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How to Plan for a Comfortable Retirement  

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In retirement, a budget is more important than in pre-retirement as a guide to tell your money what to do.

When do you begin planning for retirement? Now is a good time to start. If you do not have a plan, it’s time to get started. The more time you have until retirement, the more wealth you can accumulate. We will present some options to consider.

Education

As we move into other finer aspects of preparing our long-term financial plan, we once again must understand all of our potential options. Preparing a long-term financial plan must include retirement planning, regardless of the amount of time until you hit retirement age. The retirement age will differ for everyone. The paramount question to ask yourself is: Did I do my homework?

Learn what you need to have a successful retirement. One’s age does not matter, except the further away from your retirement age, the more time you have to get your plan in order. Your plan will require periodic reviews to assess if you are on target. Adjustments must be made so that you can hit your goals and have a comfortable retirement.

What follows are some aspects you must address as you move closer to that magic age. This is not meant to be an all-inclusive list but a starting point for assessing where you are and where you want to go.

Budget

Thought you were done with developing a budget? In retirement, a budget is more important than in pre-retirement as a guide to tell your money what to do. If you need help putting together a budget, see our article “How to Create a Budget for Success” at  https://quadcitiesbusinessnews.com/how-to-create-a-budget-for-success/.

If you operate with a budget, this will require you to make some adjustments. The first question to ask yourself is: What do I not need in retirement?

Do you have two cars? Will you still have two cars? Insurance will be less with one car. Repairs could also be less. If you are no longer commuting, gas will be less.

What about life insurance? Are you still going to carry some? Is it necessary?

Go through your budget and ask if this expense will continue or how will this be different. With your retirement budget hot off the press, we now know what you will need to have a nice, comfortable retirement. Will your income support the budget or do you need to cut some expenses? Perhaps additional income besides the ones you have planned in retirement may be necessary. Be diligent. Make changes as assumptions become clear.

Taxes

This is a tricky topic to navigate. Tax laws are always changing. Unfortunately, we can only address what we know. Different states have different laws regarding retirement income and social security. Be careful, as taxes can and will reduce your disposable income. Perhaps you live in a state that has no state income tax or one that does not tax retirement income.

Sales tax is another tax you may look to avoid. A few states do not have state sales tax. In addition, if you stop working, Social Security and Medicare tax will not be paid by you.

As you begin to draw on your retirement nest egg, certain portions will be taxed by the federal government. For example, any withdrawals from your traditional IRA, 401K, etc., will be taxed by the federal government. In addition, you will be required to take RMD (required mandatory distributions) from traditional tax-deferred retirement funds. Any funds in Roth retirement, along with the earnings, can be withdrawn tax-free. Any pension you receive will be taxable.

As you can see, taxes can and will have an impact on your planning as well as your potential income.

Home Purchase

How is home ownership part of a retirement plan? Very simply, if your mortgage goes away, your housing costs are reduced. The costs needed for maintenance, electricity, insurance and HOA fees now become your housing costs.

If you are entering retirement renting or paying a mortgage, then your costs will be higher. Eliminating your mortgage before retirement and not renting will increase your disposable income. Either way, this could have a big impact on the budget.

If you have been following and building your financial plan, then you should have this under control.

Investing

Planning for this time by funding your retirement accounts at a level of 15% of your income will afford you to have accumulated a handsome nest egg. Retirement is what you have been planning for over these years.

Where is your nest egg? Do you have a traditional, Roth, 401(k), 403(b), 457, or pension? Some may even have a taxable investment account.

It’s time to review your portfolio. Where are your funds invested? Do you want to continue with the same strategy that was used before your retirement? Alternatively, will you change strategies? The overall objective is for your money to last longer than you may live.

Social Security, Medicare

This is where things can get tricky. There are many different variables of which to be aware. At what age will you begin to collect Social Security? What is your FRA (full retirement age)? Hint: it is not 65. FRA is generally between 66 and 67, depending on your year of birth and if further changes to the law are not made.

