Retirement Planning

Why Is Everyone Retiring to Florida?

A recent report by WalletHub ranks Florida as the best place to retire in terms of affordability, health-related factors and overall quality of life. According to the U.S. Census’ 2017 Population Estimates Program, roughly a half-million Miami-Dade County residents are over the age of 65, and by 2040, 1 in 5 Americans will be over the age of 65, according to the annual report produced by the Administration for Community Living.

It is no surprise to us that people would want to retire in Florida.

Advances in medicine are helping with longevity, but various improvements in diet and lifestyle have also helped, says The Miami Herald in the article “Plan now on ways to take care of yourself through a long retirement.”

It’s important to keep your lifestyle through retirement, and it’s an essential part of any financial plan. You’ll need to budget for plans or services that help you in your later years, such as everyday tasks, medical care, or even where you live.

Take some time to consider how you want your later years to look, like where you would want to live—whether that’s at home (possibly with live-in help) or in an assisted-living facility. With our longer life spans, we encounter more significant health risks, like cognitive issues. According to research, 37% of people over the age of 85 have some mild impairment and about one-third have dementia. The Alzheimer’s Association says that 540,000 people aged 65 and older reported living with Alzheimer’s in Florida in 2018. Roughly 15% of those in Florida hospice care had a diagnosis of dementia in 2015. Therefore, you can see why it is critical to think about this now and communicate your long-term needs to your family.

As we get older, the ability to maintain a lifestyle we like, can become a financial challenge. This is especially true, if we also face an unexpected health condition. Making wise decisions now, can have a dramatic impact on what those later years will look like. Saving for a lengthy retirement can help you prepare to face any potential issues that may arise.

Making provisions for your family and leaving a legacy, isn’t always an easy task. However, the financial security of your family may depend not only on how you manage your wealth today, but also on how you protect and preserve it for the future. Your estate plan can help you prepare now to provide for your loved ones in the future.

Talk to your family and your estate planning attorney about these issues and ensure that your legacy planning is up to date, by regularly updating your will, trust, or advanced medical directives.

Reference: Miami Herald (February 1, 2019) “Plan now on ways to take care of yourself through a long retirement”

Why You Need to Review Your Estate Plan

One of the most common mistakes in estate planning is thinking of the estate plan as being completed and never needing to review your estate plan again after the documents are signed. That is similar to taking your car in for an oil change and then simply never returning for another oil change. The years go by, your life changes and you need an estate plan review.

Review your estate plan periodically to insure that it will work the way you want it to

The question posed by the New Hampshire Union Leader in the article “It’s important to periodically review your estate plan” is not if you need to have your estate plan reviewed, but when.

Most people get their original wills and other documents from their estate planning attorney, put them into their safe deposit box or a fire-safe file drawer and forget about them. There are no laws governing when these documents should be reviewed, so whether or when to review the estate plan is completely up to the individual. That often leads to unintended consequences that can cause the wrong person to inherit assets, fracture the family, and leave heirs with a large tax liability.

A better idea: review your estate plan on a regular basis. For some people with complicated lives and assets, that means once a year. For others, every four or five years works just fine. Some reviews are triggered by major life events, including:

  • Marriage or divorce
  • Death
  • Large changes in the size of the estate
  • A significant increase in debt
  • The death of an executor, guardian or trustee
  • Birth or adoption of children or grandchildren
  • Change in career, good or bad
  • Retirement
  • Health crisis
  • Changes in tax laws
  • Changes in relationships to beneficiaries and heirs
  • Moving to another state or purchasing property in another state
  • Receiving a sizable inheritance

What should you be thinking about, as you review your estate plan? Here are some suggestions:

Have there been any changes to your relationships with family members?

Are any family members facing challenges or does anyone have special needs?

Are there children from a previous marriage and what do their lives look like?

Are the people you named for various roles—power of attorney, executor, guardian and trustees—still the people you want making decisions and acting on your behalf?

Does your estate plan include a durable power of attorney for healthcare, a valid living will, or if you want this, a DNR (Do Not Resuscitate) order?

