Your Full-Service Financial Planning for the Year Ahead

Agemy Financial Strategies

December 22, 2021

For over 31 years, Agemy Financial Strategies has helped our clients plan and prepare. This way, when the unforeseen occurs, their clients are uniquely positioned for success. As we enter the new year, here’s what you need to keep on top of for financial success in 2022.

At Agemy Financial Strategies, our firm exists for the purpose of helping people achieve their personal and financial goals. Our philosophy is to deliver quality financial programs and teach principles for successful living.

With 2022 around the corner, now is the best time to plan for the new year. An annual financial plan can determine where you are financially at that particular moment. Consider all of your assets such as—how much you get paid, what’s in your savings and checking accounts, how much is in your retirement fund—as well as your liabilities, including loans, credit cards, and other personal debts.

Here’s how Agemy Financial can assist in being your full service financial planning firm to help you plan for your year ahead.

Annual Financial Plan Check-Up

In your financial plan check up you should include things like your mortgage or rent, utility bills and other monthly expenses. This snapshot should also factor in what your goals are and what you’ll need to accomplish in order to get there. This can include things such as retirement planning, tax planning, and investment strategies.

Check off each step that you’ve considered. The idea is to make sure you’ve looked at the issue. It’s vital for you to cover every item in the above section, so that you have a full financial inventory. Here’s what your inventory should look like:

  • Your credit report and score.
  • A list of assets, such as: emergency fund, retirement accounts, other investment and savings accounts, real estate equity, and education savings.
  • A list of debts, such as: mortgage, student loans, car loans, credit cards, and other loans
  • A calculation of your credit utilization ratio, which is the amount of debt you have versus your total credit limit.
  • A review of the fees you’re paying to a financial advisor, if any, and the services they provide.

Set Financial Goals

Once you have a personal financial inventory completed, you can move on to setting goals for the remainder of the year or and for the next 12 months. Your goals will be divided into short-term, mid-term, and long-term ones.

Among your short-term goals might be to:

  • Establish a budget, which can be made easier with one of the best budgeting apps currently available
  • Create an emergency fund or increase your emergency fund savings
  • Pay off credit cards

Your mid-term goals might include:

  • Getting life insurance and disability income insurance
  • Thinking about your dreams, such as buying a first home or vacation home, renovating, moving, or saving so that you’ll have money to have a family or to send children or grandchildren to college

Then review your long-term goals, including:

  • Determining how much of a nest egg you’ll need to save for a comfortable retirement
  • Figuring out how to increase your retirement savings

Review Your Retirement Savings Plans

Saving for retirement in an individual retirement account IRA or a 401(k) is a smart way to enjoy some tax advantages. As you put together your annual financial plan, you should consider whether you need to:

  • Decide whether a Roth or traditional IRA is best for you now
  • Consider switching an existing IRA to a different brokerage
  • Convert a 401(k), which can be traditional IRA, Roth or regular
  • Rollover any old 401(k) accounts from a previous employer. If your employment status has changed from employed to self-employed, update yourself on the limits for SEP IRA or other self-employment retirement accounts and maximize your contribution amounts.
  • Increase or decrease your annual contribution amounts to retirement accounts.

Get Set For Financial Success with Agemy

The most important step in reaching any goal is to develop a plan to achieve it. That’s why it’s so important to plan ahead for your financial future. We work hard to deliver a dependable retirement income strategy, in any market, so that clients can enjoy the “best” of their lives during retirement.

Agemy Financial Strategies provides retirement planning services designed to educate clients as to their best options for meeting their current financial needs, achieving their long-term financial goals, avoiding common retirement-planning mistakes, and enjoying a lifetime of financial stability.

Our goal is to give clients confidence in a custom developed robust retirement portfolio and provided investment options designed to generate interest and dividends regardless of market conditions. This is income that can be spent or reinvested for dependable “organic” portfolio growth.

  • Educating retirees and pre-retirees to make smart financial decisions
  • Purpose-based investing
  • Implementing generational wealth transfers
  • Generating income (a retirement paycheck), you can depend on in all market conditions

As a fiduciary and Registered Investment Advisor, you can be confident AFSi will recommend only what is in your best interest.

Five Star Professionals 

There are a hundred reasons to work with Agemy Financial Strategies, but winning the Five Star Professional award for 10 consecutive years are at least ten of those reasons. Celebrating 31 years, we are dedicated to educating retirees through retirement planning, legacy planning, wealth management and more. Our goal is to help retirees achieve their personal and financial goals. Our education-driven financial advisors, Daniel Agemy in Denver, Colorado and Andrew Agemy in Guilford, Connecticut, are delighted to win the Five Star Wealth Management award for three and 10 years!  

Are your most important decisions being made with the advice and guidance of a Five Star Professional?

  • Andrew A. Agemy, MRFC® has been recognized for the quality service he provides to the clients in his community. He has an unbroken record of receiving nine consecutive Five Star awards for his outstanding service.
  • Additionally, Andrew has been actively teaching and coaching people with their finances for over 31 years in the Shoreline community.
  • Daniel J. Agemy, CPM®, RFC®, has been working in the world of finances for most of his life! He, too, has an unbroken record of receiving nine consecutive Five Star awards for his outstanding service.
  • Five Star is an international research group that helps identify top providers of service in their field.
  • Agemy Financial Strategies: because your assets are too important for anything less than Five Stars or AAA (Andrew A Agemy)

Final Thoughts

An annual financial plan is an exceptionally valuable tool for your life (and peace of mind) today and for your future. Best-case scenario: You’ve checked off all the items on this punch list by now. If not, don’t hesitate to put time on your calendar to do so.

Finding the right financial advisor that fits your goals and lifestyle doesn’t have to be hard. The trusted team at Agemy Financial Strategies is here for your every step of the way to make some real progress on your journey to financial freedom this coming year.

When the hustle and bustle has passed and the holiday dust has settled, talk to one of our wealth management professionals so we can make sure you’re starting 2022 off on the right foot.

The entire team at Agemy Financial Strategies would like to wish you a safe, happy and healthy New Year!

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Financial New Year’s Resolutions to Keep

Agemy Financial Strategies

December 15, 2021

2021 is winding down, which means it’s time to think about resolutions for the coming year. With the rising taxes and out-of-control inflation, financial resolutions are foremost in the minds of many pre-retirees and retirees alike.

If you’re someone who likes to make New Year’s resolutions, you already know how hard it is to stick to them. One report puts the failure rate at 80%. Yet, more than 55% of U.S. adults think they’ll follow through on their resolutions this year, a recent survey by the Finder found.

This year however, why not embrace the fresh start the new year brings? 65% of Americans age 18 and older are considering a financial goal for the new year, according to this 2021 financial resolutions study. It’s a great time to commit to your money goals, budget better, pay down debt, plan your taxes, ditch bad habits and improve your financial picture to reach your goals.

