Financial Planning Archives

Put Your Money to Work

Written on July 28, 2019.

You’ve worked for your money, and retirement is the time to have your money work for you. But what does this mean? Basically, your goal in retirement should be to turn what you’ve saved into retirement income. Many Americans are worried about running out of money since pensions are rare and there are reasons why you can’t rely solely on Social Security in retirement. But if you’ve saved a substantial nest egg of 1 million dollars, you can use these strategies to help make your savings last and put your money to work.

A Plan for a Better IRS Experience

Written on July 26, 2019.

“I love dealing with the IRS,” said no one, ever. But, President Trump has signed a bill that will reform the IRS in an effort to make it more taxpayer-friendly. You’ll still have to pay your taxes, and rule breakers will still be punished, but hopefully, the average person will have a better experience with the agency when it comes to customer service, identity theft protection, and payment. The Taxpayer First Act is aimed at creating a plan for a better IRS experience.

Don’t forget about Your Old 401(k)s

Written on July 19, 2019.

Do you have multiple 401(k)s? If you left your money in a former employer’s 401(k), you may want to reconsider as you near retirement. According to the Bureau of Labor Statics, Baby Boomers have held an average of 12 jobs by the time they turn 50. When you leave a job, the money you contribute to your 401(k) is still yours, and you may also be able to keep your employer’s contributions depending on your vesting schedule. There are a few options for your old 401(k)s: You can cash out of the plan, leave the money in the plan, rollover the money into your current employer’s plan, or roll it over to an IRA. All of these options have different advantages, so don’t forget about your old 401(k)s as you approach retirement.

Financial Lessons from a Founding Father

Written on July 12, 2019.

July 12^th marks the 215^th anniversary of Alexander Hamilton’s death. As the first secretary of the treasury for America, he created the first national bank, consolidated the new country’s war debts, and established credit the country could count on. You could say he was America’s, Chief Financial Officer. He was also a self-taught immigrant who started off with no wealth and ended up on the $10 bill. Thanks to his killer, Aaron Burr, Hamilton never reached retirement. But we can learn important financial lessons from the Founding Father who built our country’s financial system.

3 Things to Do if the Stretch IRA Dies

Written on July 5, 2019.

The House of Representatives voted in favor of the Secure Act 417-3, and the bill is now on a fast track to vote in the Senate. The bill would do away with the tax-planning strategy for inherited IRA commonly referred to as the “stretch IRA.” “Stretching” an IRA allows beneficiaries to take required minimum distributions (RMDs) from an inherited IRA based on their own, longer life expectancies. The Secure Act proposes that beneficiaries must deplete inherited IRAs within 10 years of the original owner’s death. This could cause a bigger tax burden on beneficiaries and cause them to lose the advantage of continued tax-deferred growth. However, there will be exceptions to the proposed new rules, and alternatives to a stretch IRA.

Covering Long-Term Care Costs

Written on June 21, 2019.

Some of the major expenses you’ll need to anticipate in retirement are your healthcare costs. There are many choices to make when it comes to choosing a Medicare plan, using an HSA, and qualifying for Medicaid. One healthcare cost that is easy, but possibly detrimental to overlook is long-term care. It’s estimated that 52% of people turning 65 will need some type of long-term care during their lifetimes. On average, women will need 2.5 years of long-term care, and men will need 1.5 years. Also, 14% of people need long-term care for longer than five years. When you consider that the average rate for a private room in a nursing home is $100,375 a year, covering long-term care costs is a major feat.

Retirees may be confused about what services Medicare covers, but don’t fall for these long-term care myths. Medicare can cover medical services needed in nursing homes, assisted living facilities, and one’s own home, but not the cost of staying in these facilities or in-home care costs for long periods of time. Under most circumstances, it covers short-term stays in skilled nursing facilities if you were formally admitted to a hospital for three days. If qualifications are met, Medicare will pay the full cost for the first 20 days, and a portion of the cost for the following 80. After 100 days you are responsible for covering costs. Even if you purchase a Medicare supplemental insurance policy, you’ll need to find another way to cover long-term care costs.

