For Jill, who has worked hard and saved for years, having a secure retirement and maintaining the purchasing power of her savings is a top priority. Jill is concerned about the best place to put her money and what changes she should make to their stock market investments during this high inflation period. Jill worries that their savings may not be enough to sustain them throughout retirement in a way they are accustomed to. Should they drastically alter their portfolio to combat inflation? Or do they need to extend their working years? These are some of the questions plaguing Jill and others in a similar situation.

Inflation

Inflation is when the value of money decreases over time, making it harder to buy goods and services with the same amount of money. This decrease in purchasing power happens when prices for goods and services rise faster than wages, salaries, or retirement distributions. Inflation can reduce our standard of living if we don’t have a plan to manage it.

Historical Performance

The S&P 500 index broadly measures the U.S. stock market, comprising 500 large publicly traded companies. It is commonly used to gauge the overall performance of the stock market. Conversely, inflation represents the rate at which the general level of prices for goods and services rises, eroding purchasing power. Long term, the stock market is an excellent hedge against inflation. Historically, stocks have outperformed inflation 71% of the time since 1950, meaning investing in the stock market has been a great way to protect against rising prices. Additionally, the stock market can offer diversification. With a long-term approach, investing in the stock market is an effective way of protecting and growing your wealth, even during times with higher than expected inflation.

Investing in the stock market can help you to maximize the return on your investments, regardless of inflation. For example, investing in stocks and bonds can provide an alternative to traditional savings accounts and other fixed-income investments that are more impacted by higher inflation levels. Additionally, stocks tend to have higher returns over longer time periods than do most other financial products and services

Correlations and Patterns

Over the post-1950 period, there has been a mixed relationship between inflation and the stock market. In some periods, the stock market and inflation have exhibited positive correlations; in others, they have displayed negative or no significant correlations. It is important to note that correlation does not imply causation.

Positive Correlation

In the 1970s and early 1980s, there was a special connection between inflation and the stock market. Several factors can explain this. When there’s high inflation, companies can generate more revenue and profits, especially if they can transfer the increased costs to their consumers. Moreover, inflation diminishes the value of cash holdings, encouraging investors to look for other options like stocks.

Negative or No Correlation

During specific periods, such as the late 1990s and early 2000s, there wasn’t a significant correlation between inflation and the stock market. This could be attributed to various factors, such as shifts in monetary policy, economic conditions, or investor sentiment. For instance, when inflation is low, the Federal Reserve may implement accommodating monetary policies to encourage economic growth and bolster stock prices.

2022 was an Unusual Case

In 2022, the stock market (S&P 500) showed a disappointing return of -18.1%, while inflation was 6.5%. This has only happened 29% of the time since 1950. However, it’s worth noting that during this same period, the stock market still had a return of 11.2% before inflation and a respectable 7.5% after inflation was considered. The critical takeaway is to remain steadfast in your stock investing strategy.

Why Should You Invest in the Stock Market Despite Inflation?

Investing in the stock market is still one of the best strategies to protect against inflation and ensure that your savings maintain their purchasing power. Stocks have outperformed inflation 71% of the time since 1950, making it a great way to safeguard your wealth. Additionally, diversifying across different asset classes can help hedge against inflationary pressures elsewhere in the economy. With a long-term approach and patience, investing in the stock market can effectively protect your savings against rising prices. So don’t let inflation get you down. The good news is history shows us you can preserve your wealth by investing in the stock market.

Long-Term Investment Strategy: Stay patient and stay invested for long-term gains

At Stalwart Financial Planning, we understand the importance of investing for the long term and staying patient with your returns. Investing in the stock market is still one of the best strategies to protect against inflation and ensure that your savings maintain their purchasing power. We recommend keeping a diversified portfolio comprising stocks, bonds, cash, real estate, and other assets. In addition, our experienced financial advisors can provide guidance and advice to help you make informed decisions about your investments in the stock market.

Lessons to Takeaway

The stock market is still a great hedge against inflation, with stocks outperforming inflation 71% of the time since 1950. Diversifying across different asset classes can help you protect your wealth against rising prices. However, taking a long-term approach and being patient with your returns is essential. With the right strategy and advice from experienced financial advisors, investing in the stock market is an effective tool for safeguarding your savings from inflation. Investing in the stock market can help you protect against inflation and greatly assist in having your hard-earned money maintain its purchasing power. At Stalwart Financial Planning, we are here to help guide you through every step of the investment process. Contact us today to learn how we can help you protect your wealth against inflation.

The post Inflation High? Investing in Stocks is still Sound first appeared on Stalwart Financial Planning.

You’re nearing retirement age, and you’ve been diligently contributing to a traditional IRA for years. But you’ve recently realized that you may be in a higher tax bracket when you retire than you are now. What could you have done to reduce the taxes you’ll pay on your retirement savings?

Roth IRA Option

One option is to have considered a Roth IRA. With a Roth IRA, you pay taxes on the money going into your account, but all future withdrawals are tax-free. So if you think your marginal taxes will be higher in retirement than they are right now, a Roth IRA may be a good choice.

• Taxes – Think Tax-Free
• Income Limits
• RMDs (Required Minimum Distributions)

Roth IRA and Taxes (Think Tax-free)

Here are a few things you can do to ensure you get the most out of your Roth IRA. First, contribute as much as you can each year to your Roth IRA if a direct contribution is allowed.

The deductible amount that you can contribute changes periodically. In 2023, the contribution limit is $6,500 a year—unless you are age 50 or older, in which case, you can deposit up to $7,500. So if you can, take advantage of the higher contribution limit.