Do you know who your beneficiary designations are for your accounts and are your beneficiary designations still correct? (Your beneficiaries will receive assets outside of the will and nothing you put in the will can change the distribution of those assets.)

Have you aligned your assets with your estate plan? Do certain accounts pass directly to a spouse or an heir? Have you funded any trusts?

Finally, have changes in the tax laws changed your estate plan? Your estate planning attorney should look at your state, as well as federal tax liability.

Just as you can’t plant a garden once and expect it to grow and bloom forever, you need to review your estate plan so it can protect your interests as your life and your family’s life changes over time.

Reference: New Hampshire Union Leader (Jan. 12, 2019) “It’s important to periodically review your estate plan”

Celebrated Your 50th Birthday? Here’s What You Need to Do Next

I’ve got a lot of friends turning 50 this year is I thought it would be a good topic for a blog post.  The 50s are the time of life when your kids are starting to become more independent and may have already moved out. If that’s true, you may have a little more disposable income. That presents a good opportunity to ramp up your retirement savings, advises Sioux City Journal in the article “In Your 50s? Do These 3 Things to Plan for Your Retirement.”

Unfortunately, many people who turn 50 start thinking now is the time to retire early, go on extravagant vacations or buy themselves big ticket items that they’ve always wanted. A better approach: consider this a time to make the most of your income, keep saving for retirement and stay on a steady course.

Use the catch-up options available to you. The federal government knows that many people don’t have the means or the motivation to save for retirement until later in their careers. That’s why there are several provisions in the tax laws that let you catch up, once you reach 50.

  • You can put away an additional $1,000 above the annual contribution limit to an IRA.
  • You can add $6,000 in annual contribution to 401(k)s and similar employer-sponsored plans after age 50.
  • Once you pass your 55th birthday, you can make an additional $1,000 annual contribution to health savings accounts.

If you’ve got the cash to spare, these are great opportunities.

Educate yourself about Social Security. Many people rely on Social Security for their retirement, while others use it as a safety net. You’ll want to start learning about the rules.

When you take your first benefits has an impact on how much you’ll receive over your lifetime. Yes, you can start at age 62, but the difference in the amount you’ll get at 62 versus 70 is substantial. If you plan to keep working indefinitely, maximizing earnings is the best way to boost your Social Security benefits.

Get access to savings in the early years of retirement. If you can afford to retire in your 50s, know when you can tap your retirement savings. If you’ve used regular taxable accounts to invest your savings, it won’t matter when you make withdrawals. However, if your money is locked up in 401(k)s, SEPs, IRAs and other tax favored accounts, you’ll need to know the rules. Penalties for taking withdrawals before the specified age, can take a big bite out of your retirement accounts.

It is hard to think about working every day for another 15 or 20 years, once you’ve celebrated your 50th birthday.  However, keeping these three key ideas in mind as you plan for the future will help put you in the best financial state possible.

Another post-50th birthday task? Meet with an estate planning attorney and make sure you have a will, Power of Attorney and other legal documents to protect yourself and your loved ones in case something unexpected should happen.

Reference: Sioux City Journal (Aug. 25, 2018) “In Your 50s? Do These 3 Things to Plan for Your Retirement”

A Four Decade Retirement Plan? Here’s How

Not everyone gets the good genes or good fortune that has Orville Rogers flying around the country to attend master’s level track meets, but he is an inspiring example to follow. Money describes Rogers in a title that says it all: “This 100-Year-Old Has Been Retired for 40 Years, Has a Healthy Savings Account and Is a Track Champion. Here’s His Impressive Path to a Rich Retirement”

Longevity in savings that aligns with his years is a powerful force. He started saving in 1952, 25 years before the creation of the retirement savings plan, we know today as a 401(k). Back in the day, companies provided their employees with pension plans and those without a pension plan lived on Social Security when they retired. Life expectancies were shorter, so you didn’t need quite so much money. Rogers was born in 1917, and his peer group’s life expectancy was about 48.4 years old.

By saving for retirement and using his downtime between flights to educate himself about money, he started investing and says that his account is now worth around $5 million. He says he wasn’t particularly frugal either and supported his church and other Christian causes throughout his life. However, he had time on his side, making periodic investments over an extended period of time.

