Tag: Retirement

Is There “Life” after the Stretch IRA for Your Estate Plan?

In the last addition of our newsletter, my colleague Chris Blackmon covered some of the tax implications of the newly-enacted SECURE Act. As you may know, the SECURE Act (which stands for “Setting Every Community Up for Retirement Enhancement Act”) was signed into law in late December and became effective January 1st of this year. As Chris outlined, the Act makes significant changes to how retirement accounts can be funded, drawn down, and passed on to the next generation. While many of these changes have obvious tax ramifications, in this article we want to explore further the less obvious estate planning impact of these changes.

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Five New Year’s Resolutions to Keep in 2020

At the start of a new year, many of us sit back and make resolutions about a number of different things.  It may be spending more time with your family, losing weight, traveling more, any number of things that are important to you.  These are probably things that you have resolved to do previously but many times as the year goes on, you find that your resolve has dissipated.

However, resolutions around financial goals can be different.  Many of these are things to consider and decide on.  At the end of the process, you can feel confident that you have considered what is important for your financial health and move forward to the end of the year resolving to do the same the next year.

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What is the SECURE Act and does it matter to me?

The Setting Every Community Up for Retirement Enhancement (“SECURE”) Act was signed into law on December 20, 2019.  With all of the discussion in the news around the political uncertainty, impeachment, and the looming trade war, one of the largest changes to retirement savings laws in recent years was passed with very little fanfare.  However, some of the changes will be significant.  I have tried to highlight what may impact the majority of our clients and readers.

The Act has a lot of positives such as simplifying rules and making 401k plans potentially available to more workers, pushing back the RMD age, and allowing contributions to IRAs past age 70.  The negative impact I see is the elimination of the stretch IRA which is a clear move by the government to raise tax revenues by forcing money out of inherited IRAs sooner.  I will discuss in more detail below, but this should be a time to review beneficiaries and discuss whether any change in your legacy planning should be made in response to the new laws. What do you need to pay attention to?

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Asking the Right Questions

People say the only bad questions are the ones you don’t ask. That can be true, and asking bad questions likely won’t hurt you, but it is more important to ask the “Right” questions. In the last year, I met with a potential client who asked me a question I want to share with you. After some “get to know you chat” he asked me, “So, how are your results?” to which I responded, “Very high.” I could see the confusion on his face, so I just waited. As I will explain later, this had nothing to do with guaranteeing results.

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Creating a Tax Efficient Retirement Withdrawal Strategy

In working with my retired or soon-to-be retired clients, perhaps the most frequent question I am asked is “What is the best way to withdraw from my investment and retirement accounts in retirement in order to provide me my desired retirement income?” I believe they ask me this question because many of them have investments in a mix of different accounts with varying tax characteristics such as taxable investment accounts, IRAs, 401k or retirement plan accounts, Roth IRAs, and possibly real estate investments such as rental property. In addition to that, they may also have retirement income coming in from multiple sources and at different times such as Social Security income, pension income, and deferred compensation. If you are interested in increasing what you can spend in retirement and reducing the impact taxes have on your retirement nest egg, it is important to have a multi-year retirement income plan that takes into account the impact taxes will have on both your retirement income sources, and the withdrawals you take from your different investment and retirement accounts.

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What Is My Number?

As a financial advisor, this is a frequently asked question.  How much money do I need to save to retire comfortably?  In other words, what is my number?

Much has been written about this topic.  Schwab recently released a survey of 1,000 401(k) participants across the country indicating that on average, Americans believe they need $1.7 million to retire.  That may seem like a reasonable number, but is it?  A recent CNBC poll showed that two-thirds of U.S. workers are either very or somewhat confident that they will be able to live comfortably throughout retirement.  However, a study by the Employee Benefit Research Institute showed that only 42% of Americans have done any retirement calculations.  And on top of that, according to Fidelity, the average 401(k) balance in the U.S. is $297,700 which is a far cry from $1.7 million.

So, where is the disconnect and how can you actually determine what your own “number” is?

Although every person’s situation is completely different, there are really five things to consider when determining how much you need to save for retirement.  The impact of underestimating any of these factors could be catastrophic, so this is not the time for optimism.  This is the time to be very clear-eyed about setting your goals and expectations.  Let’s get started.

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