Second, be aware of the five-year rule. With a Roth IRA, you can withdraw your contributions at any time, tax-free and penalty-free. But if you want to withdraw your earnings, you must wait until you’re 59 1/2 years old and have held the account for at least five years. So if you’re close to retirement, ensure you won’t need to access your earnings before turning 59 1/2.

To contribute to a Roth IRA, you must have earned income. If you’re retired and have no earned income, you can’t contribute directly to a Roth IRA. But there’s still a way you can get money into a Roth IRA: by converting your traditional IRA into a Roth IRA. You will have to pay taxes on the amount you convert, but if you think your marginal tax rate will be lower in retirement than it is now, it may be worth doing. And remember, once the money is in a Roth IRA, all future withdrawals are tax-free. Talk to your financial advisor to see if a Roth IRA suits you. They can help you decide whether to contribute to a Roth IRA, convert your traditional IRA, or do both. They can also help you determine how much you can contribute and the tax implications.

Finally, remember that a Roth IRA is a great way to pass wealth to your heirs. With a traditional IRA, your heirs will have to pay taxes on the money they inherit. But with a Roth IRA, your heirs can withdraw the money tax-free. So a Roth IRA is a good choice if you’re looking for a way to minimize the taxes your heirs will have to pay.

Roth IRAs and Income limits

If your modified adjusted gross income (MAGI) is above a certain amount, you may be unable to contribute to a Roth IRA. In 2023, the contribution limit begins to phase out for singles with MAGI of $138,001 or more and married couples filing jointly with MAGI of $218,001 or more. If your MAGI is above these limits, you may still be able to contribute to a Roth (tax-free) type plan if your employer offers a retirement plan such as a 401(k) and you meet certain other conditions.

Roth IRA and RMDs

Another advantage of a Roth IRA is that there are no required minimum distributions (RMDs) during the account holder’s lifetime. With a traditional IRA, you are required to start taking distributions at age 73. But with a Roth IRA, you can leave your money invested for as long as you want. This can be a great way to maximize the growth of your account and minimize the taxes you’ll owe in retirement.

Conclusion

A Roth IRA can be a great way to save for retirement. It offers tax-free growth, and there are no required minimum distributions during the account holder’s lifetime. So if you’re looking for a way to minimize the taxes you’ll owe in retirement, a Roth IRA is a good choice.

The post Get the Most From Your Roth IRA first appeared on Stalwart Financial Planning.

Sara had always been an active person. In her youth, she was a competitive swimmer and stayed in shape throughout her life. Even now, in her early-60s, Sara walks around her neighborhood daily. But lately, Sara had been feeling more tired and finding it harder to get around like she used to. Her doctor told her that it was only natural for someone her age to start slowing down, but Sara didn’t like the idea of becoming less active. She wanted to stay independent and keep doing the things she loved. A friend suggested Sara look into a Continuing Care Retirement Community (CCRC). CCRCs provide different levels of care, from independent living to assisted living to skilled nursing, all in one place. Sara liked the idea of staying in one community as she got older and getting the care she needed if her health changed. This way, residents can age in place without having to move if their needs change.

CCRCs Offer a Continuum of Care

A CCRC, or Continuing Care Retirement Community, is a type of senior living facility that offers a wide range of living options and services, all in one location. CCRCs are also called Life Plan Communities. A CCRC can be helpful for those who want to age in place, as it means they won’t have to move if their needs change over time. A CCRC typically includes independent living, assisted living, skilled nursing care, memory care, and other specialized services. CCRCs allow residents to live in one community and receive the care they need without relocating. In addition, many CCRCs offer a wide range of amenities and social activities, which can help to promote a sense of community and provide a stimulating environment. A CCRC can be a good option for those looking for a comprehensive and flexible solution for their long-term care needs.

CCRCs Offer Social Activities and Community Opportunities

CCRCs, or Continuing Care Retirement Communities, are a type of retirement community that offers a variety of housing options and social and recreational activities to residents. CCRCs usually have a main clubhouse or center that hosts regular social events, such as card games, dance classes, and outings to local attractions. In addition, CCRCs often have a variety of clubs and interest groups that residents can join, such as book clubs, gardening clubs, and walking groups. These activities not only provide residents with an opportunity to socialize and make new friends, but they also give residents a chance to get involved in the community. As a result, CCRCs offer an attractive option for retirees looking for an active and engaged lifestyle.

CCRCs Can be Expensive, Do Your Research

A Continuing Care Retirement Community (CCRC) is a type of senior living facility that offers a wide range of services, from independent living to skilled nursing care. Because of the comprehensive nature of these communities, they can be expensive to join. In addition, many CCRCs require residents to pay an upfront entrance fee and monthly fees for services. As a result, it’s important to do your research before signing up for a CCRC. Make sure you understand the fees associated with membership and the level of care that will be available to you as your needs change. Additionally, it’s a good idea to tour several different CCRCs to get a sense of the community and staff before making a decision. By doing your research, you can choose the CCRC that’s right for you and your budget.

CCRCs Financials and Regulations.

Currently, 38 states regulate CCRCs through various organizations such as insurance, financial services, social services, etc. (Retirement Communities in North Carolina, 2022). State regulations vary drastically from state to state. Some states, like Florida, have very little regulation, while others, like New York, have extensive regulation. The primary federal organization that regulates CCRCs is the Centers for Medicare and Medicaid Services (CMS). CMS establishes national standards for nursing homes and home health agencies participating in Medicare and Medicaid programs. In North Carolina, the NC Department of Insurance regulates retirement communities.

