Month: January 2024

Effectively planning one’s retirement often requires going beyond the question of the extent to which that retirement is funded. It involves mapping the logistical intricacies of a puzzle with many moving parts, each with financial, tax, and estate ramifications. The initiation of Social Security benefits is a piece of this puzzle. Consider the key issues:

• The pre-requisite to receiving Social Security benefits is to work and pay taxes for 10 years.

• Social Security benefit amounts are based on income, years worked, and the age benefits begin. The retiree’s most financially beneficial ‘start date’ results in the maximum lifetime benefit, including inflation and the time value of money. Advanced retirement planning programs can run these calculations and convey results in simple terms.   

• Full benefits are received at Full Retirement Age (FRA), which for most people is age 67. Benefits can commence as early as age 62. The earlier benefits begin the lower the monthly amount is, but benefits also continue to increase after FRA until age 70, as this chart shows:

Claiming Age         Benefit Adjustment¹

  62 -30%

65 -13.3%

67* 0%

68 8%

70 24%

*Full Retirement Age

• It’s noteworthy reduced benefits for pre-FRA claims compound  indefinitely, even for surviving spouses; in other words, annual increases are based on the reduced monthly benefit, and are, therefore, also proportionately lower.² 

• Genes and longevity, lack of program funding and the possibility of future ‘means testing’, age/benefit charts, and other income sources all factor into the strategic and important decision of when to initiate Social Security benefits.

The decision to initiate Social Security benefits will likely impact: i) the allocation of your retirement capital, ii) the decision of when to initiate income streams from investment accounts, iii) your withdrawal and depletion rates on those investment accounts, iv) your tax return the year benefits begin and thereafter, and v) the ultimate value of the estate you leave to your beloved heirs. Put your time in on this one, and blessings on your decision! Don’t be afraid to ask for help, and be quick to share your success with those in need.

Think about it, Shaun.

“Give, and it will be given to you. Good measure, pressed down, shaken together, running over, will be put into your lap. For with the measure you use it will be measured back to you.” ~Luke 6:38

1,2 Smart Asset, “Social Security Benefit Reduction for Early Retirement Chart”, August 3, 2023, written by Mark Henricks

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

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I vividly recall the horror of approaching the limits of my strength and conditioning while on a winter mountain climb years ago, and yet far from safety. It was a crushing revelation that I had overestimated my preparation and misjudged the physical requirement of the expedition, and as a result, was faced with an extremely life-threatening situation. It has been reported by Doc Eifrig, a retirement income specialist and partner at Stansberry Research, that the greatest fear of most American retirees is running out of money too soon, yet many do! Consider the following practices as you plan your own financial homestretch:

• Plan your retirement meticulously, giving consideration to every detail, for “which of you, desiring to build a tower, does not first sit down to count the cost, whether he has enough to complete it?” ~Luke 14:28.

• Consider part-time employment during the early to mid-years of retirement, realizing every dollar earned is a dollar not withdrawn from retirement capital accounts.

• Maintain a strict budget and practice counter-culture frugality, realizing every dollar not spent is a dollar not withdrawn from retirement capital accounts.

• Accelerate repayment of debt, and don’t fully retire until you “owe no one anything” ~Romans 13:8. Retiring in debt is like trying to swim the English Channel with twenty-pound boots on.  

• Keep investment expenses to a minimum, realizing every dollar of lower expenses remains invested and continues compounding!

• Avoid catastrophic risks, from which you may never recover. As Warren Buffet said, “Rule #1 is don’t lose money; Rule #2 is don’t forget Rule #1”.

• Consider strategic Roth Conversions in early retirement, in particular, after full employment and before Required Minimum Distributions (RMD’s) begin, when your tax bracket is likely lowest.

• After RMD’s begin, keep the money invested (after withholding occurs) when possible, realizing every dollar not withdrawn remains in your retirement capital accounts.

