Retirement

Key Provisions of the Coronavirus Aid, Relief, and Economic Security (CARES) Act

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Recently, the $2 trillion “Coronavirus Aid, Relief, and Economic Security” (“CARES”) Act was signed into law. The CARES Act is designed to help those most impacted by the COVID-19 pandemic, while also providing key provisions that may benefit retirees. (1)

To put this monumental legislation in perspective, Congress earmarked $800 billion for the Economic Stimulus Act of 2008 during the financial crisis. (1)

The CARES Act has far-reaching implications for many. Here are the most important provisions to keep in mind:

Stimulus Check Details

Americans can expect a one-time direct payment of up to $1,200 for individuals (or $2,400 for married couples) with an additional $500 per child under age 17. These payments are based on the 2019 tax returns for those who have filed them and 2018 information if they have not. The amount is reduced if an individual makes more than $75,000 or a couple makes more than $150,000. Those who make more than $99,000 as an individual (or $198,000 as a couple) will not receive a payment. (1)

Business Owner Relief

The act also allocates $500 billion for loans, loan guarantees, or investments to businesses, states, and municipalities. (1)

Your Inherited 401(k)s

People who have inherited 401(k)s or Individual Retirement Accounts can suspend distributions in 2020. Required distributions don’t apply to people with Roth IRAs; although, they do apply to investors who inherit Roth accounts. (2)

RMDs Suspended

The CARES Act suspends the minimum required distributions most people must take from 401(k)s and IRAs in 2020. In 2009, Congress passed a similar rule, which gave retirees some flexibility when considering distributions. (2,3)

Withdrawal Penalties

Account owners can take a distribution of up to $100,000 from their retirement plan or IRA in 2020, without the 10-percent early withdrawal penalty that normally applies to money taken out before age 59½. But remember, you still owe the tax. (4)

Many businesses and individuals are struggling with the realities that COVID-19 has brought to our communities. The CARES Act, however, may provide some much-needed relief. Contact your financial professional today to see if these special 2020 distribution rules are appropriate for your situation.

Sources

  1. CNBC.com, March 25, 2020.
  2. The Wall Street Journal, March 25, 2020.
  3. The Wall Street Journal, March 25, 2020.
  4. The Wall Street Journal, March 25, 2020.

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.

Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and children of the IRA owner who have not reached the age of majority may have other minimum distribution requirements.

Under the CARES act, an accountholder who already took a 2020 distribution has up to 60 days to return the distribution without owing taxes on it. This material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA). 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. You may continue to contribute to a Traditional IRA past age 70½ under the SECURE Act, as long as you meet the earned-income requirement.

Account holders can always withdraw more. But if they take less than the minimum required, they could be subject to a 50% penalty on the amount they should have withdrawn – except for 2020.

How to Use a Bucket Strategy to Help Weather Market Volatility in Retirement

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The Bucket Strategy can take two forms.

1. The Expenses Bucket Strategy:

With this approach, you segment your retirement expenses into three buckets:

  • Basic Living Expenses – food, rent, utilities, etc.
  • Discretionary Expenses – vacations, dining out, etc.
  • Legacy Expenses – assets for heirs and charities

This strategy pairs appropriate investments to each bucket. For instance, Social Security might be assigned to the Basic Living Expenses bucket. If this source of income falls short, you might consider whether a fixed annuity can help fill the gap. With this approach, you are attempting to match income sources to essential expenses. (1)

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

For the Discretionary Expenses bucket, you might consider investing in top-rated bonds and large-cap stocks that offer the potential for growth and have a long-term history of paying a steady dividend. The market value of a bond will fluctuate with changes in interest rates. As rates fall, the value of existing bonds typically drop. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due, plus their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Dividends on common stock are not fixed and can be decreased or eliminated on short notice.