It is also essential to review the financial viability of the CCRC you are reviewing. It is a good idea to evaluate the CCRCs’ audited financial statements. By maintaining a strong Balance Sheet, the CCRC demonstrates its ability to pay its debts as they come due. Furthermore, the Income Statement will give you an idea of whether the CCRC is generating enough operating cash flow to cover its expenses. Lastly, the Statement of Cash Flows will show how well the CCRC manages its cash and whether it generates enough cash to fund its operations. You should be able to get the financial statements directly from the CCRC.

It’s Important to Read the Contract Carefully

By doing your research upfront, you can choose the CCRC that best meets your needs and avoid any unexpected surprises down the road. When considering a CCRC, it’s important to carefully read and understand the contract before signing up. Otherwise, you may be inadvertently responsible for hidden fees or penalties. For example, some CCRCs require a minimum number of years of commitment, while others have entrance fees that must be paid even if you decide to move out early. Additionally, be sure to ask about the community’s refund policy in the event that you need to cancel your contract for any reason.

CCRC Can Provide a Sense of Community and Support

Residents of CCRCs typically move in when they are healthy and active and then have the peace of mind of knowing they will have access to the care they need as they age. One of the main benefits of living in a CCRC is the sense of community and support that it can provide. Residents can socialize and interact with their neighbors, and staff members are always available to assist. In addition, many CCRCs offer a variety of amenities, such as swimming pools, fitness centers, and game rooms. As a result, CCRCs can be an ideal option for those looking for an active and engaged lifestyle in their retirement years.

Summary

If you or your loved one is interested in moving into a CCRC, it’s important to do your research. There are many benefits to these communities, but they can also be expensive. Read the contract carefully before signing up for a CCRC, as there may be hidden fees or penalties. Ultimately, CCRCs provide residents with a sense of community and support, which can be extremely helpful as we age.

References

Retirement Communities in North Carolina. (2022, 11 15). Retrieved from My LifeSite: https://mylifesite.net/states/retirement-communities-in-north-carolina.php

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The Smiths are a married couple in their early 60s. They have been living in the same house for over 30 years and their children have all moved out. The Smiths are now retired and they want to downsize to a smaller home. They also want to live in a community where there are other people their age so that they can socialize and make new friends. They decide to look into 55+ communities.

What is a 55+ Community and what are the benefits of living in one

A 55+ community is a retirement community that is open to adults aged 55 and over. Many of these communities are located in warm weather climates, although they are located throughout the country. One of the benefits of living in a 55+ community is that it can provide a sense of community and belonging that might be missing from your life after you retire. These communities often have a variety of amenities and activities that are designed to appeal to retirees, such as golf courses, swimming pools, and tennis courts. In addition, many 55+ communities have a calendar of social events that can help you meet new people and stay active. Another benefit of living in a 55+ community is that it can offer a level of security that you might not find in other types of housing. These communities often have gated entrances and 24-hour security, which can give you peace of mind. If you are considering retirement, a 55+ community may be a good option for you to consider.

How do you find a 55+ Community that’s right for you

When you’re ready to retire, you want to find a community that’s just right for you. But with so many different types of 55+ communities, it can be hard to know where to start your search. Here are a few things to keep in mind as you begin your hunt for the perfect retirement community:

First, decide what type of community you’re looking for. Do you want an all-inclusive resort-style community or something more low-key? There are 55+ communities to suit every lifestyle, so it’s important to narrow down your options before you start visiting properties.

Second, think about the amenities that are important to you. Do you want a community with a golf course, or one with plenty of social activities? Consider what you want from your retirement community, and make sure the properties you visit offer the amenities that matter most to you.

A third consideration for many is location. Do you want to be near family and friends, or do you prefer to live in a warmer climate? Consider your location preferences before you start visiting properties.

Finally, take your budget into account. Retirement living can be expensive, so it’s important to find a community that fits within your price range. Don’t be afraid to ask about pricing and fees before you commit to any particular community.

With these factors in mind, you’ll be well on your way to finding the perfect 55+ community for your retirement years.

What to expect when moving into a 55+ Community

When you move into a 55+ community, you can expect to find a tight-knit group of neighbors who are all around the same age. This can be a great way to make friends and stay active in retirement. Most 55+ communities offer a variety of amenities, such as swimming pools, fitness centers, and social clubs. There is usually something for everyone, whether you like to stay active or just relax. In addition, many 55+ communities are located in desirable locations, such as near the beach or in a quiet, rural setting. As a result, you can enjoy all the benefits of retirement living without having to give up your favorite activities.

The different types of homes available in a 55+ Community

A 55+ community is a planned residential community designed for adults aged 55 and over. These communities typically offer a wide range of amenities and social activities, as well as home styles that are designed specifically for the needs of older adults. For example, many 55+ communities offer single-level homes with wider doorways and hallways to accommodate wheelchair users. Other common features include grab bars in the bathrooms and extra handrails on stairs. Some 55+ communities also offer shared facilities such as laundry rooms, fitness centers, and swimming pools. In addition, most 55+ communities are located near shopping centers, medical facilities, and other conveniences. As a result, these communities provide an attractive option for adults who are looking for a maintenance-free lifestyle.

Activities and events available in most communities

Most communities offer a variety of activities and events for residents to enjoy. For example, many towns and cities host free concerts in the park during the summer months. There may also be farmers markets where local growers sell fresh produce, and art fairs featuring the work of local artists. Other popular events include carnivals, festivals, and parades. Many communities also have recreation centers with pools, gyms, and classrooms for various classes and activities. In addition, most communities have public libraries that offer a variety of services, including story times for children, computer access, and book clubs. By taking advantage of the activities and events available in most communities, residents can make the most of their surroundings and meet new people.