• If still employed after RMD’s generally begin, roll former retirement plans into your present employer’s retirement plan to further defer RMD’s.

• Refrain from buying and selling homes during retirement, an expensive endeavor which involves complicated planning and unpleasant financial surprises.

• If your only permanent fixed income source in retirement is Social Security, consider allocating a portion of your retirement capital towards a second permanent income source, which you can’t outlive.

Knowledge is power, and there is much you can do to avoid the horror I experienced on that mountain; that said, it’s even more important to know that “God is the provider for all of his creation and gives food to every creature” (Psalm 136:25). Blessings on your retirement planning efforts! Shaun.

“A wise man leaves an inheritance to his children’s children.” ~Proverbs 13:22

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss.

Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.

https://www.fivestarprofessional.com/spotlights/90982

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There are noticeable parallels between the stewardship of one’s physical and financial health. Just as a consistent regimen of nutrition, sunshine, exercise, hydration and sleep tends to sustain a healthy person, the methodical practice of simple financial principles tends to produce financially healthy families. Employer-sponsored retirement plans, such as 401(k)’s, 403(b)’s, Profit-Sharing and SIMPLE Plans are venues well-suited to the practice of such principles, and to general wealth-building due to distinct and beneficial features. “Those who gather (wealth) little by little will increase it (Proverbs 13:11), and these plans are a great way to do it!

• Many companies match employee contributions made to these plans (to a certain percentage of annual pay). A 25% match to 3% of income, for example, equates to a guaranteed annual return of 25% on one’s investment before the money even gets invested. Contributing less than 3% of one’s pay in this example is synonymous with special requesting a pay reduction from the boss!

• The tax advantages of employer-sponsored retirement plans can exceed other investment options, especially for high income households, due to their high contribution limits*. Have a fiduciary advisor, in an advisory relationship, work with your CPA to find a smart mix of traditional, Roth, and taxable contributions based on your own long-term financial plan.

• The structure of employer-sponsored retirement plans lends itself to dollar-cost averaging, which forces participants to purchase more shares of a given fund when the price is low, and fewer shares when the price is high.

• Employer-sponsored retirement plans generally offer competitive, low-expense index funds. Every dollar of expense comes straight off an investor’s rate of return, and worse, is compounded indefinitely into the future!

Consider also the following issues regarding your employer-sponsored retirement plan accounts:

• Taking a loan on these accounts is generally inadvisable for several reasons. Loan repayments are usually reinvested at a higher price. The rollover option can become jeopardized. A plan termination can force loan repayment, which, if made from the account by a participant under age 59 ½, becomes penalized.

• Keep your beneficiaries updated, which avoids the unnecessary delay of probate, dodges threats to the tax advantages available, and allows an immediate, tax-deferred distribution to beneficiaries.

• Understand your personal investment objective and risk tolerance, and maintain an asset allocation reflective of these at all times. New regulations allow your fiduciary advisor, in an advisory relationship, to professionally manage your active retirement plan accounts for a modest fee. 

These and other features make the employer-sponsored retirement plan a fantastic option for a significant portion of your total retirement savings. Be sure to make the most of it, and may your efforts to be both physically and financially healthy be blessed! Shaun

“It is God who gives you the ability to produce wealth.” ~Deuteronomy 8:18

* Contribution limits vary by plan type. Over-contributions are penalized.

The opinions voiced in this material are general, are not intended to provide specific recommendations, and do not necessarily reflect the views of LPL Financial.  

All investing involves risk including the possible loss of principle. No strategy ensures success or protects against loss. Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. Investors should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not insure a profit and does not protect against loss in declining markets. 

https://www.fivestarprofessional.com/spotlights/90982

Award based on 10 objective criteria associated with providing quality services to clients such as credentials, experience, and assets under management among other factors. Wealth managers do not pay a fee to be considered or placed on the final list of 2012/2022 Five Star Wealth Managers.