Here are a couple of resolutions that could help increase your financial planning strategy and hopefully inspire you to stay committed to them throughout the new year.

Create a Budget 

Saving and investing during your working years should lead to a rising net worth over time, helping you to achieve many of life’s most important goals. Creating your own budget and net worth can help you build your road map and stay on track. Here are steps that can help:

  • It’s important to have a budget with these three things in mind: how much you’re taking in after taxes, how much you’re spending, and how much you’re saving. Try tracking your spending using a spreadsheet or an online budgeting app for 30 days. Determine how much money you need to cover your fixed expenses, such as your rent/mortgage and how much you’d like to put away for other goals. If you aren’t retired, create an emergency fund with three to six months’ worth of essential living expenses, set aside in a savings account. The emergency fund can help you cover unexpected and necessary expenses when you least expect it.
  • Calculate your personal net worth annually. Make a list of your assets and subtract your liabilities. Subtract the liabilities from the assets to determine your net worth. Don’t panic if your net worth declines during tough market periods. What’s important is to see a general upward trend over your earning years. If you’re retired, you’ll want to plan an income and distribution strategy to help make your net worth last as long as necessary and to support other objectives.
  • If you’re retired, consider keeping 12 months of living expenses after accounting for Social Security or a pension in short-term CDs, an interest-bearing savings account. Consider keeping another two to four years’ worth of spending laddered in short-term bonds or invested in short-term bond funds as part of your portfolio’s fixed income allocation. This helps provide the money you need in the short-term. It also allows you to invest other money for a level of growth potential that makes sense for you, while reducing the chances you’ll be forced to sell more volatile investments (like stocks) in a down market.

Manage Your Debt

For most people, some level of debt is a practical necessity, especially to purchase an expensive long-term asset to pay back over time, for example the purchase of your first home. However, problems arise when debt becomes more of a burden than a tool. Here’s a couple tips on how to stay in control.

  • Keep your total debt load manageable. Keep the monthly costs of owning a home (principal, interest, taxes, and insurance) below 28% of your pre-tax income, and your total monthly debt payments (including credit cards, auto loans, and mortgage payments) below 36% of your pre-tax income.
  • Eliminate high-cost, non-deductible consumer debt. Try to pay off credit-card debt and avoid borrowing to buy depreciating assets, such as cars. The cost of consumer debt adds up quickly if you carry a balance. Consider consolidating your debt in a low-rate home equity loan or line of credit and implement a schedule to pay it back.
  • Match repayment terms to your time horizons. Create a plan to pay off the mortgage on your primary home before you plan to retire. If you’re likely to move within five to seven years, you could consider a shorter-maturity loan or an adjustable-rate mortgage (ARM), depending on current mortgage rates and options.

Protect Your Estate

An estate plan may seem like something only for the wealthy. But there are simple steps everyone should take. Without proper beneficiary designations, and a will, the fate of your assets or minor children may be decided by attorneys and tax agencies. These fees can eat away at these assets, and delay the distribution of assets just when your heirs need them most. Here’s how to protect your estate—and your loved ones.

  • Review your beneficiaries, especially for retirement accounts, annuities, and life insurance. A beneficiary is designed to be your first line of defense, to make your wishes for assets known, and ensure that they transfer to who you want quickly.
  • Update or prepare your will. A will isn’t just about transferring assets. It can provide for your dependents’ support and care, and help you avoid the costs and delays associated with dying without one. It can also spell out plans to repay debts, such as a credit card or mortgage. Keep in mind that a beneficiary designation or asset titling trumps what’s written in a will, so make sure all documents are consistent and reflect your desires.
  • Coordinate asset titling with the rest of your estate plan. The titling of your property and non-retirement accounts can affect the ultimate disposition and taxation of your assets. Talk with an estate planning professional about debts and the titling of assets, such as a home, that don’t have a beneficiary designation, to make sure they reflect your wishes and are consistent with titling laws that can vary by state.

Put Yourself First

It’s all too easy for you to become engrossed in the day-to-day demands of life, work and family. Paying yourself first generally means “paying” your future self money. It’s important to do it first because if you pay yourself last, chances are you won’t pay yourself at all. An easy way to pay yourself first is by contributing to a 401(k), especially if your employer offers matching contributions.

Set a goal of setting aside 10% of your income each month for a future need such as retirement. If your employer matches up to 4% of your annual income, then you would only need to contribute 6% of your income to pay yourself 10% of your income for retirement.

Finally, invest in your financial future by making an appointment with your wealth management advisor. Financial advisors can be a great help in getting a handle on debt. They’re experts at helping their clients get their finances in shape for today and the future. They may provide several services, such as investment management, income tax preparation, and estate planning. When you meet with your advisor, ask them (and yourself):

  • Is my investment strategy on track?
  • Am I saving in the most tax-efficient way?
  • Do I have adequate life insurance for my situation?

Hiring a reputable financial advisor to help draft a debt reduction strategy and a financial plan going forward is an extremely beneficial way to get your debt under control.

Final Thoughts

Lastly, remember you don’t have to do everything at once. There’s a lot you can do to improve your financial health by taking one step at a time and think of these resolutions as a checklist. It’s all about taking the time (no matter how hard it may be to squeeze it in), doing some planning and keeping your eye on the prize.

There’s no one-size-fits-all financial plan. Your situation is unique, and your goals are your own. Our financial advisors can help you create a personalized plan that fits your life. Want to gain better control of your finances? The trusted team Agemy Financial Strategies is here for your every step of the way to make some real progress on your journey to financial freedom this coming year.

When the hustle and bustle has passed and the holiday dust has settled, talk to one of our wealth management professionals so we can make sure you’re starting 2022 off on the right foot.

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Do You Need to Rebalance Your Portfolio?

Agemy Financial Strategies

December 07, 2021

After a second year of a bull market in stocks, the end of the year could be a great time to rebalance your portfolio. However, be sure to manage the levels of risk in your portfolio, which is often a major concern for those in or near retirement. Here’s what you need to know. 

With 2022 around the corner, now is the perfect time to tune up your stock portfolio. As we close out 2021, most people are in the midst of figuring out what they need to change as they enter the new year. As most people know, a new year calls for a fresh perspective.

When it comes to your retirement income planning, investing well requires you to get your head around some pretty unique (and sometimes counterintuitive) concepts. Common wisdom tells us that we should periodically rebalance our investment portfolio, but it might not always make sense.

Advantages of Rebalancing

Part of the purpose of an asset allocation is to dilute the impact of each asset class by limiting both the upside and downside impact of the investments. But, when a particular investment grows in value faster than the other investments, you are exposed to more risk than you originally intended. Rebalancing your portfolio returns your investments to your original risk tolerance and reduces the risk that your portfolio will drop in value.

