2022 Contribution Limits: Is it Time to Contribute More?

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Preparing for retirement just got a little more financial wiggle room. The Internal Revenue Service (IRS) announced new contribution limits for 2022.

401(k) & 403(b)

For workplace retirement accounts (i.e. 401(k), 403(b), amongst others), the contribution limit rises $1,000 to $20,500. Catch-up contributions remain at $6,500. (1)

Traditional IRA

Staying put for 2022 are traditional Individual Retirement Accounts (IRAs), with the limit remaining at $6,000. The catch-up contribution for traditional IRAs remains $1,000 as well. (1)

Roth IRA

Eligibility for Roth IRA contributions has increased, as well. These have bumped up to $129,000 to $144,000 for single filers and heads of households, and $204,000 to $214,000 for those filing jointly as married couples. (1)

SIMPLE IRA

Another increase was for SIMPLE IRA Plans (SIMPLE is an acronym for Savings Incentive Match Plan for Employees), which increases from $13,500 to $14,000. (1)

If these increases apply to your retirement strategy, a financial professional may be able to help make some adjustments to your contributions.

Contribution Limits (3,4)20222021Change
401(k) & 403(b) maximum employee elective deferral$20,500$19,500+$1,000
401(k)s 403(b), etc. employee catch-up contribution
(if age 50 or older by year-end)*
$6,500$6,500None
Traditional IRA & Roth IRA$6,000$6,000None
Traditional IRA & Roth IRA catch-up contributions
(if age 50 or older by year-end)*
$1.000$1,000None
SIMPLE IRA$14,000$13,500+$500

RMDs Explained

Once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) or Savings Incentive Match Plan for Employees IRA in most circumstances. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Once you reach age 72, you must begin taking required minimum distributions from your 401(k), 403(b), or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

5-Year Holding Period for Roth IRAs

To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

Sources

  1. CNBC.com, November 5, 2021
  2. https://www.investopedia.com/retirement/401k-contribution-limits/
  3. https://www.irs.gov/pub/irs-drop/n-21-61.pdf
  4. https://www.irs.gov/retirement-plans/401k-plans-deferrals-and-matching-when-compensation-exceeds-the-annual-limit

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Required Minimum Distribution (RMD) Rules: 4 Key Things Every Retiree Should Know

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Most people worry about not having enough money for retirement. But did you also know that there is such a thing as having too much money? Too much money may not necessarily be a bad thing, but you do need to worry about required minimum distributions (RMDs). Here’s what you need to know about RMDs.

RMDs Depend on Your Age

The main point of RMDs is to keep money from staying tax-free forever. The government gave a temporary tax break to encourage you to save for retirement, but it still wants that tax money. A required minimum distribution is a required withdrawal from your retirement account. It counts in your taxable income just like any other withdrawal in retirement.

Currently, RMDs start when you hit age 72 (or 70½ if you turned 70½ prior to January 1, 2020) and they are calculated to empty your retirement account within your expected life expectancy. (1) Each year, you need to withdraw a certain percentage of your account with the percentage going up as you age. However, it’s important to realize that you do not have to spend all of this money. You can also reinvest it into a taxable account.

Not Taking the RMD Can Mean Big Penalties

Thinking about skipping RMDs to avoid taxes? Think again. Not only do you still have to pay the taxes on the RMD amount, but you’ll also owe a 50 percent penalty.

For example, if you were supposed to withdraw $10,000 but didn’t, the IRS will charge you an extra $5,000. The penalty repeats every year until you catch up on your RMDs from previous years.

RMDs Can Throw a Wrench in Your Tax Planning

There are many reasons why you might want to reduce your taxable income in retirement. These can include qualifying for things like Medicaid subsidies, avoiding taxes on your Social Security benefits, trying to stay in a lower capital gains tax bracket, or just wanting to pay fewer taxes.

Required minimum distributions can throw a major wrench in your tax planning because not only are they not avoidable, they can suddenly increase if the market surges. If you’re using a tax strategy that requires reducing your income to a certain level, it’s important to build in flexibility for your RMDs.