Finally, if you have assets you expect to pass on, you might position some of them in more aggressive investments, such as small-cap stocks and international equity. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

2. The Timeframe Bucket Strategy:

This approach creates buckets based on different timeframes and assigns investments to each. For example:

  • 1 to 5 Years: This bucket funds your near-term expenses. It may be filled with cash and cash alternatives, such as money market accounts. Money market funds are considered low-risk securities but they are not backed by any government institution, so it’s possible to lose money. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
  • 6 to 10 Years: This bucket is designed to help replenish the funds in the 1-to-5-Years bucket. Investments might include a diversified, intermediate, top-rated bond portfolio. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
  • 11 to 20 Years: This bucket may be filled with investments such as large-cap stocks, which offer the potential for growth.
  • 21 or More Years: This bucket might include longer-term investments, such as small-cap and international stocks.

Each bucket is set up to be replenished by the next longer-term bucket. This approach can offer flexibility to provide replenishment at more opportune times. For example, if stock prices move higher, you might consider replenishing the 6-to-10-Years bucket, even though it’s not quite time.

A bucket approach to pursue your income needs is not the only way to build an income strategy, but it’s one strategy to consider as you prepare for retirement.

FINAL-2019-GTR-2_22_HIGH-RES-37
▲ Structuring a portfolio in retirement – the bucket strategy

Experiencing market volatility in retirement may result in some people pulling out of the market at the wrong time or not taking on the equity exposure they need to combat inflation. Leveraging mental accounting to encourage better behaviors–aligning a retirement portfolio in time-segmented buckets–may help people maintain a disciplined investment strategy through retirement with an appropriate level of equity exposure. The short-term bucket, invested in cash and cash equivalents, should cover one or more years of a household’s income gap in retirement–with the ideal number of years determined based on risk tolerance and market conditions over the near term. A ‘cushion’ amount should also be maintained to cover unexpected expenses. The intermediate-term bucket should have a growth component, with any current income generated through dividends or interest moved periodically to replenish the short-term bucket. The longer-term portfolio can be a long-term care reserve fund or positioned for legacy planning purposes, and pursue a more aggressive investment objective, based on the time horizon. (2)

Sources

  1. kiplinger.com/article/retirement/T037-C000-S002-how-to-implement-the-bucket-system-in-retirement.html
  2. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/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 You Emotionally Ready to Retire? Four Questions to Ask Yourself Before Deciding

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Retirement Is a Beginning

See if you are prepared to begin your retirement by answering four key questions.

1) Is Your Work Meaningful?

If it is emotionally and psychologically fulfilling, if it gives you a strong sense of purpose and identity, there may be a voice inside your head telling you not to retire yet. You may want to listen to it.

It can be tempting to see retirement as a “finish line”: no more long workdays, long commutes, or stressful deadlines. But it is really a starting line: the start of a new phase of life. Ideally, you cross the “finish line” knowing what comes next, what will be important to you in the future.

2) Do You Value Work or Leisure More at This Point in Your Life?

If the answer is leisure, score one for retirement. If the answer is work, maybe you need a new job or a new way of working rather than an exit from your company or your profession.

An old saying says that retirement feels like “six Saturdays and a Sunday.” Fantastic, right? It is, as long you don’t miss Monday through Friday. Some people really enjoy their careers; you may be one of them.

3) Where Do Your Friends Come From?

If very little of your social life involves the people you work with, then score another point for retirement. If your friends are mainly your coworkers, those friendships may be tested if you retire (and you may want to try to broaden your social circle for the future).

At a glance, it might seem that an enjoyable retirement requires just two things: sufficient income and sufficient return on your investments. These factors certainly promote a nice retirement, but there are also other important factors: your physical health, your mental health, your relationships with family and friends, your travels and adventures, and your outlets to express your creativity. Building a life away from work is a plus.

4) What Do You Think Your Retirement Will Be Like?

If you think it will be spectacularly different from your current life, ask yourself if your expectations are realistic. If after further consideration they seem unrealistic, you may want to keep working for a while until you are in a better financial position to try and realize them or until your expectations shift.

Ideally, you retire when you are financially, emotionally, and psychologically ready.

The era of the “organization man” retiring with a gold watch and a party at 65 is gone; the cultural forces that encouraged people to stop working at a certain age aren’t as strong as they once were.

Why you are retiring is as important as when you choose to retire.

When you are motivated to retire, you see retirement as a beginning rather than an end.