Disadvantages of Rebalancing

Rebalancing is an uninformed strategy that assumes that high-flying investments have nowhere to go but down or, at best, have no room for further growth. But, past performance does not predict future results. Rebalancing also conflicts with other common strategies, such as buy-and-hold and harvesting losses to offset capital gains. The decision to rebalance should be forward-looking, based on expectations about where the stock and bond markets will head in the future.

Be Responsible with your Investments

Your investments should be in line with your financial goals, starting with where you are currently sitting at and where you’d like to be down the line. As long as you are on your path towards your goals, you should try not to let emotions get involved when you see the latest downward trend. When investing in the stock market, the responsibility is on you to make the most of the information available to you.

A great way to do some internal housekeeping is to tally up the total dollar value of the stocks, bonds and cash you hold in your taxable and retirement accounts. If you own a fund that invests in both stocks and bonds, such as a balanced fund or target-date fund, review the fund’s latest holdings to see how much it holds in each major asset class. To find out your current asset mix, calculate the percentage of each asset class relative to your total portfolio.

There is a lot of internal and external environment that influences equity prices. Equity prices today are linked to expectations of profits for tomorrow. Sectors like consumer technology, financial services, healthcare, technology services, infrastructure could continue to see new investments each year. But again, you must…

Do Your Research

Overall, one of the most overlooked aspects of updating your portfolio or getting into stocks in general, is doing your research. Looking at a range of factors to evaluate a stock, and then decide whether it deserves attention in your portfolio. Stocks are considered long-term investments because they carry quite a bit of risk; you need time to weather any ups and downs and benefit from long-term gains.

Key steps in evaluating any stock includes:

  • Gathering stock materials: Quantitative research begins with pulling together a few documents that companies are required to file with the U.S. Securities and Exchange Commission. These include Forms 10-K and 10-Q.
  • Narrow Your Focus: Zero in online items such as revenue, net income, EPS and ROAs to become familiar with the measurable inner workings of a company.
  • Turn to Qualitative Research: This reveals the black-and-white financials of a company’s story to give you a truer picture of its operations and prospects.

A majority of the population needs to understand that financial markets move in cycles. Profitability of companies influences stock markets. Fixed income markets move on the back of the inflation and interest rate trends. You need to keep yourself informed and make calculated decisions. At the end of the day, before you buy any stock, you want to build a well-informed narrative about the company and what factors make it worthy of a long-term partnership.

Tweaking and Rebalancing

If you determine you need to make some changes to your current portfolio from your research, you may want to go back to your saved portfolio and do some amendments. Conventional wisdom holds that there are two ways to rebalance–either you can rebalance on a set schedule, say, every December, or you can rebalance whenever your portfolio gets dramatically out of whack with your targets.

Rebalancing can require that you sell, so it’s important to factor in rebalancing efforts on your tax-sheltered accounts to help reduce tax costs. In some cases, the alterations you need to make might be obvious–if you’re heavy on bonds, for example, trimming your bond funds should resolve the problem. Getting to the bottom of other bets might take a little more research. This is where advice from a financial professional can help.

Hire A Trusted Financial Advisor

When planning your financial future, it’s always a good idea to seek professional guidance. A financial advisor should be the first member that you add to your team. With the right financial advisor, you can ask them any money-related issues and gain answers to your most sought-after financial questions. Your advisor is there to help you succeed on your financial journey. Some choose to delay this decision for a multitude of reasons. If you are not into finance, it is good to discuss the standards of all possible investment avenues with your financial professionals.

Another part of internal housekeeping would be to keep your personal finances in check. You should discuss your insurance needs and check if the health insurance plan you are currently enrolled in is adequate for you. The same should be done with your life insurance policy. Your life insurance should comfortably cover any liabilities. In short, these housekeeping tips must be a regular feature for all things finance. Your financial advisor will help you with all of the things mentioned above in order to organize your finances in a simple manner.

Final Thoughts

Maintaining ideal levels of risk and the correct asset allocation is a critical component of any long-term financial plan. Taking the time to rebalance your portfolio on a regular basis can help achieve both these goals. Meeting with an advisor to perform regular maintenance now may help you avoid major headaches during the next market correction.

If you’re interested in learning more about stock portfolios and financial advising strategies for 2022, contact us today!

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No Increase in IRA Limits? Here’s How You Can Still Save in 2022.

Agemy Financial

December 01, 2021

If you’re proactive about retirement savings or want to up your savings game this year, you may already know that retirement contribution limits stayed the same for 2022. Here’s what you need to know on how you can still save more for retirement.

High earners have a variety of options for saving for retirement—but income limits mean that direct contributions to Roth IRAs may not be among them. Roth IRAs offer tax-free earnings growth and withdrawals in retirement. This makes them a potentially valuable part of a broader investing and tax-planning strategy. Having both Traditional and Roth accounts can help with tax diversification in retirement. Let’s break down what this and other recent changes can mean for your retirement plans, whether you’re already saving or just getting started.

Are you getting the most from your 401(k)s?

Maxing out contributions to a traditional 401(k) is a good place to start. These accounts have no income phase-out limits, so you can generally contribute the lesser of your income or $19,500 (plus an additional $6,500 if you are 50 or older).  Pre-tax contributions will reduce your taxable income and in turn, your earnings will grow on a tax deferred basis.

If your employer also offers access to a Roth 401(k), then you could consider using one to set aside some post-tax retirement savings. Like their traditional 401(k) counterparts, Roth 401(k)s don’t have income phase out limits. So even if you don’t qualify for a Roth IRA because your income is above IRS income limits you can make after taxes contributions to a Roth 401(k). Your earnings will grow tax-free, and you will pay no taxes when you take withdrawals after 5 years and over the age of 59½.

The annual contribution limit applies across all of your 401(k) accounts, not on each account individually. The IRS broke down the amount of Roth IRA contributions you can make for 2022. This table shows whether your contribution to a Roth IRA is affected by the amount of your modified AGI as computed for Roth IRA purpose.

If your filing status is… And your modified AGI is… Then you can contribute…
married filing jointly or qualifying widow(er)

< $204,000

up to the limit
married filing jointly or qualifying widow(er)

> $204,000 but < $214,000

a reduced amount
married filing jointly or qualifying widow(er)

> $214,000

zero
married filing separately and you lived with your spouse at any time during the year

< $10,000

a reduced amount
married filing separately and you lived with your spouse at any time during the year

> $10,000

zero
single, head of household, or married filing separately and you did not live with your spouse at any time during the year

< $129,000

up to the limit
single, head of household, or married filing separately and you did not live with your spouse at any time during the year

> $129,000 but < $144,000

a reduced amount
single, head of household, or married filing separately and you did not live with your spouse at any time during the year

> $144,000

zero

Amount of your reduced Roth IRA contribution

The IRS stated that If the amount you can contribute must be reduced, figure your reduced contribution limit as follows.