Since Medicare won’t necessarily cover these costs, some people may look to Medicaid. And while Medicaid will cover a large portion of long-term care costs, there are strict functional and financial requirements to qualify for Medicaid. To start with, applicants must be 65 or older, and have a permanent disability or be blind. A medical specialist will assess applicants to see what type of care they require, and the criteria varies from state to state. The income limit to qualify for Medicaid also varies according to the state you’re in, and can be up to $2,313 per month as of 2019.

Covering long-term care costs is just one aspect of creating a retirement plan, but it is a big one. Whether you’re looking to pay for long-term care through Medicaid, insurance, your savings, or some combination, the professionals at Peak Financial Freedom Group can assess your unique financial situation and help make long-term care planning a part of your retirement plan. Click here to schedule your free financial review today.

Social Security’s Decreased Buying Power

Written on June 14, 2019.

Some are worried about the state of Social Security since the latest report found that starting next year, the program’s annual cost will exceed its income. Some speculate that since the program’s trust fund is expected to be depleted by 2034, cuts are inevitable. But, there should be a more immediate worry facing beneficiaries than a theoretical future policy change: Social Security’s decreased buying power.

There are several reasons why you can’t rely solely on Social Security in retirement, and the fact that benefits have lost 33% of their buying power since 2000 is one of them. And, they will continue to lose buying power as long as the Cost of Living Adjustments (COLA) are below the inflation rate. Inflation rates have been around 2% which is relatively low, but still enough to eat away at retirees’ savings and value of a Social Security check: If you retire at age 65 and the inflation rate stays at 2% per year, $75,000 will have the same buying power as $50,000 when you are 85.

To make matters worse, the costs of some services that retirees spend more money on than the average American are rising faster than the overall inflation rate, such as healthcare, housing, and food. Since 2000, prescription drug prices have risen 352%, Medicare Part B premiums have risen almost 200%, along with home owners’ insurance and real estate taxes. The Senior Citizens League projects the cost-of-living adjustment for 2020 to be 1.7%. Since 2000, retirees’ expenses have increased twice as fast as the annual COLA adjustment to Social Security.

There are reasons why you should be worried about inflation, especially in retirement. This could especially be a problem if higher tariffs on Chinese goods raises the inflation rate in the third quarter, after the COLA adjustment is decided for the year. Inflation can erode the buying power of your Social Security benefit, as well as your personal savings.

There’s no telling what the inflation rate could be 15 years from now when you’re already retired and relying on Social Security and your savings – in the 1970’s the inflation rate was over 7%. And there’s no guarantee that COLA adjustments would keep up with an increased inflation rate.

If you need a plan to combat inflation and Social Security’s decreased buying power, contact the professionals at Peak Financial Freedom Group. They can help you create a plan for a long retirement. Click here to schedule your no cost, no obligation financial review today.

Higher HSA Contribution Limits

Written on June 7, 2019.

If you have an HSA or are planning on opening one, you’re in luck: The IRS has announced higher contribution limits for 2020. Starting next year, you can contribute up to $3,550 for individual coverage, or $7,100 for family coverage. And, if you’re 55 or older, you can contribute an additional $1,000 per year. You can contribute to an HSA if you have a health plan with a minimum annual deductible of $1,400 for individual coverage or $2,800 for family coverage.

You can reduce your taxable income by contributing to an HSA even if you don’t itemize your taxes. Since it’s a tax advantaged account, the higher your tax bracket, the bigger your savings. It can be a powerful retirement savings tool because you can let the funds grow tax-free for as long as you want, and then withdraw money tax free for qualified medical expenses. After you turn 65 you can withdraw funds for nonmedical uses and pay the same tax you would on withdrawals from a traditional retirement account.

While it’s helpful to contribute enough to cover your out-of-pocket medical expenses for the year, it can be better to contribute the maximum amount in order to benefit from the investment. You can create an investment strategy for your HSA just like you would with a 401(k) or IRA, and use it to help cover the rising cost of healthcare in retirement. You can shift to lower-risk investments as you get older, and rely on the account once you’ve retired and no longer receive healthcare coverage from your employer.

You’ll want to avoid using the account to pay for nonqualified expenses, as you’ll pay both a tax and a 20% penalty on withdrawals before age 65. Also keep in mind that passing on an HSA to anyone except your spouse will also pass on a tax burden: non-spouse beneficiaries will have to pay taxes on the balance the year they inherit it. So, it can be better to draw down your account balance in retirement instead of saving it for your heirs. Once you turn 65 you can’t contribute to on HSA, but you can use it to cover Medicare premiums, out-of-pocket expenses, and a portion of long-term care policy premiums.