▲ If You Need Some Help Figuring Out How To Achieve A Satisfying Retirement Check Out This Book

How to Retire Happy, Wild, and Free offers inspirational advice on how to enjoy life to its fullest. The key to achieving an active and satisfying retirement involves a great deal more than having adequate financial resources; it also encompasses all other aspects of life — interesting leisure activities, creative pursuits, physical well-being, mental well-being, and solid social support.

Sources

  1. https://www.aarp.org/retirement/planning-for-retirement/info-2017/retirement-fear-fd.html 
  2. https://www.usatoday.com/story/money/personalfinance/2013/10/22/preparing-mentally-retirement/2885187/ 
  3. https://www.amazon.com/gp/product/096941949X/ref=ppx_yo_dt_b_asin_image_o02_s00?ie=UTF8&psc=1 https://static.twentyoverten.com/58e639ce21cca2513c90975b/3CK8UF2wC/Imagine-Your-Life-Without-Limits-Workbook.pdf 
  4. https://www.psychologytoday.com/us/blog/cutting-edge-leadership/201501/are-you-psychologically-ready-retire 
  5. https://www.marketwatch.com/story/why-youre-probably-not-psychologically-ready-to-retire-2019-05-21
  6. https://www.amazon.com/How-Retire-Happy-Wild-Free/dp/096941949X/ref=sr_1_2?crid=2N1K2XUGII9GT&keywords=how+to+retire+happy+wild+and+free+book&qid=1581466005&sprefix=how+to+reitre%2Caps%2C147&sr=8-2

This material was prepared by MarketingPro, 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.

The Major Retirement Planning Mistakes and How to Avoid Them

Much is out there about the classic financial mistakes that plague start-ups, family businesses, corporations, and charities. Aside from these blunders, some classic financial missteps plague retirees.

Calling them “mistakes” may be a bit harsh, as not all of them represent errors in judgment. Yet whether they result from ignorance or fate, we need to be aware of them as we plan for and enter retirement.

1) Leaving Work Too Early

As Social Security benefits rise about 8% for every year you delay receiving them, waiting a few years to apply for benefits can position you for higher retirement income. Filing for your monthly benefits before you reach Social Security’s Full Retirement Age (FRA) can mean comparatively smaller monthly payments. Meanwhile, if you can delay claiming Social Security, that positions you for more significant monthly benefits. (1)

2) Underestimating Medical Bills

In its latest estimate of retiree health care costs, the Center for Retirement Research at Boston College says that the average retiree will need at least $4,300 per year to pay for future health care costs. Medicare will not pay for everything. That $4,300 represents out-of-pocket costs, which includes dental, vision, and long-term care. (2)

3) Taking the Potential For Longevity Too Lightly

Actuaries at the Social Security Administration project that around a third of today’s 65-year-olds will live to age 90, with about one in seven living 95 years or longer. The prospect of a 20- or 30-year retirement is not unreasonable, yet there is still a lingering cultural assumption that our retirements might duplicate the relatively brief ones of our parents. (3)

4) Withdrawing Too Much Each Year

You may have heard of the “4% rule,” a guideline stating that you should take out only about 4% of your retirement savings annually. Many cautious retirees try to abide by it.

So, why do others withdraw 7% or 8% a year? In the first phase of retirement, people tend to live it up; more free time naturally promotes new ventures and adventures and an inclination to live a bit more lavishly.

5) Ignoring Tax Efficiency & Fees

It can be a good idea to have both taxable and tax-advantaged accounts in retirement. Assuming your retirement will be long, you may want to assign this or that investment to its “preferred domain.” What does that mean? It means the taxable or tax-advantaged account that may be most appropriate for it as you pursue a better after-tax return for the whole portfolio.

Many younger investors chase the return. Some retirees, however, find a shortfall when they try to live on portfolio income. In response, they move money into stocks offering significant dividends or high-yield bonds – something you might regret in the long run. Taking retirement income off both the principal and interest of a portfolio may give you a way to reduce ordinary income and income taxes.

6) Avoiding Market Risk

Equity investment does invite risk, but the reward may be worth it. In contrast, many fixed-rate investments offer comparatively small yields these days.

7) Retiring With Heavier Debts.

It is hard to preserve (or accumulate) wealth when you are handing portions of it to creditors.