Another practice that extends life: exercise. Rogers took up running at age 50 and hasn’t stopped yet. Studies have shown that anyone, at any age or stage, is helped by a regular schedule of physical activity, tailored to your personal needs. Even people who are wheelchair bound and living in a nursing home can benefit from a chair exercise program. Among older seniors, the ability to walk a quarter mile (one lap around a track), is linked to better health outcomes.

Until recently, Rogers ran five to six miles a week. He’s in rehab now and working his way back to his prior running and training schedule.

When you live as long as Rogers has, you outlive a lot of family members and friends. Rogers moved into a retirement community two years after his wife died, making new friends because, as he says, “… if I don’t, I’d have none left.”

Faith has also been a strong force in his life over these many years. At 98, he wrote a book, The Running Man: Flying High for the Glory of God. When he was starting out in his retirement years, he flew church missions in Africa.

“I’m enthusiastic about life,” Rogers says. That kind of inspiration is a lesson to us all.

Reference: Money (Nov. 2018) “This 100-Year-Old Has Been Retired for 40 Years, Has a Healthy Savings Account and Is a Track Champion. Here’s His Impressive Path to a Rich Retirement”

Can I Trade Options in My Roth IRA?

There are opportunities to trade options using Roth IRAs, but investors must follow many of the same rules that apply to traditional IRAs.

From the time they were introduced, Roth IRAs were quickly adopted by many Americans. The appealing features: you pay taxes on contributions, but generally not on withdrawals, and not on capital gains in the future. It’s a good option for those who expect taxes to be higher after retirement. However, there’s even more that you can do with a Roth IRA.

MP900422543In Investopedia’s article,“Trading Options in Roth IRAs,” the use of options in Roth IRAs and some important considerations for investors are examined. Unlike stocks themselves, options can lose their entire value if the underlying security price doesn’t reach the strike price. This makes them much more risky than the traditional stocks, bonds, or mutual funds that are typically in Roth IRA retirement accounts.

Although risky, there are situations when they might be good for a retirement account. Put options can be used to hedge a long stock position against short-term risks, by locking in the right to sell at a certain price. Covered call option strategies can be used to generate income, if an investor is okay selling her stock.

Many of the riskier strategies in options aren’t permitted in Roth IRAs, because retirement accounts are designed to help individuals save for retirement—not become a tax shelter for risky speculation. Investors should understand these restrictions to avoid issues that could have potentially costly consequences. IRS Publication 590 has several of these prohibited transactions for Roth IRAs. The most important is that funds or assets in a Roth IRA can’t be used as security for a loan. Since it uses account funds or assets as collateral by definition, margin trading usually isn’t allowed in Roth IRAs to comply with the IRS’ tax rules and avoid any penalties.

Roth IRAs also have contribution limits that may prevent the depositing of funds to make up for a margin call, placing more restrictions on the use of margin in these accounts. In addition, the IRS rules imply that many different strategies are off-limits, such as call front spreads, VIX calendar spreads and short combos. These all involve the use of margin.

It’s also important to note that different brokers have different regulations, when it comes to what options trades are permitted in a Roth IRA. The brokers permitting some of these strategies, have restricted margin accounts, where some trades that traditionally require margin are permitted on a limited basis.

A word of caution: these strategies depends on separate approvals for certain types of options trades, and some may not be permitted. Traders need to have substantial knowledge and experience to avoid taking on too much risk. Remember that Roth IRAs were not designed for active trading. An experienced investor may be able to use stock options to hedge their portfolios against losses, or generate income. However, if you are using your Roth IRA funds as a speculative tool, you may want professional input to ensure that you are not creating problems with the IRS, or putting your retirement at risk.

Reference: Investopedia “Trading Options in Roth IRAs”

Another Facet of Social Security to Learn: The Earnings Test

If it seems like every time you start to understand Social Security, there’s something else to learn, you’re right. However, this is an important part of your retirement income, so it’s important to understand.

The Social Security earnings test is a way that the agency determines the limit of the amount of money individuals who have not yet reached full retirement age (FRA) can earn, while they are collecting Social Security retirement benefits.