RMDs Can Be Avoided

There are still ways to reduce or even avoid RMDs altogether. The main idea is to get the money out of your retirement account when you want to not when the IRS wants you to.

One method is to make extra withdrawals at the end of the year. In December, you can estimate your taxes for the year. If you still have room in a lower tax bracket or below the income you need to stay under, you can withdraw additional money. When next year’s RMDs are calculated, it will be on a lower account balance.

You can also convert to a Roth IRA instead of taxing the money out of a tax-advantaged account. Roth IRAs don’t have RMDs because the money has already been taxed. When you make the conversion, you pay ordinary income tax rates on the amount you converted. There are no penalties even if you do the conversion before you turn 59 1/2.

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Sources

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds

This content is developed from sources believed to be providing accurate information, and provided by Twenty Over Ten. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

What to Do When a Family Member Dies: A Financial Checklist for Difficult Times

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The passing of a loved one irrevocably alters family life. After a death, there is so much to attend to; it is better to do it sooner rather than later. Here, then, is a list of what commonly needs to be looked after.

Request copies of the death certificate.

Depending on where you live, you have two or three places to turn to for this document. You can phone, email, or personally visit the office of the county recorder (or county clerk, as the term may be). Alternately, you can contact your state’s vital records department (sometimes called the state registrar or department of health); it may take a little longer to get the document this way. In addition, some large and mid-sized cities maintain their own registrars of births and deaths.

Call advisors, executors, & business partners as applicable.

The deceased’s lawyer and CPA should be quickly notified along with any business partners and the executor of his or her estate. You must have a say in the decision-making. The tasks of protecting family assets, carrying out your loved one’s bequests, and determining the next steps for a business will follow.

Call your loved one’s current or former employer(s).

Notify them, even if your loved one left the workforce years ago, as retirement savings or pension payments may be involved. As the conversation develops, it is perfectly appropriate to ask about pertinent financial matters – say, 401(k) or 403(b) savings that will be inherited by a beneficiary or what will happen to unused vacation time and/or unpaid bonuses.

Funds amassed in a qualified retirement plan sponsored by an employer (or an IRA, for that matter) commonly go to the primary beneficiary who has been named on the most recent beneficiary form filled out by the account owner. That sounds simple enough – but certain rules and regulations can make things complicated. (1)

As a general rule, if the late 401(k) or 403(b) account owner was your spouse, then you are the presumed beneficiary of the 401(k) or 403(b) assets. Under the Employee Retirement Income Security Act (ERISA), workplace retirement plans are directed to abide by this guideline. If someone else has been named as the primary beneficiary of the account, with your consent, then the assets will go to that person. (2)

If the late 401(k) or 403(b) account owner was single, the assets in the account will go to whomever is designated as the primary beneficiary. The beneficiary designation will override other estate planning documents. (3)

To arrange and confirm the transfer or distribution of such assets, the beneficiary form must be found. If you can’t locate it, the employer and/or the financial firm overseeing the retirement plan should provide access to a copy. The financial firm should ask you to supply:

  • A certified copy of the account owner’s death certificate
  • A notarized affidavit of domicile (a document certifying his or her place of residence at the time of death)

If you have been widowed, call Social Security.

If you already receive benefits, you may now be eligible for greater benefits. (4)

If your spouse received Social Security and you did not, you may now qualify for survivor benefits – and you should let Social Security know as soon as possible, as these benefits may be paid out relative to your application date rather than the date of your loved one’s death. (4)

If this is the case, you may apply for survivor benefits by phone or by visiting a Social Security office. You will need to have some extensive paperwork on hand, specifically:

  • Proof of the death (death certificate, funeral home documentation)
  • Your late spouse’s Social Security number
  • His/her most recent W-2 forms or federal self-employment tax return
  • Your own Social Security number & birth certificate
  • Social Security numbers & birth certificates of any dependent children
  • Your marriage certificate, if you have been widowed
  • The name of your bank & the number of your bank account, for direct deposit purposes

If you have reached full retirement age, you will likely get 100% of the basic benefit amount that your late spouse was receiving. If you are in your sixties, but haven’t yet reached full retirement age, you may receive anywhere from 71% to 99% of that amount. If you have a child younger than 16, you will get 75% of your late spouse’s basic benefit amount and so will your child. (4,5)

Contact the insurance company.