Be aware that a married couple collecting under the primary wage earner will have some significant income adjustments should one of them pass on. A spouse can collect about half of what the primary earner collects. Upon the death of one partner, the other partner’s benefit would stop. Only the higher benefit will survive. For example, for a married couple collecting Social Security under the primary wage earner, earnings will collect the primary wage earner’s benefit plus about one-half for the spouse’s regardless of earnings. Upon the death of either spouse, the lower benefit will stop.

Medicare, on the other hand, is available at 65. This is important because if you miss the window to sign up, you may find yourself paying a penalty for the rest of your life. So, get this on your calendar and sign up in a timely manner. What type of plan will you sign up for? There are many choices, so begin your research several months before you become eligible.

Estate Planning

So, you spent your entire life planning for retirement, you have done everything right and are enjoying a nice, relaxing time in your twilight years. Now what? What will happen to your assets when you pass on? Who will inherit them?

Make sure you have a will. Make the will as explicit as you want. Who will be your executor? Who will get what assets? Decide now; please, do not ignore this because if you do, the state will decide. Name primary and secondary beneficiaries on all your accounts. This is an area often overlooked. If you love your loved ones, leave a will. A will is nothing more than your final instructions as to how you want your lifelong financial achievements distributed after you pass on.

Conclusion

You thought you would turn 65 and life would be simple. Think again. Some of the items discussed above will help you make your way through the retirement maze. As you begin to create your retirement plan, reach out for expert help.

If you have an investment advisor, tax advisor and attorney in your current brain trust, reach out to them to guide you through the technical pitfalls.

Good luck!

You work hard for your money, make sure it stays your money!

Thanks for reading. I hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He is the owner-operator of a website known as thepersonalfinancewizard.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

How to Recognize a Scam

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Scammers are alive and well and seek to help themselves to your hard-earned money.

Let’s say you receive a call like this: “Hello, I am Agent Smith from the IRS. You owe $2,368 plus interest. If you don’t pay immediately, we will issue a warrant for your arrest!”

Then the caller proceeds to tell you to go get prepaid gift cards and send them to some P.O. Box.

Well, if you have gotten a call like this, there is good news! It is not the IRS and you are not in any trouble. The bad news is that it is a scam. I hope you did not fall for it!

Have you ever received a call from the “IRS,” “Social Security” or “Medicare”? I have. Most of the time it is a robocall by a computer.

I actually got a call from “the IRS” and the individual left a badge number and a number to call back. It is always the same message of urgency that you owe money and an organization is going to issue a warrant for your arrest. Well, I have not been arrested. It’s a sure scam.

How about a call from the “Social Security Administration” notifying you that your benefits are being suspended because you owe money or the caller needs to verify some information?

Then there is the call from “Medicare” stating that your coverage may be or is suspended and you need to verify some information.

Maybe you have gotten a call stating that you have won a lottery or there is some grant someone wants to give you.

The bad news is that if you have received such a call and you gave your information or sent money, you have gotten scammed. These are all common scams to be aware of and avoid. If you get any of these calls, do not ever give any information or any money. Nothing bad is going to happen to you like they threaten. If you give them your Social Security number, date of birth and any other information, your identity will likely be stolen. If you send money, you will be out whatever you send.

Basic rule: do not ever give out any personal information to anyone. These scammers may contact you over the phone, via email or perhaps text message. It is generally always the same story. You need to send immediately some amount of money either via a wire transfer or go buy some gift cards and send them to a P.O. Box. Some may request that you send cryptocurrency.

What the Government Won’t Do
The government will never:

  •  Call you and ask for personal information. If a someone is from the government, that caller will have your Medicare and Social Security number.
  • Contact you via social media, text or email.
  • Reach out to you to award you a federal grant. You must apply for one and the purpose is generally for a very specific reason.
  • Ask you for upfront money to issue a refund, grant or some other government benefit.
  • Take payments in gift cards, wire transfers or cryptocurrency.