The cost of living in a 55+ Community

The cost of living in a 55+ community can vary depending on the location and amenities offered. However, most communities offer a variety of homes at different price points to suit different budgets. In addition, many communities have a range of amenities that are included in the monthly fee, such as swimming pools, fitness centers, and social clubs. Some communities also offer discounts on golf membership or other activities. As a result, the cost of living in a 55+ community can be very affordable, especially when compared to the costs of maintaining a home and yard.

Summary

When you retire, you want to make sure that you are comfortable and have everything that you need. A 55+ Community is a great option for retirees because it offers many benefits, such as social activities, amenities, security, and more. There are different types of homes available in these communities, so there is something for everyone. If you are thinking about moving into a community like this, do some research to find the one that is right for you.

The post Is a 55+ Community Right for You? first appeared on Stalwart Financial Planning.

Jane, a 74-year-old retiree, had enjoyed a comfortable and financially secure retirement for the past few years. With each passing year, however, her tax burden was growing due to a steady increase in Required Minimum Distributions (RMDs) from her IRA account. To ease this strain, Jane recently learned about Qualified Charitable Distributions (QCDs) and decided to take advantage of the tax benefits they offer. By taking a QCD, she was able to direct her RMD funds directly to her favorite charity while also avoiding paying taxes on them. Thanks to this simple solution, Jane’s financial life is now less complicated—and she can feel great about supporting a cause close to her heart.

If you’re looking for a way to reduce your taxes in retirement, you may want to consider making Qualified Charitable Distributions (QCDs) withdrawals from your IRA. QCDs can be an effective way to lower your tax bill and support the charities of your choice. Here’s what you need to know about how QCDs work.

How to use a QCD to reduce your taxes

Taking advantage of tax breaks is crucial to reducing the amount you owe. Qualified charitable distributions (QCDs) are one tool that can help save you money by allowing individuals aged 70½ and older to transfer up to $100,000 from their IRA accounts each year to charitable organizations. A QCD could reduce your taxable income and overall tax bill when done correctly. The donation must be made directly from the IRA custodian to an IRS- approved charity to qualify for this tax break. The money cannot be given directly to you first. The process may seem complicated initially, but it doesn’t have to be. Implementing a QCD could lead to significant savings by reducing some or all of your current taxable income on IRA distributions! Working with an experienced financial planner or accountant can help ensure that all requirements are met. This way you get every possible benefit from using a QCD as part of your overall tax strategy.

What is a QCD, and how does it reduce taxes on RMDs?

A qualifying charitable distribution (QCD) is an often-overlooked way for people over 70½ to make tax-advantaged charitable contributions. By taking advantage of a QCD, individuals can receive an income tax deduction of up to $100,000 of their required minimum distribution (RMD), which reduces the taxable portion of their income and any associated taxes due. To take advantage of this possibility, you must donate directly from your IRA account, payable to a qualified charity. Gifts from other retirement plans are not eligible for QCDs. Furthermore, the donation wouldn’t be subject to the usual limits on itemized deductions or the additional restriction imposed due to higher AGI levels. Also, it is advisable to make sure you have documentation of your donation for future IRS reference and for review by your financial advisor to confirm that you meet all eligibility requirements. Whichever method you use, remember that a QCD can get you substantially greater savings than itemized deductions without burdening you with additional paperwork or effort: it’s something any serious donor should consider when planning their charitable giving strategy.

What are the benefits of a Qualified Charitable Distribution?

A QCD (Qualified Charitable Distribution) can be an excellent way to make a tax-free donation. Donating money directly from your retirement account allows you to bypass taxes on the donation amount and make it go further for the causes you support. QCDs also provide additional benefits, such as maintaining the funds in your retirement account so that you have more control over your investments. Moreover, they may reduce your taxable income and corresponding tax rate, thus potentially leaving more money in your pocket at the end of the year. Finally, QCDs can assist in managing mandatory minimum distributions (RMDs) that may otherwise apply when taking money out of a retirement account. All these factors can make a QCD an attractive option for those wishing to contribute to their favorite charities or non-profits. Additionally, since there are no limits on the number of times one can do a QCD in a year, they are an effective way to ensure significant donations over time with minimal financial burden. So if you’re looking for an efficient way to help those in need and maximize your contributions, a QCD could be a great solution.

How to make sure your QCD is tax-deductible

Qualified Charitable Distributions (QCDs) are an excellent way for retirees to reduce their taxable income easily. It is important to have the right strategy to ensure that your QCD is tax-deductible. First, you need to make sure you meet the eligibility requirements. First, you must be at least 70 1/2 years old and have funds stored in an Individual Retirement Account (IRA). Additionally, some retirement plans do not qualify, so checking with your provider before investing is important. Next, you’ll want to ensure that your charitable organization is eligible for tax-deductible donations – if in doubt, contact the charity directly or check their website for more information. Finally, make sure your withdrawal amount does not exceed $100,000 per year – going over this limit may render part of your donation non-tax deductible. By following these tips, you can rest assured that your QCD will be as tax-efficient as possible!

FAQs about QCDs

QCDs, or Qualified Charitable Distributions, are an excellent way for retirees to donate annually to their favorite charities. In contrast to regular tax-deductible contributions, QCDs forgo withdrawing the funds for your accounts, incurring the tax, and then contributing to a charity to get the deduction. The donor can designate up to $100,000 per year in QCDs, making this an accessible way for retirees to make sizable donations throughout their retirement years. As with other tax matters, QCDs come with specific rules and regulations that are vital to be aware of. For example, QCDs must come from traditional IRAs or Roth IRAs and cannot be taken from 401(k) accounts or SEP IRAs. Instead, a QCD allows the money to go directly from your IRA account into the charity of your choice.