8) Putting College Costs Before Retirement Costs

There is no “financial aid” program for retirement. There are no “retirement loans.” Your children have their whole financial lives ahead of them. Try to refrain from touching your home equity or your IRA to pay for their education expenses.

9) Retiring With No Plan or Investment Strategy

An unplanned retirement may bring terrible financial surprises; the absence of a strategy can leave people prone to market timing and day trading.

These are some of the classic retirement planning mistakes. Why not plan to avoid them? Take a little time to review and refine your retirement strategy in the company of the financial professional you know and trust.

▲ The retirement equation

Planning for retirement can be overwhelming as individuals navigate various retirement factors over which we have varying levels of control. There are challenges in retirement planning over which we have no control, like the future of tax policy and market returns, and factors over which we have limited control, like longevity and how long we plan to work. The best way to achieve a secure retirement is to develop a comprehensive retirement plan and to focus on the factors we can control: maximize savings, understand and manage spending and adhere to a disciplined approach to investing. (4)

Sources

  1. forbes.com/sites/bobcarlson/2019/01/25/5-ways-to-maximize-social-security-benefits
  2. fool.com/retirement/2019/12/11/4-steps-to-making-sure-youre-ready-to-retire.aspx
  3. ssa.gov/planners/lifeexpectancy.html
  4. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/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.

2019 IRA Deadlines Are Approaching: Here’s What You Need to Know

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Financially, many of us associate April with taxes – but we should also associate April with important IRA deadlines.

April 1, 2020

The deadline to take your Required Minimum Distribution (RMD) from certain individual retirement accounts.

A New Federal Law

The Setting Every Community Up for Retirement Enhancement (SECURE) ACT, passed late in 2019, changed the age for the initial RMD for traditional IRAs and traditional workplace retirement plans. It lifted this age from 70½ to 72, effective as of 2020.1

So, if you were not 70½ or older when 2019 ended, you can wait to take your first RMD until age 72. If you were 70½ at the end of 2019, the old rules still apply, and your initial RMD deadline is April 1, 2020. Your second RMD will be due on December 31, 2020.1,2

Keep in mind that withdrawals from traditional, SIMPLE, and SEP-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

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

April 15, 2020

The deadline for making annual contributions to a traditional IRA, Roth IRA, and certain other retirement accounts. (3)

The earlier you make your annual IRA contribution, the better. You can make a yearly IRA contribution any time between January 1 of the current year and April 15 of the next year. So, the contribution window for 2019 started on January 1, 2019 and ends on April 15, 2020. Accordingly, you can make your IRA contribution for 2020 any time from January 1, 2020 to April 15, 2021. (4)

You may help manage your income tax bill if you are eligible to contribute to a traditional IRA. To get the full tax deduction for your 2019 traditional IRA contribution, you have to meet one or more of these financial conditions:

  • You aren’t eligible to participate in a workplace retirement plan.
  • You are eligible to participate in a workplace retirement plan, but you are a single filer or head of household with Modified Adjusted Gross Income (MAGI) of $64,000 or less. (Or if you file jointly with your spouse, your combined MAGI is $103,000 or less.) (5)
  • You aren’t eligible to participate in a workplace retirement plan, but your spouse is eligible and your combined 2019 gross income is $193,000 or less. (6)

Thanks to the SECURE Act, both traditional and Roth IRA owners now have the chance to contribute to their IRAs as long as they have taxable compensation (and in the case of Roth IRAs, MAGI below a certain level; see below). (1,4)

If you are making a 2019 IRA contribution in early 2020, you must tell the investment company hosting the IRA account which year the contribution is for. If you fail to indicate the tax year that the contribution applies to, the custodian firm may make a default assumption that the contribution is for the current year (and note exactly that to the I.R.S.).

So, write “2020 IRA contribution” or “2019 IRA contribution,” as applicable, in the memo area of your check, plainly and simply. Be sure to write your account number on the check. If you make your contribution electronically, double-check that these details are communicated.

How Much Can You Put Into an IRA This Year?