What the Government Will Do

  • Contact you by mail. The letter will contain very specific information and instruct you what the issue is and what information is needed.
  • Other Don’ts
  • Never give any personal information via the phone, email, text message or social media.
  • Do not send any prepaid gift cards.
  • Wire transfers should never occur.
  • Cryptocurrency should not be sent in lieu of a cash payment.

Scammers are alive and well and seek to help themselves to your hard-earned money. Follow these simple rules and keep yourself safe. Keep your money away from them.

Here are some other types of scams to be aware of:

texasattorneygeneral.gov/consumer-protection/common-scams

consumerfinance.gov/ask-cfpb/what-are-some-common-types-of-scams-en-2092/

Always say no, never give them any personal information and keep your money away from them. Hopefully you have not been a victim. Armed with this information, you can avoid becoming one. You work hard for your money, make sure it stays your money!

Thanks for reading; hope you found this helpful. QCBN

By Steven Calabrese

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner/operator of a website known as thebiweeklyadvisor.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

Using the Three Bucket Retirement Strategy

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Good luck with your retirement and may your funds outlast you!

After many years of hard work and diligent saving for retirement, many struggle with the fear that they will outlive their nest egg. Or, perhaps worse, that the financial systems will collapse.

So what does one do? Plan!

It is my belief that the Three Bucket Retirement Strategy will both guard against adverse market conditions and grow your nest egg so that your money will outlast you.

Laying the Groundwork

Before the Three Bucket Retirement Strategy can be implemented, you will need to determine a number of factors to allow you to set up the buckets.

  • How much will you need to have on an annual basis to do what you want to do?
  • How much will you receive in Social Security/pension?
  • How much will you be required to withdraw when you reach age 72, RMD (Required Mandatory Distributions)? An IRA, 401k, 403b or any retirement deferral account will require this. It does not matter if you need the money or not, you must take the money and pay the taxes. ROTH does not have this requirement.
  • Determine what your tax liability will be. This needs to be added to your annual income needs. For example, if you want an additional $20,000 above your social security, the taxes you will need to pay are $10,000, so you will need a total of $30,000.

Setting Up the Strategy

Now that you have determined what your needs are, we can begin to set up the strategy. Let’s work with the following assumptions.

  • Nest egg: $500,000
  • Social security/pension: $30,000
  • Desired annual amount you want to spend: $50,000
  • Tax liability: $10,000
  • Amount needed from Nest Egg: $30,000 (desired amount $50,000 plus tax liability $10,000 less social security/pension $30,000)

Bucket 1

This is the bucket referred to as the “now” bucket. The funds placed here would be for short-term use in the next two years. The rate of return will be small, if any at all. These funds would be kept in money market funds. Here, we would put in $60,000, based on our example. These funds need to be liquid.

Bucket 2

This bucket is the intermediate funds. Funds for the next five years would be placed in this bucket. The rate of return would be better than in Bucket 1. These funds would be placed in fixed-income type instruments. For example, treasury bonds, high-grade corporate bonds or perhaps a little more risky, dividend paying equities. These funds need to be semi-liquid, as this bucket will be used to replenish Bucket 1. Based upon our example, we would place $150,000 in this bucket.

Bucket 3

This bucket would be funded with the balance of your nest egg, this is the later bucket. For our example, it would be $290,000. These funds would be invested more for the long term. Since you have the first seven years of your retirement funded with Buckets 1 and 2, you can take on a little more risk, potentially using equities as an investment. Basically, mutual funds that have a solid track record could result in 10% or more in average annual return. Since the fear of market fluctuations is removed, this will allow for this type of targeted return. A 10% average return over seven years would double the size of this fund, bringing it to $580,000. This amount is larger than your original next egg.

Conclusion

As stated earlier, this is a possible strategy. I would not recommend that this is implemented unless you are comfortable with this plan. One important thing to keep in mind is that the world is not perfect and the actual results may be different from this example.

For instance, the market can increase in the first four years and then have a steep decline in year five, reducing the funds available in Bucket 3. It might not fully recover when you need some of the funds in year seven.

Another possibility is that your returns can be higher in the beginning and you may choose to move some from Bucket 3 to Bucket 2.