Furthermore, all distributions must take place after age 70½ to qualify as a QCD. It is essential to keep in mind that you can benefit from a QCD even if you itemize or take the standard deduction on your taxes. These rules can help maximize the amount of charitably donated funds without any additional taxation. Ultimately, understanding the requirements and benefits of QCDs can ensure those nearing retirement ages have all the information needed when it comes time for them to make their charitable donations during retirement.

Summary

A Qualified Charitable Distribution (QCD) is a powerful tool that can be used to reduce your taxes and support your favorite charities. QCDs have the dual benefit of reducing your taxable income and supporting the causes that are important to you. If you are over 70½ and have an IRA, you can use a QCD to make charitable gifts directly from your IRA. If you have questions about QCDs, contact a Certified Financial Planning Professional today.

The post Qualified Charitable Distributions (QCDs) to the Rescue first appeared on Stalwart Financial Planning.

You’re 72 years old and have been enjoying retirement for a few years. You diligently contributed to your 401(k) during your working years. Now you and your husband live comfortably on Social Security benefits and his pension. But there’s a new issue. The issue coming into play is the Required Minimum Distributions (RMDs). The IRS calls them Minimum Required Distributions.

What are Required Minimum Distributions (RMDs)?

RMDs are amounts a retirement account owner must withdraw annually starting at 72 years old or the year they retire (if later and the exceptions apply) (Julie Jason, 2021). RMDs aim to ensure that retirees don’t defer taxes on their retirement savings for too long.

RMDs are required from all employer-sponsored retirement plans, including 401(k)s, 403(b)s, and 457(b)s. They are also required from traditional IRAs and IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRAs.

Of particular note, RMD rules apply to Roth 401(k) accounts. However, the RMD rules do not apply to Roth IRA accounts while the owner is alive.

How do I Take my Required Minimum Distribution -RMDs?

How much is the RMD? The amount of the RMD is based on the account balance and life expectancy. The IRS provides life expectancy tables that account owners can use to calculate their RMD. There are multiple life expectancy tables, so be sure to use the one based on your situation (Publication 590-B (2021), Distribution from Individual Retirement Arrangements (IRAs), 2022).

IRA and 403(b) account Owners

• The IRA or 403(b) owner must calculate the RMD for each account they own but can withdraw the total amount from one account.

401(k) and other Retirement Plans

• On the other hand, other retirement plans, like owners of 401(k)s and 457(b)s, must take the RMD separately from each account in which they participate.

What if I don’t take my Required Minimum Distribution -RMD?

While the custodian or retirement plan administrator may calculate your RMD, it is vital to note that the account owner is ultimately responsible for ensuring that the correct RMD is taken. If the RMD is not taken, the amount not withdrawn will be subject to a 50% excise tax.

 

Other RMD rules

• You can withdraw more than the RMD amount. As the name suggests, RMD is the minimum amount you must withdraw in a particular year.
• RMD distributions cannot be rolled into another tax-deferred account.
• RMDs are taxed at the owner’s income tax rate. Of course, RMD distributions from a Roth (a special case) account are tax-free.

Conclusion

There you have it! The essential information you need to know about Required Minimum Distributions. Regarding retirement planning and IRA or 401(k) withdrawals, be sure to consider your RMDs. Contact a Certified Financial Planning Professional or a tax professional if you have any questions.

References

Julie Jason, J. L. (2021, December 15). If You Are Still Working Do You Need To Take An RMD? Retrieved from forbes.com: https://www.forbes.com/sites/juliejason/2021/12/15/if-you-are-still-working-do-you-need-to-take-an-rmd/?sh=701fa0344a11

Publication 590-B (2021), Distribution from Individual Retirement Arrangements (IRAs). (2022, August 20). Retrieved from irs.gov: https://www.irs.gov/publications/p590b#en_US_2021_publink100095124

 

The post Required Minimum Distributions (RMDs) – Oh Those Minimum Required Distributions first appeared on Stalwart Financial Planning.

What is 23 years, 3 months, and 4 days? If we were playing Jeopardy, this would be the correct response to, “How long $1 million retirement dollars will last on average in NC?”.

While this is great information to know, you need more information to make this Your Number. To get a better handle in determining ‘Your Number’ for retirement, you will at least need to answer these 3 questions:

• A) How much are average expenses in my state?
• B) Do I spend more or less than this average?
• C) How long will I be in retirement?

The Answers 

The answer to question A in North Carolina is $42,965. But you also want to know the responses to questions B and C. Once you know these answers, you will know if you need more or less than $1 million in retirement.

Armed with A, B & C responses, you are homing in on how much you will need in retirement. But you still have other questions you need to answer. One example, “Is the $1 million in a traditional 401K?” If so, you still need to pay taxes (both federal and state in NC) on these funds. Armed with these answers, you now have a good preliminary target of how much you need for retirement (Your Number).

If you need help determining Your Number or would like a more detailed analysis of Your Number (i.e., the impact of when you take Social Security on Your Number), you can contact Stalwart Financial Planning.

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What is more devastating to your 401K plan?

• Taking a loan from your 401K account
• Cashing out when switching jobs and paying taxes and penalties

It has been debated over the years, but we now have an answer.  Studies by the EBRI (Employee Benefit Research Institute) points out there are cases where two-thirds of the reduction in retirement saving is due to the latter.  I have encouraged employers to not create a loan provision when creating a company 401K plan.  Even though research shows that by removing this provision form a 401K, it is in the best long term interest of the employees.  Employees on the other hand love this addition.  There are some who would be reluctant to participate in a 401K plan unless a loan provision was present.