You can contribute up to $6,000 to a Roth or traditional IRA for the 2020 tax year; $7,000, if you will be 50 or older this year. (The same applies for the 2019 tax year). Should you make an IRA contribution exceeding these limits, you have until the following April 15 to correct the contribution with the help of an I.R.S. form. If you don’t, the amount of the excess contribution will be taxed at 6% each year the correction is avoided.3,4

The maximum contribution to a Roth IRA may be reduced because of Modified Adjusted Gross Income (MAGI) phaseouts, which kick in as follows.

2019 Tax Year

  • Single/head of household: $122,000 – $137,000
  • Married filing jointly: $193,000 – $203,000 (7)

2020 Tax Year

  • Single/head of household: $124,000 – $139,000
  • Married filing jointly: $196,000 – $206,000 (8)

The I.R.S. has other rules for other income brackets. If your MAGI falls within the applicable phase-out range, you may be eligible to make a partial contribution. (7,8)

A last reminder for those who turned 70½ in 2019: you need to take your first traditional IRA RMD by April 1, 2020 at the latest. The investment company that serves as custodian (host) of your IRA should have alerted you to this deadline; in fact, they have probably calculated the RMD amount for you. Your subsequent RMD deadlines will all fall on December 31. (2)

Sources

  1. marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21
  2. kiplinger.com/article/retirement/T045-C000-S001-the-deadline-for-your-first-rmd-is-april-1.html
  3. irs.gov/retirement-plans/ira-year-end-reminders
  4. irs.gov/retirement-plans/traditional-and-roth-iras
  5. irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-covered-by-a-retirement-plan-at-work
  6. irs.gov/retirement-plans/2019-ira-deduction-limits-effect-of-modified-agi-on-deduction-if-you-are-not-covered-by-a-retirement-plan-at-work
  7. irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019
  8. irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2020

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.

The SECURE Act Explained: Changes to Long-Established Retirement Account Rules

The Setting Every Community Up for Retirement Enhancement (SECURE) Act is now law. With it, comes some of the biggest changes to retirement savings law in recent years. While the new rules don’t appear to amount to a massive upheaval, the SECURE Act will require a change in strategy for many Americans. For others, it may reveal new opportunities.

Limits on Stretch IRAs

The legislation “modifies” the required minimum distribution rules in regard to defined contribution plans and Individual Retirement Account (IRA) balances upon the death of the account owner. Under the new rules, distributions to individuals are generally required to be distributed by the end of the 10th calendar year following the year of the account owner’s death. (1)

Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and child of the IRA owner who has not reached the age of majority may have other minimum distribution requirements.

Let’s say that a person has a hypothetical $1 million IRA. Under the new law, your beneficiary should consider taking at least $100,000 a year for 10 years regardless of their age. For example, say you are leaving your IRA to a 50-year-old child. They must take all the money from the IRA by the time they reach age 61. Prior to the rule change, a 50-year-old child could “stretch” the money over their expected lifetime, or roughly 30 more years.

The new limits on IRAs may force account owners to reconsider inheritance strategies and review how the accelerated income may affect a beneficiary’s tax situation.

IRA Contributions and Distributions.

Another major change is the removal of the age limit for traditional IRA contributions. Before the SECURE Act, you were required to stop making contributions at age 70½. Now, you can continue to make contributions as long as you meet the earned-income requirement.2

Also, as part of the Act, you are mandated to begin taking required minimum distributions (RMDs) from a traditional IRA at age 72, an increase from the prior 70½. Allowing money to remain in a tax-deferred account for an additional 18 months (before needing to take an RMD) may alter some previous projections of your retirement income.2
The SECURE Act’s rule change for RMDs only affects Americans turning 70½ in 2020. For these taxpayers, RMDs will become mandatory at age 72. If you meet this criterion, your first RMD won’t be necessary until April 1 of the year you turn 72. (2)

Multiple Employer Retirement Plans for Small Business.

In terms of wide-ranging potential, the SECURE Act may offer its biggest change in the realm of multi-employer retirement plans. Previously, multiple employer plans were only open to employers within the same field or sharing some other “common characteristics.” Now, small businesses have the opportunity to buy into larger plans alongside other small businesses, without the prior limitations. This opens small businesses to a much wider field of options. (1)

Another big change for small business employer plans comes for part-time employees. Before the SECURE Act, these retirement plans were not offered to employees who worked fewer than 1,000 hours in a year. Now, the door is open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for three consecutive years. (2)

While the SECURE Act represents some of the most significant changes we have seen to the laws governing financial saving for retirement, it’s important to remember that these changes have been anticipated for a while now. If you have questions or concerns, reach out to your trusted financial professional.