An HSA is just one way to plan ahead for your healthcare expenses in retirement. Here at Peak Financial Freedom Group, we can help you create a comprehensive retirement plan that takes your future healthcare costs into account. Click here to schedule your no cost, no obligation financial review.

Giving the Gift of Education

Written on May 31, 2019.

It’s graduation season, and along with all the wonderful things a college degree comes with are also student loan debts. If you’re attending high school or college graduations, no one may be talking about it, but the graduates and their parents likely have the high cost of college on their minds. You might be writing a check or slipping a $20 into the graduate’s card if they are someone close to you, but what about your own family? You likely experienced or are experiencing the burden of paying for your child’s tuition and might be wondering how high tuition will rise by the time your grandchildren are 18. Considering the high cost of college tuition, giving the gift of education to your grandchildren could be the most generous thing you ever do.

College tuitions have been rising at a rate higher than that of inflation. There are 44 million student loan borrowers in the U.S. with a total of $1.5 trillion in debt. There’s not much you can do about this, but you can help to save for your grandchildren’s education – even if they don’t exist yet – using a 529 plan.

Once you contribute to a 529 plan, the funds can grow and be withdrawn tax-free for educational costs. Some states will give you a tax credit for putting money into a 529, and most states offer a tax deduction if you contribute to a 529 provided by that state. If your grandchild isn’t born yet, you can name your son or daughter as the account beneficiary. Then, if grandchildren come along later, you can name him or her the beneficiary instead. If you pass away, your adult child can take over the account and name their child as the beneficiary. If they do not end up having children, they or you can give the funds to any relative.

Contributing to a 529 plan can be a good way to pass on your values, as well as wealth. If you want to emphasize the importance of education and saving to your children and grandchildren, giving the gift of education with a 529 plan could be part of estate planning for your loved ones.

Here at Peak Financial Freedom Group, we understand the importance of planning for the future. We can help you create a comprehensive retirement plan that includes an estate and legacy plan. Click here to schedule your complimentary financial review today.

Why You Should be Worried About Inflation

Written on May 20, 2019.

You may have heard that we’re on the brink of war – a trade war that is, with China. Trump’s proposed tariffs on imported Chinese goods and services has already affected the market, and could affect inflation. If tariffs are imposed on $300 billion worth of Chinese goods, the core inflation rate would rise noticeably above 2% next year, according to Goldman Sachs Group.

If you think that diligently saving for retirement means you are all set for a long, prosperous 30 plus years, think again: Inflation hasn’t been high recently, but it still poses a major threat to your retirement. Even if the inflation rate were to stay around 2% like it has been for the past few years, it will still erode the value of your nest egg over time: If you retire at 65 and prices increase by 2% a year, $75,000 will have the same buying power as $50,000 when you are 85.

There’s no telling what the inflation rate could be 15 years from now when you’re already retired – in the 1970’s prices increased at an annual pace of more than 7%. To complicate things further for retirees, the price of some services increases faster than others, such as health care, which is the third largest expense for Americans 65 and older. So, what can you do to protect your retirement from inflation?

You can start saving more for retirement while reducing your taxes by increasing your savings rate as you get closer to retirement. Once you turn 50, you can contribute an additional $1,000 to your IRA for a total of $7,000 a year, and an additional $6,000 to a 401(k) for a total of $25,000 a year for 2019. A bigger nest egg can help to protect your savings from inflation.

Investing always involves some risk, but a diversified portfolio with stocks and bonds tends to outpace inflation over time. More aggressive investing could also outpace the inflation rate. But, as you get closer to retirement you’ll want steady income you can rely on. While Social Security payments rise with inflation, they may not keep pace with it exactly, and there are several reasons why you can’t rely solely on Social Security in retirement.

If you’re concerned about the threat inflation can pose to your retirement and how the trade war could raise the inflation rate, contact the professionals at Peak Financial Freedom Group. We can help you create a comprehensive retirement plan that helps to protect your nest egg against inflation. Click here to schedule your complimentary financial review today.