When switching jobs, 67% with #401Ks <$5K will spend it simply because they think it easier https://t.co/kQS8Iwe9vo pic.twitter.com/HPIKwszR5u

— Isaac R. Allen, CFP® (@IFAdvice) August 15, 2016

Back when employees had pensions to fall back on during retirement they did not have to worry about how to manage their pension.  The employer had this obligation.  But now, most employers are going with a defined contribution (DC) plan such as a 401(k).  With the advent of 401(k) plans the onerous task of managing retirement savings plans has moved the employee.  Many employees are ill equipped to be able to handle this management.  Case in point is when they switch jobs.  The recent study by the EBRI revealed that 67% of employees with 401(k)s of less than $5,000 would spend the money instead of rolling the funds over.  This represents about 5 million working Americans a year.  They would rather spend the money and pay early withdrawal penalties and taxes, not because they need the money, but because they feel it is easier.  This is a surprising result, considering they have solutions of rolling their previous 401(k) over to their new employers’ 401(k).  If this option is not available to them, they can open a Rollover IRA.

This study by the EBRI is focused only the employees with small 401(k)s (less than $5,000).  If employees are this nonchalant with less they $5000 how are they handling and managing the average 401(k) of $91,300.  Employees should make sure they are doing the right thing by the retirement savings.

The employee is left holding the proverbial bag.  This type of poor retirement saving plan management is what is hurting many employees.  I encourage you to be come in formed of your options when switching jobs.  The fact that 401(k)s are portable is a great thing if used wisely.  If not, then it can have employees wondering why they are so ill prepared for retirement.

Do you have a 401(k) from a previous job that you are not managing?

The post Taking the Easy Road Can Destroy your Retirement Savings first appeared on Stalwart Financial Planning.

Are you looking to create a steady stream of income during your retirement? If so, building a bond ladder might be for you. You can build a simple bond ladder by purchasing government, municipal, corporate bonds or certificates of deposits (CDs) over a consistent period of time (example 5 years). You might be one of those nervous about purchasing long term bonds in this low interest rate environment. If you are one of these people you would not be alone. One way to combat the fears of buying longer term bonds in a low interest atmosphere is to create a bond ladder.

Let me give you an example. Instead of buying a single bond worth $100,000, you would purchase 5 bonds worth $20,000 each.

• One of the bonds would mature in 1 year
• Next bond after 2 years
• Third bond after 3 years
• and so on all the way up to 5 years.

This would in effect create 5 rungs in your bond ladder. When the first bond matures you would simply purchase a new bond that matures in 5 years.

One of the benefits of creating a bond ladder is protection against rising interest rates. If interest rates rise you would simply purchase a new bond at the new rate within a year. There is also a benefit with this approach in a milieu where interest rates are going down, since you have already locked into bonds at higher rates.

As with most things in life and investing, this does not come as a free lunch. There are downsides to a bond ladder. One of the largest is the bond insurer going into default. As was witnessed in the big credit crisis of 2008, even if bonds are rated highly there might still be underlying problems with the issuer. Another risk with bond ladders is the bond debt might be paid back early (the bond was called). In this case you do not get all the interest you thought you would.

When it comes to implementing a bond ladder there are several things you should consider. One is you want to make sure you are building a diverse set of bonds in your portfolio. If you are not sure you are getting enough diversity into your bond ladder, you can consider using target date bond ETFs (Exchange Traded Funds) in your ladder. These are ETFs where the bonds all mature in a specific year. Another implementation issue with building a bond ladder is in common to purchasing bonds in general. With bonds there is not a large clearing house the way there is done for stocks. With stocks you have the NYSE, NASDAQ and etc. as a location to go and get the best trading price for a stock. With bonds they are held at the individual brokerage houses. With this being the case, your brokerage house might not have the best price on a bond. A good way to think of this is like purchasing a new car verse a used car. In this example the new car would be a stock and a used car would be a bond. When you buy a new car you know what the MSRP is for the vehicle. Now you have a target price to pay for any new car you want to buy no matter which dealership you make your purchase. But if you wanted to buy a used car, you would go to the lot and see what was available and see the prices at just that lot. There could be another vehicle, same model, same condition and mileage at another lot across town. Unfortunately, unless you went to this other lot you would not know this. A way to combat this situation is to shop around or go to someone who can get access to a large array of bonds across brokerages.

As you can see building and maintaining a bond ladder takes some time to do, but can reward you with a steady income stream of funds during retirement. If you still would like the benefits of a bond ladder, but do not have the time to devote to it, consider seeking professional help. I am sure there is a financial service professional in your area that is familiar with bond ladders and would be willing to assist you in creating a bond ladder designed around your needs.  Are you ready to step up to a bond ladder?

The post Income Stream through Laddering first appeared on Stalwart Financial Planning.

What if I told you I knew a secret method to increase one of your retirement income sources by 76%?  What if I told you, the increase from this secret method would last a lifetime?  Next if I added in the tidbit that all you had to do to get the extra money was to breathe, would you believe me?  I doubt it!  I think you would think I had changed professions and was now a snake oil salesman.

The things I just mentioned are all true and it is not a secret.  You can increase your social security benefit by 76% by not taking your benefit at age 62, but instead delay taking it until age 70.

For example, if you were to get $10,000 a year in social security benefits at your full retirement age of 66, but say you decided to take a reduced early benefit of $7,500 a year at age 62.  By drawing social security at age 62 you would be giving up $5,700 compared to what you would have received if you had waited until age 70 to start.  The $5,700 is independent of COLA[i] adjustments. As you can see, if you were to delay taking your social security benefit until age 70, you would receive a 76% increase in annual income.