  1. Start with your modified AGI.
  2. Subtract from the amount in (1):
    • $204,000 if filing a joint return or qualifying widow(er),
    • $-0- if married filing a separate return, and you lived with your spouse at any time during the year, or
    • $129,000 for all other individuals.
  3. Divide the result in (2) by $15,000 ($10,000 if filing a joint return, qualifying widow(er), or married filing a separate return and you lived with your spouse at any time during the year).
  4. Multiply the maximum contribution limit (before reduction by this adjustment and before reduction for any contributions to traditional IRAs) by the result in (3).
  5. Subtract the result in (4) from the maximum contribution limit before this reduction. The result is your reduced contribution limit.

See Publication 590-A, Contributions to Individual Retirement Accounts (IRAs), for a worksheet to figure your reduced contribution.

What about non-deductible IRAs?

Does it ever make sense to contribute to a Traditional IRA even if you can’t deduct the contributions? At the very least, you could still enjoy the potential for tax-deferred growth in the account.

You wouldn’t be getting any upfront tax break, and future withdrawal of growth on your original contribution would be taxed at your ordinary income tax rate. It’s possible that the future tax rates you’d pay would be higher than what you would owe if you’d invested in a tax-efficient way in a regular taxable brokerage account. With today’s low long-term capital gains and qualified dividend rates, non-deductible contributions to a traditional IRA may make less sense.

In 2022, long-term capital gains are taxed at a federal rate of either:

  • 0% for single filers with taxable income up to $41,675 or joint filers with taxable income up to $803,350.
  • 15% for single filers with taxable income between $41,675-$459,750 or joint filers with taxable income between $83,351-$517,200.
  • 20% for single filers with taxable income above $459,751 or joint filers with taxable income above $517,201.

It’s important to have money in taxable accounts as well as tax-advantaged accounts because it can give you flexibility and access to savings for needs prior to age 59½. At 59½, you can withdraw from traditional IRAs and retirement accounts without a 10% early withdrawal penalty. These methods can also provide flexibility in managing your tax bracket as you plan for post-retirement cash flows.

What about Medicare Tax?

In addition to the above, filers may have to pay the Medicare surtax.

The Federal Insurance Contributions Act (FICA) imposes two taxes on employers, employees and self-employed workers — one for Old Age, Survivors and Disability Insurance, which is commonly known as the Social Security tax, and the other for Hospital Insurance, which is commonly known as the Medicare tax.

There’s a maximum amount of compensation subject to the Social Security tax, but no maximum for Medicare tax. For 2022, the FICA tax rate for employers is 7.65% — 6.2% for Social Security and 1.45% for Medicare (the same as in 2021).

2022 updates

For 2022, an employee will pay:

  • 6.2% Social Security tax on the first $147,000 of wages (6.2% of $147,000 makes the maximum tax $9,114), plus
  • 1.45% Medicare tax on the first $200,000 of wages ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return), plus
  • 2.35% Medicare tax (regular 1.45% Medicare tax plus 0.9% additional Medicare tax) on all wages in excess of $200,000 ($250,000 for joint returns; $125,000 for married taxpayers filing a separate return).

For 2022, the self-employment tax imposed on self-employed people is:

  • 12.4% OASDI on the first $147,000 of self-employment income, for a maximum tax of $18,228 (12.4% of $147,000); plus
  • 2.90% Medicare tax on the first $200,000 of self-employment income ($250,000 of combined self-employment income on a joint return, $125,000 on a return of a married individual filing separately), plus
  • 3.8% (2.90% regular Medicare tax plus 0.9% additional Medicare tax) on all self-employment income in excess of $200,000 ($250,000 of combined self-employment income on a joint return, $125,000 for married taxpayers filing a separate return).

Final Thoughts

Contribution limits didn’t increase for the 2022 tax year, but through understanding your contribution limits and future taxes, you can still continue to make good progress toward saving for retirement. Where will your retirement money come from? If you’re like most people, qualified-retirement plans, Social Security, and personal savings and investments are expected to play a role. Once you have estimated the amount of money you may need for retirement, a sound approach involves taking a close look at your potential retirement-income sources. What’s more, understanding tax strategies can potentially help you better manage your overall tax situation.

At Agemy Financial Strategies, we have an array of will and retirement and tax planning solutions to guide you through the entire process, all with the help of our trusted financial planners.

For more information on IRA limits and how you can put your best foot forward in 2022, contact us today!

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Understanding RMDs and What You Need to Know for 2022

Agemy Financial

November 26, 2021

How well do YOU understand RMDs? With the RMD deadline looming, you need to take action now before it costs you big bucks. 

A required minimum distribution (RMD) is the amount of money that must be withdrawn from an employer-sponsored retirement plan, traditional IRA, SEP, or SIMPLE individual retirement account (IRA) by owners and qualified retirement plan participants of retirement age. RMDs are calculated separately for each account and must come out of said account unless an exception applies.

There’s still time to withdraw your required minimum distribution (RMD) from your traditional IRA, 401(k) or other retirement account (except a Roth IRA) before the end of the year…but you should hurry! The 2020 RMD suspension was for one year only, so don’t think you can skip it again in 2021. And if you don’t take enough out of your retirement plans this year, you could be hit with a 50% penalty from the IRS on the amount not distributed as required. Here’s what you need to know for 2022.

RMD Tables for 2022

In 2022, various life expectancy tables used by owners and beneficiaries to calculate required minimum distributions (RMDs) from retirement plans, are being updated. This is being done to reflect the increase in life expectancies experienced since the current tables came out in the early 2000s.

These changes mean that smaller distributions will be required to be taken on an annual basis, resulting in less taxation and longer lasting account balances which in turn creates an opportunity to grow the funds that are in the account. You can calculate your 2022 RMD by taking your Dec. 31, 2021, account balances and dividing by a factor from an IRS table.

If you are single or married to someone not more than 10 years younger than you, use 2022 Table III, Uniform Life Table which lists the factor for a 72-year-old at 27.4. If your spouse is more than 10 years younger than you, use the factor in 2022 Table II, Joint and Last Survivor Life Expectancy.

Impact of RMDs in 2022  

Beneficiaries of IRAs, retirement plans and nonqualified annuities who will start using their life expectancy to take out the annual RMD in 2022 will use the new factors from the Single Life table to start their payout schedule. Those beneficiaries who have been using their life expectancy to take out their annual RMD need to adjust the life expectancy used in 2022 to reflect these new tables.

