from health-related expenses not covered by Medicare? Below is a product from Sagicor and its descriptions.

One Powerful Policy That Meets Retirees' Many Needs - A Case Study

9/2/2020

Meet Jenny

Age 65
Risk-averse, with cash on sidelines
She and her husband run a small business.

Jenny’s objectives:
She’s ready to take the next step for the future, ensuring that her husband can be financially secure if something would happen to her, and establishing a plan for care.

Her financial needs:

Having a solution that offers protection and flexibility
Making sure she has coverage if she would need care
Maintaining control of her assets if she needed access to cash

After meeting with her financial professional, Jenny chooses:

A $100,000 single premium WealthCare policy
The Global Multi-Index Bonus HIGH PAR Strategy

One Powerful Policy That Can Meet Many Need - A Case Study

8/31/2020

People in or near retirement need solutions that can evolve with their changing needs — for 20 or more years. While people in retirement ages may have CDs, annuities, and bonds in their retirement portfolios, it may be time to consider an insurance asset that can help address a lot of different needs.

Below is a case study from Sagicor that shows how its single premium universal life product helps one retiree.

4 Retirement Options for Self-employed - Part D. Simple IRA

8/28/2020

In last blogpost, we discussed Self-employed 401(k). Now we will discuss SIMPLE IRA.

SIMPLE IRA

Like a 401(k), this account offers tax-deferral and pretax contributions, plus an employee contribution and an employer match.

Who can open one?
Anyone who is self-employed or a small-business owner can open a SIMPLE IRA. Small businesses with 100 employees or fewer can also open a SIMPLE IRA plan.

How it works
Like the self-employed 401(k), you get 2 chances to contribute.

As the employee, you can contribute up to 100% of your compensation, up to $13,500 in 2020 ($13,000 in 2019).
As the employer, you must either put in a 3% matching contribution or a 2% non-elective contribution. The latter is not contingent on the employee contribution, the way a matching contribution to a 401(k) typically is.

But be aware that a SIMPLE IRA can require the employer to make contributions to the plan even if the business has no profits.

Who it may help
The SIMPLE IRA is an inexpensive plan for businesses with fewer than 100 employees. It also allows for salary deferrals by employees and there are no tax forms to file.

The SIMPLE IRA also allows those age 50 and over to save an additional $3,000 a year.

Things to keep in mind
The deadline to set up the plan is October 1. You can make matching and nonelective contributions until the company's tax filing deadline—including extensions.

4 Retirement Options for Self-employed - Part C. Self Employed 401K

8/27/2020

In last blogpost, we discussed SEP IRA, now we will discuss self-employed 401(k).

Self-employed 401(k)

A self-employed 401(k), also known as a solo 401(k), can be an option for maximizing retirement savings even if you're not making a ton of money.

Who can open one?
If you are self-employed or own a business or partnership with no employees you can open a self-employed 401(k). A spouse who works in the business can participate as well.

How it works
You get 2 opportunities for contributing to a self-employed 401(k)—first as the employee, and again as the employer.

As the employee, you can choose to make a tax-deductible or Roth contribution of up to 100% of your compensation, with a maximum of $19,500 in 2020 ($19,000 in 2019). Once you're over age 50, you can also make catch-up contributions—for 2020 you can save an extra $6,500, for a total of $26,000 ($25,000 in 2019).

As the employer, you can contribute up to 25% of your eligible earnings. The employer contribution is always made before tax. (Again, consult a tax expert or the IRS website for details on computing eligible earnings.)

Who it may help
These accounts give small business owners the opportunity to save a significant amount of money each year. The total that can be contributed for employee and employer is $57,000 in 2020 ($56,000 in 2019), plus an additional $6,500 ($6,000 in 2019) for people age 50 and over.

Things to keep in mind
After the plan assets hit $250,000, you have to file Form 5500 with the IRS.

The deadline for setting up the plan is the end of the fiscal year, generally the last business day of the year. You can make employer contributions to the account until your tax-filing deadline for the year, including extensions.

In next blogpost, we will discuss Simple IRA.

4 Retirement Options for Self-employed - Part B. SEP IRA

8/26/2020

In last blogpost, we discussed IRA for self-employed people. Now we will discuss SEP IRA.

SEP IRA
If you are self-employed or have income from freelancing, you can open a Simplified Employee Pension plan—more commonly known as a SEP IRA.

Who can open one?
The SEP IRA is available to sole proprietors, partnerships, C-corporations, and S-corporations.

How it works
Contributions to a SEP IRA may potentially be tax-deductible. The amount you can put in varies based on your income. The most an employer can contribute to an employee's SEP IRA is either 25% of eligible compensation or $57,000 for 2020 ($56,000 for 2019), whichever is lower. (Note that the rules on determining eligible compensation, which are different for self-employed and employee SEP participants, can be complex. Consult a tax expert or the IRS website for details.)

If you have employees, you have to set up accounts for those who are eligible, and you have to contribute the same percentage to their accounts that you contribute for yourself. Employees cannot contribute to the account; the employer makes all the contributions.

Who it may help
This account works well for freelancers and sole entrepreneurs, and for businesses with employees (as long as the owners don't mind making the same percentage contribution for the employees that they make for themselves). The SEP IRA is generally easy and inexpensive to set up and maintain. Plus, there are typically no tax forms to file.

Things to keep in mind
The deadline to set up the account is the federal income tax filing deadline.

In next blogpost, we will discuss Self Employed 401(k).

4 Retirement Options for Self-employed - Part A. IRA

8/25/2020

If you are one of the millions of freelancers, entrepreneurs, workers with a side gig—or an employee with no workplace retirement plan—you can still save for retirement. As long as you have some earnings, you have some tax-advantaged saving options.

In this mini blog series, we will discuss 4 options - the IRA, SEP IRA, SIMPLE IRA, and self-employed 401(k).

IRA
You've probably heard of IRAs, short for individual retirement accounts. Anyone with earned income (including those who do not work themselves but have a working spouse) can open an IRA. There are a few different options, Roth and traditional. Each offers a tax benefit.

Fidelity.com has a good article discussing how to choose between Roth and Traditional IRA, you can view it here.

In next blogpost, we will discuss SEP IRA.

Exceptions to Retirement Account 10% Early Distribution Penalty

8/24/2020

Q. Is it possible to avoid 10% early withdrawal penalty from retirement accounts?

A. Yes, early withdrawals from retirement accounts may be unavoidable in a tough environment, below are exceptions you can avoid the 10% early distribution penalty:

Retirement Plans (e.g. 401(k)) and IRAs (including SEP and SIMPLE IRAs)

Death
Disability
Annuitizing (72(t)-substantially equal periodic payment)
Medical expenses
IRS levy
Active reservists
Birth or adoptio

IRAs only (including SEP and SIMPLE IRAs)

Higher education expenses
First time homebuyer
Health insurance if you are unemployed

Retirement Plans only

Age 55
Age 50 for public safety workers
Section 457(b) (governmental) plans
Divorce (QDRO - Qualified Domestic Relations Order)
Phased retirement distributions from federal plans

7 Jaw-Dropping Stats about Social Security

7/30/2020

Fool.com has an article that compiles some interesting facts about social security:

Some of the interesting facts include: the average Social Security check is $1,507 per month. Also, the breakdown of men versus women: a man’s average Social Security check is $1,627 per month while a woman’s is $1,297 per month.

Another article from Fool.com also has some surprising numbers, including social security's average benefits may cover just over 1/3 of household expenses!

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