I know what you are saying, “By delaying social security until age 70 it will take me forever to catch up and I will probably die before I catch up”.  This is a common thought, but Wade Pfau wrote an article in Forbes magazine stating the return by year that you would be giving up by delaying when you took social security.

•  Receive $10,000 in Social Security at Full Retirement Age of 66

• Comparison of drawing Social Security at 62 vs. 70

The following information is from the Forbes Article by Wade Pfau (Table 1[1])

[1] Wade Pfau, Forbes, http://www.forbes.com/sites/wadepfau/2014/04/01/delaying-social-security-what-an-investment/ (accessed April 17, 2015).

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As Pfau’s table points out, if you delayed taking social security until age 70, you would breakeven in less than 10 years (see age 80 is a positive return).  Furthermore, the life expectancy of a healthy 60 year old male would likely yield a 3.2% return on your investment by delaying social security until age 70.  If you are a healthy 60 year old female, your life expectancy would likely provide a 4.0% return.

As you can see, it is not a secret method but a simple cash flow math problem that yields a 76% increase in your social security benefit if instead of taking a reduced early social security benefit at age 62 you wait until age 70.

Do you see why it is important to have other retirement savings to support you until age 70?  By having other income sources during retirement, you can maximize your social security benefit?  If you need help creating multiple retirement income sources contact Isaac.

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[i] COLA – Cost of Living Adjustment is based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

The post A Retirement Income Secret? first appeared on Stalwart Financial Planning.

Is the retirement you desire in focus?  In other words, do you have a clear picture of what is needed to achieve your desired retirement?  Let us be honest with ourselves, many Americans do not have a retirement plan.  They just plan to continue to work until they cannot work anymore.  We both know that is not much of a plan.

We can do better than this.  I want you to achieve much more than this.  Having a plan means knowing your retirement numbers and where you stand.  Here are the retirement numbers you need to know in order to bring clarity to your plan and to determine if it is in focus.

Retirement Numbers to Know

• How much will I spend a year in retirement?
• How much of my salary should I be saving for retirement?
• How much return can I expect to get on my savings?

How much you will spend in retirement is the first place to start to see if your retirement plan is in focus.  I think if you assume you will spend 100% of what your current income is a good place to start.  With this assumption it will allow you to continue to live your current lifestyle without having to skimp.  In retirement, especially those early retirement years, some spend more than they spent before retirement.  The big factor in this is “free time”.  I know when I have more free time I can spend more money.  With more leisure time, we might innocently rationalize ways to spend more money.  Here are a few examples that I have heard pre-retirees say:

• I want to pick up a new hobby (golf and tennis)
• I need to give myself a retirement gift (an exotic sports car)
• I want to do something I never had the chance to do while working (learn to sail)
• As a reward for my years of hard work, I want to travel more (Visit the major cities in Europe)

I think you get the picture.  With more free time you can find ways to spend more money.

Determining how much of your salary you should be saving to keep your desired retirement in focus can be tricky.  Is it a fixed amount like 10% of my income or is it more? The first key is to be saving.  Once you are saving, you can increase your savings amount each time you get a raise.  Before long you will be saving at your needed amount.  If you are already saving, you should determine if you can put away even more toward retirement and accelerate your path to financial freedom.

The final step in gaining crystal clear focus on your retirement is determining what returns you can expect on your investments.  Be careful here!  Many people, especially if they are late to the retirement savings game, want to be ultra aggressive.  They think they can make up for lost time.  Some of these same people at the first market downturn will get out of the stock market.  They will be out of the stock market for long stretches because of fear.  We know it is very difficult to time the stock market so they are now caught playing another dangerous game. The other end of this extreme is someone who is ultra conservative.

They only want to invest in CDs and money market funds.  They have a fear of losing money, but in the end they are losing purchasing power due to inflation.  As you can see, each of these two extremes is a view that makes your retirement picture look fuzzy.  The best path is to determine your risk tolerance and create a diversified portfolio to match.

At this point do you know the answers to, “How much will I spend a year in retirement?”, “How much of my salary should I be saving for retirement?” and “How much

return can I expect to get on my savings?”  If you know the answer to these three questions, I think your retirement picture should be coming into to focus.

If you need help obtaining your answer to any of the above questions, I suggest you contact a financial professional.

Let me know what you are doing to get your retirement in focus?

The post Is Your Retirement in Focus? first appeared on Stalwart Financial Planning.

Have you ever asked yourself the question, “At what rate should I be saving for retirement?”  If so, you should keep reading.    With this question, you are probably wondering if you need to save  5%, 10%, 15% or more for retirement.  .

I think a better way to phrase and think of the question is:

What is the MINIMUM percentage of my current income, I need to save to retire to the lifestyle I am accustomed to living now?

• Is it the amount to receive the full company match on my 401K?
• Is it 10% of my income?
• Is it 15% of my income?
• or is it a higher percentage of my income? 

(Click here if the video does not display on your device)

To determine the saving rate needed to fund your retirement lifestyle, you first need to establish how much of your current income, you will need to replace.  You have to ask yourself, if you need to replace 50%, 70% or even more of your pre-retirement income.  The next step is to determine the percentage of your income you need to save during your remaining working years, so you can reach your retirement goal.  No matter what percentage of your income you can start saving now, you have 3 keys to establishing a retirement savings plan that will end in success.

1. Save consistently
2. Increase savings as your income grows
3. Monitor your progress

You can read some of the latest research on how much you should save for retirement  by Massi De Santis Ph.D.  & Marlena Lee Ph.D.