Assuming your loved one had some form of life insurance, contact the policyholder services department of that insurer and confirm the steps for claiming the death benefit. A claim form will have to be filled out, signed, and presented to the insurance company (one for each named adult beneficiary of the policy), and a certified copy of the death certificate must also be sent. If the primary beneficiary of a policy is deceased, the contingent beneficiary can usually claim the death benefit with a claim form, plus the death certificates of the policy owner and the primary beneficiary. Some insurers simply have you submit a form reporting the death of the policyholder first, and then follow up by mailing you forms and instructions for the next steps. (6)

Death benefits are generally paid out within 30 to 60 days of a claim. Presumably, they will be paid out in a lump sum. Some insurers will let a beneficiary receive a payout as a stream of monthly income or in installments. (7)

It isn’t unusual for people to own multiple life insurance policies. The AARP, AAA, and myriad banks and non-profits market group life coverage to members/customers, and mortgage lenders and credit issuers offer forms of life insurance for borrowers. Tracking all this coverage down is the problem, and canceled checks and bank records don’t always provide ready clues. Not surprisingly, websites have appeared that will help you search for life insurance policies, and you may be able to locate policies with the help of your state insurance commissioner’s office. (8)

If the family member was a veteran, call the VA.

Your family may be entitled to funeral and burial benefits. In addition, the Veterans Administration offers Death Pensions and Aid & Attendance and Housebound Pensions to lower-income widows of deceased wartime veterans and their unmarried children. (9)

These pensions are needs based. To be eligible for the Death Pension, a widow or child’s “countable” income must fall below a certain yearly limit set by Congress. (A “child” as old as 22 may be eligible for the Death Pension.) The deceased veteran must not have received a dishonorable discharge, and they must have served 90 or more days of active duty, at least 1 day of it during wartime. If they entered active duty after September 7, 1980, then in most cases, 24 months or more of active duty service are necessary for a Death Pension to eventually be paid. The Aid & Attendance and Housebound Pensions provide some recurring income to pay for licensed home health aide or homemaker services. (9)

It is wise to contact a Veterans Services Officer before you file such a pension claim, as they can be a big help during the process. You can find a VSO through your state veterans’ affairs department or through the VFW, the Order of the Purple Heart, the American Legion, or the non-profit National Veterans Foundation. (9)

A final individual income tax return may be required for the deceased.

You or your tax professional should consult I.R.S. Publication 17 for more detail. Also, search for “Topic 356 – Decedents” on the I.R.S. website. Deductible expenses paid by the deceased before death can generally be claimed as deductions on such a return. (10)

If you have been widowed, consider the future.

In the coming days or weeks, you should arrange a meeting to review your retirement planning strategy, and your will, beneficiary designations, and estate plan may also need to be updated. The passing of your spouse may necessitate a new executor for your own estate. Any durable powers of attorney may also need to be revised.

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Sources

  1. thebalance.com/review-401-k-plan-beneficiary-designations-2894174
  2. nolo.com/legal-encyclopedia/if-you-don-t-want-leave-retirement-accounts-your-spouse.html
  3. cnbc.com/2018/04/16/out-of-date-beneficiary-designations-are-a-common-and-costly-mistake.html
  4. thebalance.com/social-security-survivor-benefits-for-a-spouse-2388918
  5. ssa.gov/planners/survivors/onyourown.html
  6. nolo.com/legal-encyclopedia/beneficiaries-claim-life-insurance-32433.html
  7. investopedia.com/articles/personal-finance/121914/life-insurance-policies-how-payouts-work.asp
  8. thebalance.com/finding-a-lost-life-insurance-policy-4066234
  9. nvf.org/pensions-for-survivors-of-deceased-wartime-veterans/
  10. irs.gov/taxtopics/tc356.html

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

The Social Security Administration Announced the 2022 Cost of Living Adjustment (COLA) is 5.9%

On October 13, 2021, the Social Security Administration (SSA) officially announced that Social Security recipients will receive a 5.9 percent cost-of-living adjustment (COLA) for 2022, the largest increase in four decades. This adjustment will begin with benefits payable to more than 64 million Social Security beneficiaries in January 2022. Additionally, increased payments to more than 8 million Supplemental Security Income (SSI) beneficiaries will begin on December 31, 2021. (1)

Biggest COLA Increase in Decades?