Sources

  1. waysandmeans.house.gov/sites/democrats.waysandmeans.house.gov/files/documents/SECURE%20Act%20section%20by%20section.pdf
  2. marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21

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.

The 2020 Contribution Limit Increases for your IRA, 401(k) and 403(b) accounts

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The I.R.S. increased the annual contribution limits on IRAs, 401(k)s, and other widely used retirement plan accounts for 2020. Here’s a quick look at the changes.

IRAs

Next year, you can put up to $6,000 in any type of IRA. The limit is $7,000 if you will be 50 or older at any time in 2020. (1,2)

401(k)s, 403(b)s, 457s, and Thrift Savings Plans

Annual contribution limits for 401(k)s, 403(b)s, the federal Thrift Savings Plan, and most 457 plans also get a $500 boost for 2020. The new annual limit on contributions is $19,500. If you are 50 or older at any time in 2020, your yearly contribution limit for one of these accounts is $26,000. (1,2)

Solo 401(k)s and SEP IRAs

Are you self-employed, or do you own a small business? You may have a solo 401(k) or a SEP IRA, which allows you to make both an employer and employee contribution. The ceiling on total solo 401(k) and SEP IRA contributions rises $1,000 in 2020, reaching $57,000. (3)

SIMPLE IRA

If you have a SIMPLE retirement account, next year’s contribution limit is $13,500, up $500 from the 2019 level. If you are 50 or older in 2020, your annual SIMPLE plan contribution cap is $16,500. (3)

HSAs

Yearly contribution limits have also been set a bit higher for Health Savings Accounts (which may be used to save for retirement medical expenses). The 2020 limits: $3,550 for individuals with single medical coverage and $7,100 for those covered under qualifying family plans. If you are 55 or older next year, those respective limits are $1,000 higher. (4)

Sources

  1. irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. irs.gov/newsroom/401k-contribution-limit-increases-to-19500-for-2020-catch-up-limit-rises-to-6500
  3. forbes.com/sites/ashleaebeling/2019/11/06/irs-announces-higher-2020-retirement-plan-contribution-limits-for-401ks-and-more/
  4. cnbc.com/2019/06/03/these-are-the-new-hsa-limits-for-2020.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 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.

Retirement Planning: What it is and How it Can Help You Increase Retirement Success

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Across the country, people are saving for that “someday” called retirement. Someday, their careers will end. Someday, they may live off their savings or investments, plus Social Security. They know this, but many of them do not know when, or how, it will happen. What is missing is a strategy – and a good strategy might make a great difference.

A retirement strategy directly addresses the “when, why, and how” of retiring.

It can even address the “where.” It breaks the whole process of getting ready for retirement into actionable steps.

This is so important. Too many people retire with doubts, unsure if they have enough retirement money and uncertain of what their tomorrows will look like. Year after year, many workers also retire earlier than they had planned, and according to a 2019 study by the Employee Benefit Research Institute, about 43% do. In contrast, you can save, invest, and act on your vision of retirement now to chart a path toward your goals and the future you want to create for yourself. (1)

Some people dismiss having a long-range retirement strategy, since no one can predict the future.

Indeed, there are things about the future you cannot control: how the stock market will perform, how the economy might do. That said, you have partial or full control over other things: the way you save and invest, your spending and your borrowing, the length and arc of your career, and your health. You also have the chance to be proactive and to prepare for the future.

A good retirement strategy has many elements.

It sets financial objectives. It addresses your retirement income: how much you may need, the sequence of account withdrawals, and the age at which you claim Social Security. It establishes (or refines) an investment approach. It examines tax implications and potential tax advantages. It takes possible health care costs into consideration and even the transfer of assets to heirs.

A prudent retirement strategy also entertains different consequences.