For many owners and beneficiaries, the overall increase in life expectancy represented in the updated tables is a good change. These changes will reduce the taxation on required distributions and provide more opportunity for growth and longer lasting account balances. If you’d like to learn more about the payout options beneficiaries of IRAs and nonqualified annuities check out our RMD webinar on our website.

Planning for the Future 

At this time of year, the most important thing is that you get the ball rolling now! Looking into the years ahead, your first RMD (for 2022) may be taken as late as April 1, 2023. Only this first RMD for 2022 can be delayed into the following year. Your second RMD will be for 2023 and will be due by Dec. 31, 2023. Your 2024 RMD needs to be out by Dec. 31, 2024 and so on every year for the rest of your life.

If you don’t take the first RMD in 2022 and delay it into spring of 2023, you will be taking two RMD in 2023 and reporting the income from both on your 2023 return. That may or may not be problematic; If your 2022 marginal tax rate will be lower than 2023, delaying is probably not wise. If your 2023 marginal tax rate is lower than 2022, delaying could save you some money. To avoid taking two RMD in 2023, don’t delay taking your 2022 RMD and take it during 20222. The 2022 RMD can be taken any time in 2022, even before you turn 72. The IRS automatically counts any distributions taken in a given year as part of the RMD for that year until the RMD is met.

If you have retirement accounts, you owe it to yourself to understand the rules that apply to distributions, such as the RMD rules discussed here. And at Agemy Financial Strategies, we can help with this often complicated process. Our experienced advisors carefully explain the calculations necessary to convert to the new RMDs, as well as a breakdown of all of the new tables for those looking for a by-the-numbers approach.

Final Thoughts 

It’s important to note, a large RMD can push you into a higher tax bracket. One strategy for reducing the amount of RMDs is to make a qualified charitable distribution (QCD). If you’re 70½ or older, a QCD allows you to distribute up to $100,000 tax-free directly from an IRA to a qualified charity and to apply that amount toward your RMDs.

In addition, the income-based limits on charitable deductions don’t apply. Any amount excluded from your income by virtue of the QCD is similarly excluded from being treated as a charitable deduction. If you haven’t withdrawn the necessary funds yet, don’t delay. Contact the financial advisors at Agemy right away for help setting up a distribution.

At Agemy Financial Strategies, we have an array of will and retirement planning solutions to guide you through the entire process all with the help of our trusted financial planners. If you have any questions on our company, services, values and more, contact the team at Agemy Financial here today. Our highly experienced financial advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call!

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2022 Tax Inflation Adjustments

Agemy Financial

December 08, 2021

On Nov. 10, 2021, the IRS announced inflation adjustments for 2022 affecting standard deductions, tax brackets, and more. The changes (effective when you file in 2023) are the result of higher inflation in 2021. There are also changes to the alternative minimum tax, estate tax exemption, earned income tax credit and flexible spending account limits, among others. 

Over the past few years, your tax bill has been affected by many law changes. These changes can be somewhat confusing at times. The best way to be prepared for these changes is to make year-round tax planning your top priority.

Overview

Recently, the IRS announced higher federal income tax brackets for 2022 due to the rise of inflation. The standard deduction is increasing to $25,900 for married couples filing together and $12,950 for single taxpayers. The consumer price index surged by 6.2% in October compared to the previous year, the biggest jump in more than three decades.

Here are a couple ways Agemy Financial Strategies can help you make the necessary adjustments for your tax planning in 2022 and beyond.

Last Chance for Deductions and Credits

Several deductions and credits will expire in 2021. It’s important to take advantage of these credits and deductions now to consider how their elimination could affect your income and corporate tax rate in 2022. The best way to do this is to consult with your tax advisor to see what credits and deductions you qualify for.

The Employee Retention Tax Credit is an incentive that was created within the Coronavirus Relief and CARES Act that was intended to encourage employers to keep employees on the payroll as they navigate the unprecedented effects of COVID-19. With ERTC, companies can get a maximum of $21,000 for keeping workers employed through September 30, 2021. However, if you started your business after February 15, 2020, it’s considered a recovery startup business, and the maximum credit is $50,000. Learn more by reviewing IRS Notice 2021-49.

If you paid qualified sick or family leave related to COVID-19 or vaccinations through September 30, 2021, you may be eligible for a credit due to the Families First Coronavirus Response Act (FFCRA) and American Rescue Plan (ARP). Review the IRS comparison chart to see how rules for time frames in 2021 differ.

As of now, you can deduct expenses paid for with PPP loans. Guidance may change before tax filing time, so it’s very important to track payroll and fees paid with PPP funds or other government grants or loans.

2022 Tax Year: Leverage these deductions before they expire

2022 will be the last year you can take the total deductions for Section 179, bonus depreciation, and qualifying business meals. Although this could change, it’s a good idea to take advantage of these deductions before the January 1, 2023 deadline to acquire and place assets into service.

For 2021, the maximum expense deduction is $1,050,000. This limit is reduced by the amount by which the cost of Section 179 property placed in service during the tax year exceeds $2,620,000. Although the TCJA offers deductions for 50% of qualifying client-related business meals, the Consolidated Appropriations Act (CAA) made an exception for 2021 and 2022.

Further Adjustments

The IRS also made other inflation adjustments, such as changes to the alternative minimum tax, a parallel system for higher earners, and an increased estate tax exemption. Moreover, there’s a boost for the earned income tax credit, a write-off for low- to moderate-income families, and higher flexible spending account limits, among other changes. The key takeaways of these changes include:

  • Basic tax rates have not changed for 2022 although income levels (brackets) for each rate have.
  • Standard deductions and about 60 other provisions have been adjusted for inflation to avoid bracket creep.
  • The maximum Earned Income Tax Credit for 2022 will be $6,935 vs. $6,728 for tax year 2021 for taxpayers with three or more qualifying children.
  • Basic exclusion for decedents who die in 2022 will be $12,060,000 vs. $11,700,000 for 2021.
  • The annual gift exclusion for calendar year 2022 will be $16,000 vs. $15,000 for 2021.

Workers may also save more to 401(k) plans in 2022, according to last week’s announcement. But there won’t be a higher limit for individual retirement accounts.

Final Thoughts 

Lastly, before making any tax and/or business decision, you should always consult a professional who can advise you based on your individual situation. Understanding tax strategies and managing your tax bill should be part of any sound financial approach. Some taxes can be deferred, and others can be managed through tax-efficient investing. With careful and consistent preparation, you may be able to manage the impact of taxes on your financial efforts.

A strong tax planning strategy can save you money on retirement withdrawals, keep your investments efficient, help you give more to charity, maximize your estate, and put more money in your pocket. At Agemy Financial Strategies, our seasoned financial advisors are highly experienced in managing taxes and understand the importance of a well-executed tax plan for financial success. Click here to find forms, explanations, and other tools to help you manage your taxes.