While many predicted a bump of as much as 6.1% given recent movement in the Consumer Price Index (CPI), the announced 5.9% increase is still substantial. Some fear that rising consumer prices may dilute the impact of the increase with inflation currently running at more than 5 percent. While this remains to be seen, Social Security beneficiaries will no doubt welcome the largest adjustment in many years.1

How You Will Be Notified

According to the Social Security Administration, Social Security and SSI beneficiaries are usually notified about their new benefit amount by mail starting in early December. However, if you’ve set up your SSA online account, you will also be able to view your COLA notice online through your “My Social Security” account. (1)

Next Steps?

If this increase surprises or concerns you, it’s always a good idea to seek guidance from your financial professional about changes to any of your sources of retirement income. I welcome a chance to talk with you about this.

▲ Social Security Timing Tradeoffs

Surprisingly few Americans understand the benefits and trade-offs related to claiming Social Security at various ages. The top graphic illustrates these tradeoffs for people whose Full Retirement Age (FRA) is 66. Delaying benefits results in a much higher benefit amount: Waiting to age 70 results in 32% more in a benefit check than taking benefits at FRA. Likewise, taking benefits early will lower the benefit amount. At age 62, beneficiaries would have received only 75% of what they would get if they waited until age 66. FRA for individuals turning 62 in 2021 is 66 and 10 months, and FRA will continue to move 2 more months in 2022, when it will reach and remain at age 67. The Social Security Amendments Act of 1983 increased FRA from 65 to 67 over a 40-year period. The first phase of transition increased FRA from 65 to 66 for individuals turning 62 between 2000 and 2005. After an 11-year hiatus, the transition from 66 to 67 will complete the move.

The bottom graphic shows the tradeoffs for younger individuals, who will be penalized for early claiming to a greater degree. The percentages shown are “real” amounts – cost-of-living adjustments (COLA) will be added on top, providing an even greater difference between the actual dollar benefits one would receive. The average annual COLA for the past 36 years has been 2.5%.

Sources

  1. SSA.gov, October 13, 2021
  2. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/retirement-insights/guide-to-retirement/#

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Are Your Taxes Going to Change in 2022?

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Wise investors take the “big picture” view.

Most likely, you’ve heard what’s brewing in Washington, D.C., called by one of these names.

The Build Back Better Act.

Or the $3.5 trillion budget reconciliation bill. Or the Jobs and Economic Recovery Plan for Working Families. (1)

Regardless of what name you’ve heard, one fact is clear: It is likely to be months before any action is taken.

When bills are being worked on—especially one that’s this size—it’s a good time to take a quick Civics refresher. Right now, the bill is “in committee” with both the House of Representatives and the Senate. The committees are filling in the policy details and the exact financial figures, which can be a long process. (2)

It will then be up to the House and Senate to vote on an identical version of a final bill—if both can agree to a final version. (2)

Right now, it would be hasty to make any portfolio changes based on what’s being discussed and debated. An ambitious investor would have to guess at what policies will be in the final bill, estimate the financial impact, and determine what portfolio changes should be made. That’s a tall order.

So as difficult as it may be, the best approach is to wait-and-see.

▼Download – 2021 Key Tax Information

Sources

  1. Forbes.com, August 25, 2021
  2. NPR.org, September 14, 2021

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and financial professionals before modifying your tax strategy.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What is a Power of Attorney and How Do I Know If I Need One?