All in all, one needs to be diligent and understand how this is meant to work and what the risks are. This may not be for everyone. I, for one, think this is a viable strategy even with the associated risk.

Good luck with your retirement and may your funds outlast you! QCBN

By Steven Calabrese, CPA

Steven Calabrese, CPA, is the CFO of Polara Health. He also is the owner/operator of a website known as thebiweeklyadvisor.com, where topics such as budgeting, investing, paying off debt and goal setting are discussed.

Retirement Planning: The Big Picture

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As a future or current retiree, it is important for you to take into consideration the big picture of your retirement planning. Once you have the full picture, it helps you make more detailed and necessary decisions to achieve the retirement for which you have worked your whole life.

One of the first steps to take when planning your retirement is to find a financial professional who puts your needs and interests first. At American Financial Security, we take your whole financial and tax position into consideration and actively help you meet your retirement goals and objectives.

The next step we encourage is to collect and organize all your important documents. Making sure your documents are accounted for and managed is a great step on the path to a comfortable and well planned retirement. Unfortunately, this step is overlooked far too frequently. Often, it’s only when tax season rolls around, or when a move happens, or a death in the family occurs, that people start really paying attention to the essential documents they may have. Having all your resources and documentation organized will allow your financial professional to provide you with the tools you need to make the decisions to help guide and prepare you for retirement.

Another essential step to take is to figure out how much money you will need in retirement and where it will come from. Many of our clients are confused about not only how much they have in terms of financial assets, but also how much they will need when they retire. Every client is different. By assessing each client on an individual basis, it allows us to properly evaluate each person’s
situation to make a proper financial recommendation that will best prepare them for or assist them in retirement.

Most of our clients have some assets on which they can rely, maybe in their savings, a retirement account, or in other financial investments, but this often isn’t enough to provide them with a lifetime’s worth of retirement income. In other words, a shortfall often exists between the amount of money you have and the amount of money you will need during retirement. This shortfall is known as the income gap, and we work with our clients to help them develop strategies to fill it.

An important strategy to plan for is knowing what your Social Security benefit is and how to maximize it. This is important because Social Security can play a large role in helping bridge the income gap in retirement. Making the wrong Social Security decisions, like triggering your benefit at the inopportune time, may impact whether you are able to collect your maximum benefit. Social Security has a significant impact on retirement planning. It is difficult to talk about retirement planning without also talking about
Social Security and vice versa. The most common and challenging decision regarding Social Security is knowing when to apply for benefits. Knowing when to apply for your Social Security benefits can make a financial difference in your retirement. You can begin to receive early benefits from Social Security at age 62. However, depending on your life span, if you choose to take your benefit right at 62, it could drastically reduce the amount of Social Security you receive over your lifetime. Also taking Social Security and working prior to full retirement age may have an impact on your benefits.

At American Financial Security, we take a holistic approach to retirement planning. A major part of that is trying to plan for the future. We like to plan for what inflation will look like, what health care costs may look like in retirement and, if debt is acquired in retirement, how it will be paid off.

Nobody can predict the future, but by preparing for the future financially, you may be saving yourself from future financial hardship.
QCBN

By Ronald Stevenson and Barbara Clark Stevenson

Ronald F. Stevenson & Barbara Clark Stevenson own American Financial Security, LLC. They specialize in Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. For more information, call 928-771-8368 or visit AmericanFinancialSecurity.net, 3112 Clearwater Dr., Suite B, Prescott, Arizona 86305.

Maximizing Social Security Benefits

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StevensonWith so many baby boomers on the verge of retiring, Social Security has become a hot topic, especially when it comes to finding out how to maximize one’s benefit. One of the reasons Social Security is such a trending topic right now is due to the fact that, after years of paying into Social Security, the largest generation ever is on the brink of reaping (or has already begun to reap) their benefits.

President John F. Kennedy said, “A Nation’s strength lies in the well-being of its people.” We agree with this statement, and believe that by helping people understand Social Security, we are providing a potentially more stable future for them and possibly their families. Even though Social Security is a nearly 80-year-old program, the current economic landscape looks much different than it did 20, 10 or even five years ago. Our world keeps changing, and we need to change right along with it by finding new ways to keep using an old tool in the most beneficial manner.