For more information on 2022 tax inflation adjustments and tax advising services, contact us here today.

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The Update on the Proposed Reconciliation Bill

Changes are again said to be underway at the Whitehouse level. And it could severely affect your retirement. Here’s what you need to know…

Under the Reconciliation proposal, starting in 2023, employers with five or more employees would have to offer a retirement plan and automatically enroll employees, diverting 6% of their pay to a retirement account. Then write about the scaled cutbacks and what could lie ahead.

This plan would also create many universal programs as well as assist families with child care and send them the enhanced child tax credit for another year. The problem with the proposed Reconciliation Bill is how Democrats will pay for it. Here are a couple things to keep your eyes on for 2023.

Automatic Enrollment Plans

The legislation requires employers with more than five workers to provide access to a retirement plan that automatically enrolls employees by 2023. Governments and churches are exempt from the mandate. The automatic contribution percentage would start at 6 percent for qualified employees and would auto-escalate up to 10 percent during the fifth plan year. Employers would not be required to make contributions to the plan.

Employees would be able to opt out and could change their investment election and deferral rate. Employers that do not offer an automatic contribution plan or arrangement would be charged an excise tax of $10 per day per employee for noncompliance (with certain exceptions and adjusted for inflation). To offset costs for employers, the bill provides an enhanced employer plan startup credit.

A Limit on the Size of 401(k) Accounts

If a worker’s combined retirement account balances—including 401(k) and other employer-sponsored defined contribution plans and IRAs—exceeded $10 million (as adjusted for inflation) at the end of a taxable year, the account holder would have to reduce his or her combined account sizes by taking a distribution in the following year.

The minimum distribution generally is 50% of the amount by which the individual’s prior year aggregate account balances exceed the $10 million limit. These new limits would be effective for plan years beginning in 2022.

A National Paid-Leave Program

Beginning in July 2023, the bill provides up to 12 weeks of federal benefits to replace lost wages due to time off for medical leave or caregiving for an ill relative. The taxpayer-funded program covers all full-time and part-time workers without regard to employer size, although employers with fewer than 50 workers may be eligible for assistance grants.

While the bill follows the Family and Medical Leave Act (FMLA) in terms of leave events, it goes beyond the FMLA by including a much broader definition of covered family members. Eligible workers can apply for benefits if they have at least four caregiving hours in a week. Benefits would replace 85% of lost wages for the lowest-income workers and gradually decrease, replacing just 5% of wages for workers earning up to $250,000.

Lower Affordability Threshold for Employer Health Plans

Under the ACA, the lowest-cost, self-only health plan option an employer offers cannot charge employee premiums that exceed 9.5 percent of an employee’s income. The threshold is adjusted each year based on premium rates and in 2021 rose to 9.83 percent. It is set to fall to 9.61 percent in 2022.

The Ways and Means Committee proposal would permanently reduce the affordability threshold to 8.5 percent of an employee’s income and eliminate the indexing requirement, so the 8.5 percent requirement would not increase over time. This change would go into effect beginning with the 2022 plan year. The proposal would also make permanent the American Rescue Plan Act increased federal

Paying for the Reconciliation Bill

House Democrats have gone back and forth trying to figure out ways to pay for the proposed Reconciliation Bill. In the framework, President Biden ultimately settled on a mix of corporate and individual revenue raising measures.

  • Corporate taxes

The framework would put in place a 15% minimum tax on the corporate profits that large companies report to shareholders, not to the Internal Revenue Service. This would apply to companies with more than $1 billion in profits. It would impose a 15% minimum tax, calculated on a country-by-country basis, that American companies pay on foreign profits. This is consistent with an agreement Biden recently won among 136 countries. 

  • Taxes on the rich

The wealthiest Americans would pay a 5% surtax on income above $10 million, and an additional 3% levy on income above $25 million. The framework would also close the loopholes to allow some affluent taxpayers to avoid paying the 3.8% net investment income tax on their earnings.

  • IRS enforcement

The framework would beef up IRS enforcement so that it can ensure that people are paying what they owe to the IRS. The new enforcement measure would focus on Americans with the highest incomes, not those earning less than $400,000 a year.

Final Thoughts

While the Reconciliation Bill is still in the works and not yet finalized, there are many ways you can stay on top of it and plan accordingly. At Agemy Financial Strategies, we have an array of will and retirement planning solutions to guide you through the entire process, all with the help of our trusted financial planners.

If you have any questions on our company, services, values and more, contact the team at Agemy Financial here today. Our highly experienced financial advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call!

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Planning for Higher Tax Bills for Retirees

Tax planning and financial planning go hand-in-hand. As you near retirement, avoiding tax planning could create major hurdles for your financial future. Here’s what you need to know about the potential impending tax hikes and what they could mean for your golden years.

There’s a common misconception that when you retire, your tax bills shrink, your tax returns become simpler and tax planning is a thing of the past. While that might be true for some, others find that the combination of Social Security, pensions, and withdrawals from retirement accounts increase their income in retirement and therefore may push them into a higher tax bracket.

With speculation about taxes possibly going up in the near future, your best course of action may be to incorporate tax strategies in your financial plan geared toward retirement. How much of your income will be taxable in retirement? What will your tax rate be after you retire? It’s important to remember that today’s rates are low by historical standards, and the Tax Cuts and Jobs Act expires after 2025. Here’s a couple ways to plan accordingly.

Open a Roth IRA or Roth 401(k)

Based on the premise that taxes will be higher in the future, a wise move is making contributions that can grow tax-free. Two vehicles toward that goal are a Roth IRA or Roth 401(k). Contributions are made after taxes, meaning your taxable income isn’t reduced by the amount of your contributions when filing your taxes. But the benefit is in retirement, as earnings can be withdrawn tax-free starting at age 59½.

Three differences between the Roth IRA and Roth 401(k):

  1. Roth 401(k)s have a higher contribution limit. Employees can save up to $19,500 in 2021, and workers older than 50 have a maximum limit of $26,000 per year. Roth IRA contributions are limited to $6,000 annually, while workers older than 50 can contribute $7,000.

  2. There is no required minimum distribution for a Roth IRA. However, there is an RMD for the Roth 401(k) beginning at age 72. You can avoid that RMD by rolling it into a Roth IRA when you retire.

  3. Investors in a Roth IRA have more control over their accounts than they do in a Roth 401(k). In a Roth IRA, investors can choose any type of investment – stocks, bonds, etc. – but in a 401(k), they are limited to the funds offered by their employers.

Consider the timing of Social Security benefits

You can begin receiving Social Security benefits as early as age 62 or as late as age 70. The later you start, the larger the benefit amount — so, if you don’t need the money right away, putting it off may be a good investment. Also, benefits are reduced if you start them before you reach full retirement age and continue to work.