Financial advisors often use multiple-probability simulations to try and assess the degree of financial risk to a retirement strategy, in case of an unexpected outcome. These simulations can help to inform the advisor and the retiree or pre-retiree about the “what ifs” that may affect a strategy. They also consider sequence of returns risk, which refers to the uncertainty of the order of returns an investor may receive over an extended period of time. (2)

Let a retirement strategy guide you. Ask a financial professional to collaborate with you to create one, personalized for your goals and dreams. When you have such a strategy, you know what steps to take in pursuit of the future you want.

▲ The retirement equation

Planning for retirement can be overwhelming as individuals navigate various retirement factors over which we have varying levels of control. There are challenges in retirement planning over which we have no control, like the future of tax policy and market returns, and factors over which we have limited control, like longevity and how long we plan to work. The best way to achieve a secure retirement is to develop a comprehensive retirement plan and to focus on the factors we can control: maximize savings, understand and manage spending and adhere to a disciplined approach to investing. (3)

Sources

  1. ebri.org/docs/default-source/rcs/2019-rcs/rcs_19-fs-2_expect.pdf?sfvrsn=2a553f2f_4
  2. investopedia.com/terms/m/montecarlosimulation.asp
  3. https://am.jpmorgan.com/us/en/asset-management/gim/adv/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. 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.

Post-Retirement Risks That Can Get In The Way of Making Your Money Last

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Image by Carabo Spain from Pixabay

“What is your greatest retirement fear?”

If you ask any group of retirees and pre-retirees this question, “outliving my money” will likely be one of the top answers. In fact, 51% of investors surveyed for a 2019 AIG retirement study ranked outliving their money as their top anxiety. (1)

Retirees face greater “longevity risk” today.

The Census Bureau says that Americans typically retire around age 63. Social Security projects that today’s 63-year-olds will live into their mid-eighties, on average. This is a mean life expectancy, so while some of these seniors may pass away earlier, others may live past 90 or 100. (2,3)

If your retirement lasts 20, 30, or even 40 years, how well do you think your retirement savings will hold up? What financial steps could you take in your retirement to try and prevent those savings from eroding? As you think ahead, consider the following possibilities and realities.

Understand that you may need to work part time in your sixties and seventies.

The income from part-time work can be an economic lifesaver for retirees. What if you worked part time and earned $20,000-30,000 a year? If you can do that for five or ten years, you effectively give your retirement savings five or ten more years to last and grow.

Retire with health insurance and prepare adequately for out-of-pocket costs.

Financially speaking, this may be the most frustrating part of retirement. You can enroll in Medicare at age 65, but how do you handle the premiums for private health insurance if you retire before then? Striving to work until you are eligible for Medicare makes economic sense and so does building a personal health care account. According to Fidelity research, a typical 65-year-old couple retiring today will face out-of-pocket health care costs approaching $300,000 over the rest of their lives. (4)

Many people may retire unaware of these financial factors.

With luck and a favorable investing climate, their retirement savings may last a long time. Luck is not a plan, however, and hope is not a strategy. Those who are retiring unaware of these factors may risk outliving their money.

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▲ The retirement equation

Planning for retirement can be overwhelming as individuals navigate various retirement factors over which we have varying levels of control. There are challenges in retirement planning over which we have no control, like the future of tax policy and market returns, and factors over which we have limited control, like longevity and how long we plan to work. The best way to achieve a secure retirement is to develop a comprehensive retirement plan and to focus on the factors we can control: maximize savings, understand and manage spending and adhere to a disciplined approach to investing. (5)

Sources

  1. markets.businessinsider.com/news/stocks/more-than-half-of-americans-want-to-live-to-100-but-worry-about-affording-longer-lifespans-1028099970
  2. thebalance.com/average-retirement-age-in-the-united-states-2388864
  3. usatoday.com/story/money/columnist/2019/09/30/social-security-4-key-trends-you-need-know-benefits/3790032002/
  4. fidelity.com/viewpoints/retirement/transition-to-medicare
  5. https://am.jpmorgan.com/us/en/asset-management/gim/adv/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.

Understanding the Parts (A, B, C, D) of Medicare and What They Cover

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Whether your 65th birthday is on the horizon or decades away, you should understand the parts of Medicare – what they cover and where they come from.