Social securityFor 2018, for every $2 that a worker who has not yet reached FRA earns over the annual threshold limit of $17,040, Social Security will withhold $1 from your benefits.

The Social Security benefit threshold rises significantly (to $45,360 in 2018) in the year you attain your full retirement age (FRA). At that point, one dollar will be withheld for every three dollars you earn over that threshold. The earnings limit is effective the first of the year and indexed annually.

Investopedia’s recent article, “How the Social Security Earnings Test Works,” says that everyone getting Social Security benefits prior to their full retirement age is subject to the earnings test—even widows and widowers receiving survivor benefits and minor children receiving benefits on a deceased parent’s record, if the child earns more than the annual limit. If a minor child is receiving benefits based on a parent’s work history and the parent is still living and under full retirement age, the earnings test for the child’s benefit will be subject to the amount earned by the parent.

Let’s look at how the earnings limit is applied. In the first year you claim Social Security prior to your full retirement age, you’re subject to a monthly earnings test beginning the month you start receiving benefits ($17,040 ÷ 12, or $1,420 per month in 2018). As a result, you can earn as much as you want prior to the month you startyour benefits.

In subsequent years, until the year you reach FRA, you’re subject to an annual earnings limit each year after the first year, until the year you reach your full retirement age. At the start of each year, you’ll be asked to estimate how much you plan to earn. If your estimated earnings are less than the annual limit for that year, there won’t be any Social Security benefits withheld.

The earnings limit in the year when you reach your full retirement age is much higher ($45,360 in 2018). This is a monthlyearnings limit ($45,360 ÷ 12 or $3,780 per month), if it’s the first year you are claiming benefits, but an annualearnings limit if it’s the second or subsequent year you’re not receiving benefits.

The annual gross earnings, as reported on your W-2, are used. Therefore, contributing to a 401(k) or similar retirement plan to reduce earnings subject to state and federal income taxes won’t impact your earnings for the earnings test. However, payments received “on account of retirement,” like a severance package, aren’t subject to the earnings test.

Remember that the earnings of your spouse may be considered, when applying the earnings test for your benefits. If you’re claiming benefits based on your currentspouse’s work record, and your spouse is under FRA and continues to work, his or her earnings are considered when applying the earnings test for your benefits (even if you’ve already attained FRA). However, if you’re claiming benefits on an ex-spouse’srecord, only your current earnings and age are used when applying the earnings test.

Self-employed people have to work fewer than 45 hours per month in their business, otherwise benefits claimed prior to FRA will be withheld, no matter how much they earn.

When the Social Security Administration (SSA) determines you have or will exceed the earnings test based on the estimated earnings you give them, they’ll calculate the amount to withhold and begin doing so immediately. They’ll withhold payment of full benefit checks, until they receive the full amount overpaid, then they’ll go back to remitting your monthly benefit.

Depending on how much you will earn, it does sometimes make sense to apply for Social Security before your FRA, even if you might be subjected to the earnings test. For instance, a widow or widower with one income who needs the additional income might file for benefits earlier than they had anticipated. You’ll want to understand all of your options, before making the decision to file.

Reference: Investopedia (September 18, 2018) “How the Social Security Earnings Test Works”

More Information Equals A Better Outcome in Retirement Planning

Most people who work for a living dream of retirement. However, for many workers, the idea of retirement comes with its own worries. Will there be enough money? Will I be healthy enough to enjoy it?

Money and health are the two biggest worries about retirement. There are other unknowns: where will we live? How long will we be able to travel? What’s all this about paying estimated taxes, and how does Medicare work? Getting prepared for retirement will be less stressful, says the article “3 Ways to Approach Retirement More Confidently,” from The Motley Fool, if you follow these steps:

MP900398819Start with a budget. The chances are that you don’t know how much money you spend every month. You’re working, money comes in and it goes out. However, if you know how much money you are spending, and what you are spending it on, you’ll be able to have a handle on how much money you’ll need for retirement. You’ll also be able to see where your discretionary dollars are going and make a conscious decision, as to whether those are dollars that should be going into long-term savings for your retirement.