Keep in mind that if your income from other sources exceeds certain thresholds, your Social Security benefits will become partially taxable. For example, married couples filing jointly with combined income over $44,000 are taxed on up to 85% of their Social Security benefits. (Combined income is adjusted gross income plus nontaxable interest plus half of Social Security benefits.)

Make Qualified Charitable Distributions

You’re required to begin RMDs from tax-deferred retirement accounts once you reach age 72 (up from 70½ for people born before July1, 1949) though you’re able to defer your first distribution until April 1st of the year following the year you reach age 72. RMDs are generally taxed as ordinary income and you must take them regardless of whether you need the money. As previously noted, a large RMD can push you into a higher tax bracket.

One strategy for reducing the amount of RMDs, at least if you’re charitably inclined, is to make a qualified charitable distribution (QCD). If you’re 70½ or older (this age didn’t increase when the RMD age increased), a QCD allows you to distribute up to $100,000 tax-free directly from an IRA to a qualified charity and to apply that amount toward your RMDs.

The funds aren’t included in your income, so you avoid tax on the entire amount, regardless of whether you itemize. In addition, the income-based limits on charitable deductions don’t apply. Any amount excluded from your income by virtue of the QCD is similarly excluded from being treated as a charitable deduction.

Final Thoughts

Making smart tax decisions can have a big impact on the amount of money someone has in retirement. Strategic withdrawals from Roth accounts can help retirees from creeping over income thresholds that cause these higher taxes and premiums.

At Agemy Financial Strategies, we have an array of will and retirement planning solutions to guide you through the entire process all with the help of our trusted financial planners.

If you have any questions on our company, services, values and more, contact the team at Agemy Financial here today. Our highly experienced financial advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call!

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Two Financial Planning Topics to Bring to the Table This Thanksgiving

Agemy Financial

October 27, 2021

Bringing up money with family can be uncomfortable and even be seen as taboo. But this year instead of avoiding the issue, address it head on when the family is all together over Thanksgiving. Here’s how.

Family and personal finances are a big part of every holiday season. People are buying gifts, preparing holiday meals, and planning all of the changes in their lives that the coming new year might bring.

While it’s easier to speak with financial professionals about your finances, we try to keep peace with the family, have lighter conversations and speak about things that we think will unite us. However at Agemy Financial Strategies, in addition to giving thanks for all we have, we want everyone to engage in some financially sound thinking this Thanksgiving.

With that being said, here are two important financial topics to discuss with loved ones over the holiday.

Organizing Finances

The first dinner table conversation to have is to get a grasp of where everyone stands financially. If no-one yet knows off the top of their head, checking credit scores is a quick way to get an initial overview. Nowadays, there are many websites where you can receive instant reports. Credit scores can help creditors determine whether to give you credit, decide the terms they offer, or the interest rate you pay. Having a high score can benefit you in many ways. It can make it easier for you to get a loan, rent an apartment, or lower your insurance rate.  Whilst you can login to your credit report anytime, you are entitled to one free copy of your credit report every 12 months from each of the three nationwide credit reporting companies. Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228.

The 6 Best Free Instant Credit Reports of 2021 include:

Second up, and to truly get a solid financial picture of where they stand, encourage loved ones to gather and organize financial documents, such as:

  • Credit cards
  • Phone bills
  • Utility bills
  • Account statements
  • Insurance and mortgage payments, etc.

Be sure to remind everyone to keep the paperwork (or login information for online access) in a secure location. Having all documents in a central location makes it easier to collect documentation for loan applications, as well as to review your finances for budgeting. By gathering such information, every family member will have a better understanding of their financial picture in 2021 and be able to make adjustments for the year ahead. In fact, reflecting on your previous year’s budgeting is essential to figure out where you have gone wrong and what aspect of your budgeting needs improving. By reflecting, you can also see where you have gone right in your budgeting and do the same this time around.

One of the keys to a sound financial strategy is spending less than you take in, and then finding a way to put your excess to work. A money management approach involves creating budgets to understand and make decisions about where your money is going. It also involves knowing where you may be able to put your excess cash to work.

Estate Planning

Many adults, regardless of age, delay estate planning because it can be uncomfortable to think about one’s own mortality. While no one believes that wills and trusts should be contemplated over Thanksgiving turkey, clarifying whether you or your aging loved ones have the documents in place to protect their personal and financial affairs is not only appropriate, but essential. It’s a good idea to do your own estate planning documents first or be working on your own and researching these topics yourself so you have more credibility when you bring up the topic. Third-party material from your trusted financial professional can also be a useful tool for starting a conversation.

It’s worth noting there’s more to estate planning than how assets are distributed at death. Estate plans should also include incapacity documents. The three most common incapacity documents are:

1. Living Will

Although everyone knows in theory that they should complete important paperwork before the need arises, very few of us actually do. But it’s crucial to have this discussion early—both for those who may need care and for those who may have to act on someone else’s behalf.

Your family may have heard that a living will is a good idea, but do they understand what a living will actually does? A shocking 92 percent of Americans know they need a living will but only 27 percent actually have them. With families gathering for the holidays, now may be a perfect time to discuss this with older relatives.

A living will is also known as a health care or instruction directive. It is separate from the will that determines the inheritance of your assets. It focuses on your preferences concerning medical treatment if you develop a terminal illness or injury, such as a brain tumor, Alzheimer’s disease or head trauma that causes you to lose brain activity. Medical care in a living will may include instructions for the following:

  • Tube feeding
  • Assisted breathing
  • Resuscitation
  • Other life-prolonging procedures

It may also outline your religious or philosophical beliefs and how you would like your life to end. A living will is only valid if you are unable to communicate your wishes.

2. Healthcare Power of Attorney

A health care power of attorney gives someone else (the proxy) the ability to make decisions for you regarding your health care. Unlike a living will, it applies to both end-of-life treatment as well as other areas of medical care.

As a designated healthcare power of attorney, it’s important that you understand your loved one’s health insurance. If your family member is age 65 or older, they are more than likely insured through Medicare:

  • Medicare Part A covers inpatient hospital procedures, skilled nursing facility stays, hospice and some home health care.
  • Medicare Part B covers preventive services and medically necessary services or supplies needed to diagnose or treat a medical condition.
  • Medicare Part D is optional prescription drug coverage.

Experts recommend supplemental insurance to extend benefits for health care needs not provided by Medicare Parts A and B so your loved one may have a supplemental policy as well. Medicare doesn’t pay for long-term care so you’ll need to find out if your loved one has a long-term policy or if it would be advisable for him or her to purchase one.

Many of these policies provide home health care services. You’ll have peace of mind knowing someone is taking care of your family member. You may decide to have both a power of attorney and a living will, called a combined advance directive for health care. Whether you go with one or both, you receive similar benefits.