It is important to have a solid working knowledge of Social Security so you can know what you are entitled to and how you can get the most out of it. Your Social Security benefit acts as the foundation of your retirement plan, and you need to know how it is capable of supporting the rest of your financial house.

In the past, collecting Social Security was mostly a matter of triggering your benefit. Today, however, this is really only one piece of the puzzle: in order to get the most out of your Social Security benefit you need to file in the right way and at the right time. We’ve seen what an incredible difference this can make in our clients’ lives, and we’re committed to helping as many people as possible learn more about Social Security and see that same positive change in their lives.

You may begin to receive early benefits from Social Security at age 62. However, each year you delay receiving your Social Security benefit, your payment will increase. By delaying payments to age 70, for example, recipients will receive a 32 percent increase in benefits. Taken alone, that is an incredibly substantial difference. But, when you apply that difference over a lifetime, you can really begin to see how important it is to maximize your Social Security benefit – filing at the wrong time can mean losing tens of thousands of dollars in benefits.

For some people, filing at the wrong time could literally cost them their retirement. Once you file for Social Security, you are permanently locked into that monthly benefit amount. However, there is one way you can change your monthly benefit, but it is often difficult to take advantage of. If you have been on Social Security for less than 12 months and you pay back the full benefit amount you have received, you can defer your benefit and refile later when your monthly amount might potentially be higher. But, using this option means you need to be able to repay your Social Security benefit in full, and many people might not have that money on hand. It is imperative to make sure that you only file for Social Security when you are confident you are doing so at the right time.

Each and every client is different when it comes to triggering their Social Security benefit. A great way we help our clients decide when to trigger benefits is by helping them determine whether they should file immediately or consider delaying benefits.

We typically advise our clients to file immediately if they: find their job unbearable; are willing to sacrifice retirement income; and/or are not healthy and need a reliable source of income. On the other hand, we advise them to consider delaying their benefit if they: want to maximize their retirement income; want to increase retirement benefits for their spouse; are still working and enjoy it; and/or are healthy and willing/able to wait to file.

In addition, it is important to realize that maximizing your lifetime Social Security benefit and maximizing your monthly benefit amount are two very different things. Maximizing your monthly benefit amount would mean waiting as long as possible; or, in other words, waiting until you’re 70 years old to file for Social Security because this would give you the highest monthly amount. Focusing on maximizing your monthly benefit would mean you would receive more money per month, but you would also be waiting a lot longer to receive your benefit, which means you might have less time to actually use that money.

Maximizing your lifetime benefit means finding the sweet spot: striking a balance between the most money you can get per month along with the most years you will have to spend it. There are situations where maximizing your lifetime benefit may mean filing when you’re 63 years old or waiting to file until you are 69.

You have worked for and earned money your whole life, but the day that you retire, that income comes to an end. Finding other guaranteed sources of income that you can use to replace your old salary often poses the biggest challenge of retirement planning. It is possible that even with your monthly Social Security check and your other supplemental income that a shortfall will still exist. At that point, you will need to look at other investment tools to help bridge the gap that exists between you and your retirement goals. Basically, you want to optimize your lifetime Social Security benefit and effectively use your other assets to help generate income for you.

There are tens of thousands of calculations that go into finding the precise combination that will give you the largest lifetime benefit. The Social Security Maximization report that is generated through American Financial Security, LLC will show exactly what to do to optimize your benefit. QCBN

 

By Ronald Stevenson & Barbara Clark Stevenson

 

Ronald F. Stevenson & Barbara E. Clark Stevenson own American Financial Security, LLC. We specialize in Retirement Income Planning, Social Security Maximization, Tax Free Income Design, Personal & Corporate Tax Preparation and Planning. 928-771-8368,   www.AmericanFinancialSecurity.net 3312 Clearwater Dr., Suite B, Prescott, AZ 86305