Remember that while some expenses may go down—like commuting—others will stay the same. You won’t be going to the office every day, but you will want to enjoy yourself. What will your leisure and entertainment activities be, and how much will they cost? How will you handle health care costs?  You should also remember that there will be quarterly taxes to be paid.

The more information you can pull together about your spending, savings and unavoidable costs like taxes and health care, the better you’ll be able to plan for this next phase of your life.

How much income will your retirement accounts provide? We tend to focus on how much we need to save, but we should really focus on how much income our retirement savings will generate. How much will your IRA or 401(k) provide on a monthly basis?

Let’s say you’ve saved $500,000 in time for retirement. If you use an annual 4% withdrawal rate, which is the going rule these days, you’ll only have $20,000 a year generated for annual income. If you add Social Security to that amount, you may find that it’s not enough to enjoy the lifestyle you’ve anticipated for retirement. You may find that part-time employment can fill the gap, or you may need to work for a few more years.

Be smart about Social Security. Despite your years of saving, you will likely come to rely on Social Security to pay some of your bills. The smarter you are about your filing strategy, the better positioned you’ll be to maximize your Social Security benefits. If you wait until your Full Retirement Age, you’ll get the full monthly benefit you’re entitled to. If you can hold off claiming your benefits until age 70, you’ll max out as the monthly benefits increase every year you delay claiming.

One of your key resources as you move towards your retirement years will be your estate planning attorney. The process of creating an estate plan will also answer some of your questions about what retirement will bring and planning for aging now will give you a lot more confidence about enjoying your early years of retirement.

Reference:The Motley Fool(September 23, 2018) “3 Ways to Approach Retirement More Confidently.”

Nothing Saved for Retirement? At Least You’re Not Alone

The big picture presented by the National Institute on Retirement Security is not a good one. Working Americans are completely unprepared for retirement.

The National Institute on Retirement Security is a non-profit research and educational organization that focuses on the development of public policies that help retirement security in America. A recent report using U.S. Census Bureau data looked at median retirement account balances for people ages 21 to 64.

MP900404926Think Advisor’s recent article, “Most Americans Have $0 Saved for Retirement: NIRS” says that the report revealed that nearly 60% of all working-age individuals don’t have assets in a retirement account. That’s based on the Census Bureau’s Survey of Income and Program Participation data from the year 2014.

With 59.3% of people not owning a retirement account, a worker in the middle of the overall workforce would have a goose egg in retirement savings. The National Institute on Retirement Security report found that nearly about three-quarters of workers in the 21-to-34 age bracket, over half of those ages 35 to 44, half ages 45 to 54 and also about half in the 55-to-64 age range don’t have a retirement account.

The report included in its definition of retirement accounts employer-sponsored plans like 401(k)s, 403(b)s, 457(b)s, SEP IRAs and Simple IRAs, as well as private retirement accounts—such as traditional and Roth IRAs. In the report’s analysis, an individual was deemed to own a retirement account, if her total retirement account assets were more than zero. There’s a significant gap between older and younger folks in retirement account ownership, and the report found that that this gap is much wider across income groups.

“Individuals with retirement accounts have a higher median income of $51,024, compared to $17,004 among individuals without retirement accounts—three times as large,” the report states.

The research also showed that the median account balances were insufficient, even among individuals withretirement accounts. In fact, for those approaching retirement (age 55 to 64) with retirement accounts, the average balance was $88,000. The report suggested this amount would only provide a “few hundred dollars per month in income if the full account balance is annuitized, or if an individual follows the traditionally recommended strategy of withdrawing 4% of the account balance per year (this amounts to less than $300 per month).”

Digging into the details presents an even more worrisome scenario. A look at working individuals age 21 to 64 who had any retirement savings found that 22% of them had saved less than a year’s income. And among those closest to retirement—ages 55 to 64—only 17% of those who had retirement savings had a year’s worth of income.

Regardless of your age, anyone who is working should be saving something for retirement, even if it is a small amount from every paycheck. The younger you are, the more important it is to start early. For older Americans, the savings target is far more daunting, but saving something is still better than nothing.

Reference: Think Advisor (September 18, 2018) “Most Americans Have $0 Saved for Retirement: NIRS”

Scroll to Top