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The point of the POA

A power of attorney (POA) is a legal instrument that delegates an individual’s legal authority to another person. If an individual is incapacitated, the POA assigns a trusted party to make decisions on his or her behalf.

There are nondurable, springing, and durable powers of attorney. A nondurable power of attorney often comes into play in real estate transactions, or when someone elects to delegate their financial affairs to an assignee during an extended absence. A springing power of attorney “springs” into effect when a specific event occurs (usually an illness or disability affecting an individual). A “durable” power of attorney allows an assignee, or agent, to act on behalf of a second party, or principal, even after the principal is not mentally competent or physically able to make decisions. Once a principal signs, or executes, a durable power of attorney, it may be used immediately, until it is either revoked by the principal or the principal dies. (1)

Keep in mind this article is for informational purposes only. It’s not a replacement for real-life advice. Make sure to consult your legal professional so you can better understand what type of powers of attorney is a best fit for your situation.

What the POA allows in financial terms. Financially, a Power of Attorney is a tremendously useful instrument. An agent can pay bills, write checks, make investment decisions, buy or sell real estate or other hard assets, sign contracts, file taxes, and even arrange the distribution of retirement benefits.

Advanced Healthcare Directives and Living Wills

Some illnesses can eventually rob people of the ability to articulate their wishes, and this is a major reason why people opt for a Health Care Power of Attorney (HCPOA) or a living will. There are differences between the two.

A Health Care Power of Attorney (also called a “healthcare proxy”) allows an agent to make medical decisions for a principal, should they become physically or mentally incapacitated. A living will gives an assignee similar powers of decision, but this advanced directive only applies when someone faces certain death. The assignee has the authority to carry out the wishes of the incapacitated party.

Would you like to learn more?

It may be time to meet with an attorney who specializes in these issues. You can find one with the help of an insurance or financial professional who has assisted families with legacy planning.

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This checklist will help you determine what issues to consider when reviewing your estate plan.

Sources

  1. AgingCare.com, August 23, 2021

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Will There Be a Big Cost of Living Adjustment for Social Security Benefits in 2022?

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The news keeps getting better for Social Security recipients.

It’s now projected that benefits will increase 6.1% in 2022, up from the 4.7% forecast just two months ago. That would be the most significant increase since 1983. (1,2)

It’s all about inflation. Social Security cost of living adjustments (COLA) are based on the consumer price index, which rose 5.4% in June — its largest 12-month increase since 2008. The official announcement is expected in October and, once it’s confirmed, the revised payment will go into effect in January 2022. (3)

More than 65 million Americans receive Social Security, and the annual cost of living adjustments are designed to help recipients manage higher costs. At the start of 2021, recipients saw a 1.3% increase. (4)

The average monthly benefit is $1,544 for retired workers. So a 6.1% increase amounts to $94 more a month. That might not be quite enough for a car payment, but it’s double the 3% raise being given to U.S. workers in 2021. (4,5)

Social Security can be confusing. One survey found only 6% of Americans know all the factors that determine the maximum benefits someone can receive. If you have any questions, please reach out. We have a number of resources at our fingertips that you may find helpful. (6)

Claiming Social Security – decision tree

This decision tree is designed to help individuals think through some of the factors related to when to take Social Security benefits. Working, having other sources of income, expected longevity, preserving a portfolio and trying to maximize benefits are important considerations. The possibility of benefits for family is not included; individuals should contact the Social Security Administration if they have questions about their personal situation.

Sources

  1. Fortune.com, July 15, 2021
  2. SeniorsLeague.org, May 12, 2021
  3. InvestmentNews.com, July 13, 2021
  4. SSA.gov, June 2021
  5. SHRM.org, June 2021
  6. FinancialAdvisorIQ.com, July 19, 2021
  7. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/retirement-insights/guide-to-retirement/

The forecasts for Social Security benefits are based on assumptions, subject to revision without notice, and may not materialize.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What to Be Thinking About In Preparation for Retirement

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How do you picture your future?