Parts A & B: Original Medicare

There are two components. Part A is hospital insurance. It provides coverage for inpatient stays at medical facilities. It can also help cover the costs of hospice care, home health care, and nursing home care – but not for long and only under certain parameters. (1,2)

Seniors are frequently warned that Medicare will only pay for a maximum of 100 days of nursing home care (provided certain conditions are met). Part A is the part that does so. Under current rules, you pay $0 for days 1-20 of skilled nursing facility (SNF) care under Part A. During days 21-100, a $170.50 daily coinsurance payment may be required of you. (2)

Part B is medical insurance and can help pick up some of the tab for physical therapy, physician services, expenses for durable medical equipment (hospital beds, wheelchairs), and other medical services, such as lab tests and a variety of health screenings. (1)

Part B isn’t free. You pay monthly premiums to get it and a yearly deductible (plus 20% of costs). The premiums vary according to the Medicare recipient’s income level. The standard monthly premium amount is $135.50 this year. The current yearly deductible is $185. (Some people automatically receive Part B coverage, but others must sign up for it.) (3)

Part C: Medicare Advantage plans.

Insurance companies offer these Medicare-approved plans. To keep up your Part C coverage, you must keep up your payment of Part B premiums as well as your Part C premiums. To say not all Part C plans are alike is an understatement. Provider networks, premiums, copays, coinsurance, and out-of-pocket spending limits can all vary widely, so shopping around is wise. During Medicare’s annual Open Enrollment Period (October 15 – December 7), seniors can choose to switch out of Original Medicare to a Medicare Advantage plan or vice versa; although, any such move is much wiser with a Medigap policy already in place. (4,5)

How does a Medigap plan differ from a Part C plan? Medigap plans (also called Medicare Supplement plans) emerged to address the gaps in Part A and Part B coverage. If you have Part A and Part B already in place, a Medigap policy can pick up some copayments, coinsurance, and deductibles for you. You pay Part B premiums in addition to Medigap plan premiums to keep a Medigap policy in effect. These plans no longer offer prescription drug coverage. (6)

Part D: prescription drug plans.

While Part C plans commonly offer prescription drug coverage, insurers also sell Part D plans as a standalone product to those with Original Medicare. As per Medigap and Part C coverage, you need to keep paying Part B premiums in addition to premiums for the drug plan to keep Part D coverage going. (7)

Every Part D plan has a formulary, a list of medications covered under the plan. Most Part D plans rank approved drugs into tiers by cost. The good news is that Medicare’s website will determine the best Part D plan for you. Go to medicare.gov/find-a-plan to start your search; enter your medications and the website will do the legwork for you. (8)

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▲ What is Medicare?

The left side of this table shows all the parts of Medicare. The next column to the right has a check mark for all the parts of Medicare that are included in traditional Medicare. Individuals sign up for the different parts, and Part A is usually free for most people. The column to the far right shows what is typically included in Medicare Advantage, which are local plans sold by private companies. Usually Medicare Advantage beneficiaries are limited to a local network of providers. During the annual enrollment period, beneficiaries may switch from traditional Medicare to Medicare Advantage and vice versa. However, Medigap, which covers the gaps in Parts A and B, is only available with traditional Medicare, and must be signed up for when first eligible or the individual may be denied coverage, face underwriting or incur higher premiums. Whichever plan an individual chooses, they should consider future coverage needs including drug coverage to avoid lifetime penalties when signing up later. (9)

Sources

  1. mymedicarematters.org/coverage/parts-a-b/whats-covered/
  2. medicare.gov/coverage/skilled-nursing-facility-snf-care
  3. medicare.gov/your-medicare-costs/part-b-costs
  4. medicareinteractive.org/get-answers/medicare-basics/medicare-coverage-overview/original-medicare
  5. medicare.gov/sign-up-change-plans/joining-a-health-or-drug-plan
  6. medicare.gov/supplements-other-insurance/whats-medicare-supplement-insurance-medigap
  7. ehealthinsurance.com/medicare/part-d-all/medicare-part-d-prescription-drug-coverage-costs
  8. https://www.medicare.gov/drug-coverage-part-d/what-drug-plans-cover
  9. https://am.jpmorgan.com/us/en/asset-management/gim/protected/adv/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.