At what rate do you save for retirement?  You can leave your response at the end of this blog.  Also do not forget to follow me on Twitter @IfAdvice or on Facebook StalwartFinancialPlanning

The post At What Rate Should I Be Saving For Retirement? first appeared on Stalwart Financial Planning.

When you hear someone talk about “Old Faithful”, what comes to your mind?  If you are like me, you will think of the magnificent geyser in Yellowstone National park.  After initial thoughts of the geyser, I suggest your thoughts drift to your income during retirement.

My wife and I were recently on vacation and one of the attractions we wanted to see was “Old Faithful”.  When we told one of the locals in Bozeman Montana that we wanted to see the geysers in Yellowstone, they asked why.  They recommended instead that we go see some of the wildlife in the park.  They stated you could drive all that distance and if your timing was not perfect you would miss the eruption of a geyser.  We considered their recommendation for a bit, but thought together out loud, “This is not true for Old Faithful”.

Why do you think Old Faithful was such a must see for us and attracts thousands of visitors a year?

• Is it because it is the highest geyser in the world?
• Is it because it has the most spectacular eruptions?
• Is it because the eruptions are rare occasional events like an eclipse?

The answers to these questions are no, no and no.  None of these are the reason for Old Faithful’s popularity.  The reason people travel from around the world to gaze at Old Faithful is because of its consistency and reliability.  I think you would want to use these same attributes to describe your income in retirement.

More than 3 million people a year visit Yellowstone National park and many of them make the trek to see Old Faithful and the other geysers.  Old Faithful is said to be the most predicable geographic feature on earth.  It erupts from 1.5 to 5 minutes approximately every 1 hour and 30 minutes.  Because of the predictability of Old Faithful and the fact that area around it is easily accessible, this is what makes it one of the main attractions of the entire park.

When it comes to creating a retirement portfolio, you need to think about how to create a reliable income source during good and bad times in the stock market.  The way you do this is by adding fixed income to your asset allocation.  If we were to experience another market downturn like the great recession, we know this is not the time to be selling our equity positions.  If we are forced to sell our equity positions during a downturn to fund our retirement spending then, it can blunt the ability of our portfolio to provide income for us later in retirement.  This is because these funds will never get to participate in a market recovery.  But if we have fixed income assets as part of our portfolio, we can use these assets to fund our retirement spending which gives a chance for the equity portion of our portfolio to recover.  This works because normally when the stock market goes down fixed income will hold its value or go up.  Having a proper portfolio does not mean having one that will realize the highest returns during good times, but one which will allow you to meet your goals in good and bad times.

Just as with Old Faithful, one of the best attractions about your retirement portfolio should be its ability to provide you with reliable and consistent income during your retirement years.

Is your retirement portfolio currently designed to be an “Old Faithful” income source for you during retirement?  You can add your response to this question at the bottom of this blog.  Do not forget to follow me on Twitter @IfAdvice and Facebook StalwartFinancialPlanning

The post An Old Faithful Retirement Income first appeared on Stalwart Financial Planning.

How much money do you need for retirement?  This is a question that often comes up.  As with many questions in the financial area, the answers comes back , “It depends.”  Some of you might not like this answer, but again the best financial advice comes customized to the individual.

Marlene Lee, Ph.D. gives an example as to why the answer to, “How much do you need for retirement?”, gets the reply, “It depends“

 (Click here if video does not display on your device)

For more information on the study you can review Marlena’s research paper “The Retirement Income Equation.”  As you can see at different income levels the percentage of income that needs to be replaced during retirement differs.

How much replacement income do you need?  And, are you saving enough to achieve this amount?

The post How Much Do You Need for Retirement? first appeared on Stalwart Financial Planning.

• Traditional IRA
• Roth IRA Money Purchase Plan
• Money Purchase Plan
• Self-Directed IRA
• 401K
• Roth 401K
• 403(b)
• 457 Plans
• Defined Benefit Pension Plan
• Cash Balance Pension Plan

• Money Purchase Pension Plans
• Target Benefit Pension Plans
• Profit Sharing Plans
• SEPs (Simplified Employee Pension)
• SIMPLES(Savings Incentive Match Plans for Employees)

The key to selecting a Retirement Plan is to find the one that best fits the situation of the business owner.  Here are a few questions to help the business owner narrow down the choices.

1) Why does the Business Owner want a Retirement Plan?

• Is it to provide income in retirement?
• Is it to attract employees?

2) Do you need a Qualified Plan or a Non-Qualified Plan?

• A Qualified Plan is a plan that meets requirements of the Internal Revenue Code and as a result, is eligible to receive certain tax benefits. These plans must be for the exclusive benefit of employees or their beneficiaries
• A Non-Qualified Plan is any type of tax-deferred, employer-sponsored retirement plan that falls outside of employee retirement income security act (ERISA) guidelines. Non-qualified plans are designed to meet specialized retirement needs for key executives and other select employees. These plans also are exempt from the discriminatory and top-heavy testing that qualified plans are required to meet.

3) What makes the most sense for the Business Owner a Defined Benefit Plan or a Defined Contribution Plan?

• Defined Contribution Plan – Business Owner contributes a predetermine amount to the plan each year and employees are responsible for ensuring adequate retirement funding.
• Defined Benefit Plan – Each retirement plan member will receive a predetermined benefit each year during retirement and Business Owner is responsible for ensuring adequate retirement funding.

If you are able to able to answer these questions, you are ready to select the Retirement Plan that best fits your business needs. If you feel you still need more direction, you should consider talking with a Retirement specialist such as a Certified Financial Planning Professional to help you make the best choice for you.

Are you ready to make your retirement plan choice?

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