If you are like many contemplating retirement, your view is likely pragmatic compared to that of your parents. That doesn’t mean you must have a “plain vanilla” tomorrow. Even if your retirement savings are not as great as you would prefer, you still have great potential to design the life you want.

With that in mind, here are some things to think about.

What do you absolutely need to accomplish?

If you could only get four or five things done in retirement, what would they be? Answering this question might lead you to compile a “short list” of life goals, and while they may have nothing to do with money, the financial decisions you make may be integral to achieving them.

What would revitalize you?

Some people retire with no particular goals at all, and others retire burnt out. After weeks or months of respite, ambition inevitably returns. They start to think about what pursuits or adventures they could embark on to make these years special. Others have known for decades what dreams they will follow … and yet, when the time to follow them arrives, those dreams may unfold differently than anticipated and may even be supplanted by new ones.

In retirement, time is really your most valuable asset. With more free time and opportunity for reflection, you might find your old dreams giving way to new ones. You may find yourself called to volunteer as never before or motivated to work again in a new context.

Who should you share your time with?

Here is another profound choice you get to make in retirement. The quick answer to this question for many retirees would be “family.” Today, we have nuclear families, blended families, extended families; some people think of their friends or their employees as family. You may define it as you wish and allocate more or less of your time to your family as you wish (some people do want less family time when they retire).

Regardless of how you define “family” or whether or not you want more “family time” in retirement, you probably don’t want to spend your time around “dream stealers.” They do exist. If you have a grand dream in mind for retirement, you may meet people who try to thwart it and urge you not to pursue it. (Hopefully, they are not in close proximity to you.) Reducing their psychological impact on your retirement may increase your happiness.

How much will you spend?

We can’t control all retirement expenses, but we can control some of them. The thought of downsizing may have crossed your mind. While only about 10% of people older than 60 sell homes and move following retirement, it can potentially lead to more manageable mortgage payments. You could also lose one or more cars (and the insurance that goes with them) and live in a neighborhood with extensive, efficient public transit. Ditching landlines and premium cable TV (or maybe all cable TV) can bring more savings. Garage sales and donations can have financial benefits as well as helping you get rid of clutter, with either cash or a federal tax deduction.1

This article is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your overall tax strategy.

Could you leave a legacy?

Many of us would like to give our kids or grandkids a good start in life, but given some of the economic realities of today, leaving an inheritance can be trickier than many realize.

Consider a couple with, for example, $285,000 in retirement savings. If that couple follows the 4% rule, the old maxim that you should withdraw about 4% of your retirement savings per year, subsequently adjusted for inflation – then you are talking about $11,400 withdrawn to start. When you combine that $11,400 with Social Security and other potential investment income, that couple isn’t exactly rich. Sustaining and enhancing income becomes the priority, and legacy preparations may have to take a backseat. On the other hand, a recent survey showed that 92% of all respondents believe it is important to leave money and other assets to their children.2

How are you preparing for retirement?

This is the most important question of all. If you feel you need to prepare more for the future or reexamine your existing strategy in light of recent changes in your life, conferring with a financial professional experienced in retirement approaches may be a smart move.

Changes in lifestyle

As households transition into retirement, time that had been spent working now is available for other pursuits. Individuals often enter retirement having spent too little time determining how they plan to spend this time – and run the risk of spending valuable time and money pursuing activities that may not prove to be as fulfilling as they had anticipated. For those who continue to work, they work fewer hours per day. Watching more television is a concerning trend. While a slightly higher percentage of people volunteer at older ages, it is important to note that the time spent volunteering remains about the same.

Sources

  1. IRS.gov, March 14, 2019
  2. Bankofamerica.com, Spring 2019
  3. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/retirement-insights/guide-to-retirement/#

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

What Does Inflation Mean For Your Investments?

Image by Gerd Altmann from Pixabay

In August of 2020, the Fed announced that it is willing to allow inflation to run higher than normal in order to support the labor market and broader economy. This major policy shift allows inflation to run above the Fed’s 2% goal for some time before the Fed would consider increasing short-term interest rates in an attempt to combat higher prices. (1)

These robust changes to the Fed’s long-standing inflation policy further illustrates the importance of understanding how inflation is reported and how it can affect your investments.