3. Financial Power of Attorney.

A seemingly sore topic to discuss at family gatherings – but crucial nonetheless – is who will control financial matters on behalf of a loved one when they are unable to do so. But if you need to give another person the ability to conduct your financial matters when you can’t or unable to be present, a financial power of attorney (POA) may be your solution.

This document allows someone you appoint to act on your behalf when it comes to money matters. They can pay your bills, transfer funds between accounts and even sell your car if need be. This durable power of attorney can go into effect the day you have it notarized, or you can make it a “springing” power, which means it only goes into effect if a doctor deems you incapable of making decisions.

Many states have an official durable power of attorney form, which is usually a durable financial power of attorney form. Some banks and brokerage firms have their own power of attorney forms. Also, for buying or selling real property, a title insurance company, lender or closing agent may require the use of their form. Therefore, you may end up with more than one financial POA form.

It’s especially important that your loved ones have an estate plan in action with incapacity documents so you can review them. If not, schedule a meeting with an estate planning professional. You’ll be grateful you implemented the plan now rather than later. Remember, the goal of the holiday discussion is to ensure that your aging parents or loved ones have their financial house in order, not to pry, or in any way appear as if your inquiries are motivated by self-interest. As a general rule of thumb, you should avoid asking direct questions about account balances, beneficiaries, or the value of their estates.

Final Thoughts

As much as we look forward to the gathering around Thanksgiving, preparations for many of us include ticking off a mental list of what we cannot talk about for fear of igniting a feud between second helpings and dessert. Even if your family members are not ready to tackle everything on their financial goals list, after the family get together they can start chipping away now.

It’s always important to meet with your Financial Advisor to get the facts from the source. Be sure to provide them with updates on your financial situation, including your expected retirement date, income needs, and any other family situations that may affect your financial plan.

However you’re spending the holidays this year, the team at Agemy Financial Strategies are always on-hand to help guide you through your financial planning journey. Contact us here today to get started.

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The Pros and Cons of an Early Retirement

Are you ready to retire earlier than anticipated? The dream of leaving the workforce earlier in life may have hidden pitfalls. Here’s what you need to know. 

Many Americans plan to retire early, depending on your profession, early retirement may be as young as 65.  A healthy savings portfolio and debt-free living can potentially give you a solid retirement platform. The opportunity to spend decades of your life in leisure pushes you even closer to taking the plunge. Like any choice in life, early retirement involves trade-offs.

For what you gain in rest and relaxation, you pay in opportunity costs. As you evaluate your financial stance for an early retirement, how will these pros and cons weigh in on your final decision? Pros of retiring early include health benefits, opportunities to travel, or starting a new career or business venture. Cons of retiring early include the strain on savings, due to increased expenses and smaller Social Security benefits, and a depressing effect on mental health.

Let’s dive a little deeper…

Pros of Early Retirement 

Putting the brakes on your full-time career doesn’t mean slowing down completely. More retirees than ever are working throughout their retirement. Many take on part-time jobs in a completely new field while others stay sharp with consulting roles in their native industry.

Early retirement affords you the opportunity to work because you want to work, not because of financial obligations. Your fresh start may lie in a new industry or with a new educational degree. In either case, personal accomplishment becomes the motivator, not the compensation.

  • Investing time in family and personal relationships

If you’re in the position for an early retirement, chances are your hard work will cost you time away from loved ones and family. Retiring in your early fifties may allow you to spend more time with your family and better parent children throughout their teens and early adulthood. You can reconnect with a spouse who ran the household while you pulled long hours at the office. Investing extra time in loved ones pays dividends for the entire household.

  • The opportunity to travel 

What is a retirement plan that doesn’t include at least some form of travel? Whether your vacation style involves calming beaches or active adventure, both time and opportunity abound. An early retirement often comes with good health, agility and stamina. Adventure-based vacations and bucket list experiences such as rock climbing, extended hiking, white water rafting and more are approachable – and potentially safer – at an earlier age.

Cons of Early Retirement

Unfortunately, early retirement isn’t for everyone. In fact, it isn’t for most people. Just 11 percent of today’s workers plan to retire before age 60, according to anEmployee Benefit Research Institute (EBRI) survey.

There are key aspects of an earlier retirement that shouldn’t be overlooked. For instance, Medicare coverage doesn’t kick in until age 65. If you’re approaching retirement age in good health, you’re fortunate. However, you can’t forgo health insurance coverage without assuming serious risk to your nest egg. Few employers are providing post-retirement health plans. Even if you’ve been promised retirement coverage, continued coverage is not always guaranteed.

  • Penalties for accessing funds early

Using tax-advantages accounts to save for retirement can be a smart move but tapping into those funds early can cost you. A 401(k) typically carries a 10% penalty for early withdrawals before the age of 59 ½. If you leave your company at age 55 or older, the IRS will allow you to make withdrawals penalty-free.

Those with traditional IRAs face a 10% withdrawal tax on distributions taken before the age of 59 ½ unless they agree to adjusted periodic payments based upon life expectancy. Similar 10% early withdrawal penalties may be applied to funds converted into a Roth IRA depending on the composition of the account. Know the costs associated with accessing your own money and how they affect your early retirement budget.

  • Benefit Packages

Be aware that the earlier you access benefits packages the less benefit you’ll receive. The Social Security Administration will reduce your benefit for drawing benefits prior to the full retirement age of 67. Drawing early means you’ll forgo up to as much as about 30% of your benefits (or more if you’re drawing as a spouse).

Employer-paid pensions aren’t immune either. Civil servants face a 2% reduction per year for any retirement annuity payments (Civil Service Retirement System Annuity) drawn under the age of 55. Private pensions are typically designed to make full payments at the age of 65; earlier payment typically means a reduction in retirement payments.

  • Sacrificing the Power of Compounding

Compound interest is a big deal in retirement income: any interest that you make on an invested amount will itself earn interest in the future. Say you invest $100 at 3% interest a year. That means that by the second year, you’ll have $103 invested. Assuming interest remains the same, in the third year you’ll have $106.09 and the year after that you’ll have $109.27 and so on and so forth. But let’s say you work 10 more years and retire at 65. The real growth comes from another 10 years’ worth of interest earned not only on all the principal you contributed but also the interest earned on the interest that has compounded for four decades.

Final Thoughts

For many of those who do take the plunge, the reality of an early retirement can turn out to be far different than the fantasy. An early retirement requires careful planning and professional help. Having a clear vision of your retirement needs can help you build a sturdy and personalized strategy.

No matter what your view, there are a number of questions and concerns that should be addressed to help you prepare for retirement living.  For more information on how you can best prepare for retirement, contact the trusted financial advisors at Agemy Financial here today. 

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