What Is Inflation?

Inflation is defined as an upward movement in the average level of prices. Each month, the Bureau of Labor Statistics releases a report called the Consumer Price Index (CPI) to track these fluctuations. It was developed from detailed expenditure information provided by families and individuals on purchases made in the following categories: food and beverages, housing, apparel, transportation, medical care, recreation, education and communication, and other groups and services. (2)

How Applicable Is the CPI?

While it’s the commonly used indicator of inflation, the CPI has come under scrutiny. For example, the CPI rose 1.4 percent for the 12-months ending in January 2021 – a relatively small increase. However, a closer look at the report shows movement in prices on a more detailed level. Used car and truck prices, for example, rose 10 percent during those 12 months. (3)

As Inflation Rises and Falls, Three Notable Effects are Observed:

First, inflation reduces the real rate of return on investments. So, if an investment earned 6 percent for a 12-month period, and inflation averaged 1.5 percent over that time, the investment’s real rate of return would have been 4.5 percent. If taxes are considered, the real rate of return may be reduced even further. (4)

Second, inflation puts purchasing power at risk. When prices rise, a fixed amount of money has the power to purchase fewer and fewer goods.

Third, inflation can influence the actions of the Federal Reserve. If the Fed wants to control inflation, it has various methods for reducing the amount of money in circulation. Hypothetically, a smaller supply of money would lead to less spending, which may lead to lower prices and lower inflation.

Empower Yourself with a Trusted Professional.

When inflation is low, it’s easy to overlook how rising prices are affecting a household budget. On the other hand, when inflation trends higher, it may be tempting to make more sweeping changes in response to increasing prices. The best approach may be to reach out to your financial professional to help you develop an investment strategy that takes both possible scenarios into account.

Average Inflation Targeting

This page shows inflation expectations and the headline personal consumption deflator over time. The Federal Reserve’s policy framework of average inflation targeting seeks to push up inflation expectations (left) and will allow for a period of inflation over their 2% target, indicating that they are more concerned about the prospect of too little inflation, rather than too much. (5)

Sources

  1. CNBC.com, August 27, 2020
  2. Bureau of Labor Statistics, 2021
  3. InflationData.com, 2021
  4. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments. Past performance does not guarantee future results.
  5. https://am.jpmorgan.com/us/en/asset-management/protected/adv/insights/market-insights/guide-to-the-markets/

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

How the Recent Rally in Oil Prices Could be a Hopeful Sign for the Economy and Investors

Image by Terry McGraw from Pixabay

At this time last year, it was still unknown that a deadly global pandemic was on the rise, eventually stalling economic growth and sending crude oil prices into negative territory. But recently, oil prices have surged, with crude hitting highs not seen since before the pandemic.

A Hopeful Sign

Recent production cuts and a belief in the potential for underlying economic growth are spurring a rally. Although the demand for oil is still lower than normal, many investment professionals harbor hopes of a speedier than expected economic recovery thanks to the ongoing global vaccination effort. (1)

Oil Prices and the Economy

The price of oil can often influence the costs of other production and manufacturing across the United States. For example, there is a direct correlation between the cost of gasoline or airplane fuel to the price of transporting goods and people. A drop in fuel prices means lower transport costs and cheaper airline tickets. (2)

The Ultimate Lead Indicator?

Some investment professionals view the value of oil as a lead indicator. Whether or not this will remain true for the future, it can be helpful to remember that lead indicators should never be seen as infallible. Abrupt and unexpected changes will prompt lead indicators to rapidly recalibrate their expectations for the future.

Sources

  1. Barrons.com, February 8, 2021
  2. Investopedia.com, January 8, 2021

These forecasts or forward-looking statements are based on assumptions, subject to revision without notice, and may not materialize.

Investing involves risks, and investment decisions should be based on your own goals, time horizon and tolerance for risk. The return and principal value of investments will fluctuate as market conditions change. When sold, investments may be worth more or less than their original cost.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.