3-retirement-realities-you-need-to-know

Agemy Financial Strategies

February 23, 2022

Many Americans have misconceptions about retirement planning. Unfortunately, these misunderstandings can lead to the difference between a retirement you want and a retirement you have simply come to expect. 

What works in theory doesn’t always work in reality. And that is certainly the case when it comes to retirement. Predicting exactly what your retirement will be like isn’t realistic, but, understanding some of the more common assumptions about retirement may help you get closer to your goal than most.

With that in mind, here’s the three most common misconceptions the Fiduciaries at Agemy Financial Strategies often hear from clients, and how to plan for the unexpected before stepping your foot over the golden bridge to retirement.

Reality #1: Replacement Rates Aren’t a One-Size-Fits-All

A simple online search will show you a common theme: You need to replace 70-80% of your final earnings in retirement from various sources such as Social Security, personal assets, and, for some, earned income. But those numbers are simply an average.

In early retirement you can expect your spending to go down. Then raise as retirement goes on. According to EBRI, average household expenditures totaled $55,000 for people 50-64 in 2017 versus $50,000 for those 65-74, and $39,000 for those 75 and older. What does this mean for your retirement plan? You might save more than you need if you base your retirement savings plan on the rule of thumb that would have you replace 70% to 80% of your pre-retirement income every year throughout retirement. Or on the other end of the spectrum, you have a false sense of hope you have enough retirement savings, but later find yourself cut short. This spells out exactly why a personalized retirement-income plan is your best option.

Realty #2: Healthcare Costs are Rising

Sure you have planned for healthcare in retirement. But have you budgeted enough? Health insurance, drugs, medical supplies, health services and out-of-pocket expenses quickly add up. According to a report by HealthView Services Financial, a healthy 65-year-old couple retiring in 2019 can expect to spend more than $387,000 for retirement health care costs, not including long-term care. This projection is based on the current value of the U.S. dollar and includes Medicare premiums, the costs of supplemental insurance and other out-of-pocket expenses for a man whose life expectancy is 87 and a woman whose life expectancy is 89.

Think you’re in good health so no need to worry? Another surprising fact from the HealthView report is that healthy retirees have higher total health care expenses than unhealthy retirees. That’s because healthy people tend to live longer. So even though short-term expenses for sick people are higher, longer life spans mean that total medical costs for healthy people exceed those for their less healthy counterparts. As daunting as these expenses seem, there are some things you can do to mitigate their effect and lessen the risk that they will derail your retirement. From HSAs to Medicaid and the Affordable Care Act, discuss your best options with your full-service financial advisors.

Reality #3: Taxes Could Get You

You’re still going to be paying income taxes. Your Social Security benefits might even be taxed. So where do you even begin?

Taxes are calculated on your income each year as you receive it, much like how it works before you retire. Different tax rules can apply to each type of income you receive. You should know how each income source shows up on your tax return so you can estimate and minimize your taxes in retirement.

The six most common types of retirement income are taxed according to varying rules:

  • Social Security Income:  A formula determines the amount of your Social Security that’s taxable. You might have to include up to 85% of your benefits as taxable income on your return.

  • IRA and 401(k) Withdrawals: IRA withdrawals, as well as withdrawals from 401(k) plans, 403(b) plans, and 457 plans, are reported on your tax return as ordinary income.

  • Pension Income: Most pension income is taxable. It will be taxed if you withdraw pre-tax money you contributed to the plan.

  • Annuity Distributions: Tax rules apply to any withdrawals or annuity payments you receive from an annuity that’s owned within an IRA or another retirement account. The exact requirements that will apply depend on whether your annuity was purchased with after-tax dollars.

  • Investment Income: You’ll pay taxes on dividends, interest income, or capital gains, just as you did before you retired.

  • Gains Upon the Sale of Your Home: You most likely won’t pay taxes on gains from the sale of your home if you’ve lived there for at least two years, unless you have gains in excess of $250,000 if you’re single, or $500,000 if you’re married.

For a headstart to get a complete overview of your retirement taxes, read our dedicated blog here. And don’t forget to further utlize our tax resources here. 

Other Considerations

Of course there are multiple other realities in retirement to be aware of; including remianing flexible in your retirement date, and even consider including a phased-retirement. Why? Because clocking in at a reduced work schedule allows freedom to focus on the other parts of life, such as family, travel and volunteering, while still earning a paycheck and employer benefits to keep your financial safety net in place.

Whatever your retirement strategy, there are risks to identify and manage as you navigate retired life. But one key factor remians the same: the more you prepare, the less nasty surprises you’ll face along the way.

When thinking about how to plan retirement, have you thought about creating a retirement planning checklist? At Agemy Financial Strategies, our first priority is helping you take care of yourself and your family. We want to learn more about your personal situation, identify your dreams and goals, and provide you with the highest level of service. Creating a retirement cheklist with us is a great way to pinpoint your main goals, compare them to retirement realities and make a plan of how to connect the two.

Click here to instantly book the day and time you’d like to connect with us for your complimentary 30 minute consultation. Our financial advisors in Guilford, CT and Denver, CO are looking forward to speaking with you.

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3 Signs of Financial Anxiety

Agemy Financial Strategies

February 16, 2022

Financial anxiety is a feeling of worry, fear, or unease about your finances. Learn to read your body’s responses to conversations about money, and set regular money check-ins to keep financial anxiety under control.

Are you experiencing too much strain when it comes to your finances? The Covid-19 pandemic has made it hard for people to seek answers about their financial futures, and many financial planners are underestimating the financial anxiety that is causing.

Financial anxiety happens when you have money, a job and all the hallmarks of financial security, but still worry that something bad is going to happen. For many people, the constant weight of that anxiety could be worse than a negative event that could be happening. Here are three signs of Financial Anxiety and how Agemy Financial Strategies can help you get back on track to finding answers to your financial futures.

1. You’re Just Scraping By

The Covid-19 Pandemic left more people living paycheck to paycheck.  It’s understandable to be anxious if you’re not sure whether you’ll be able to pay your bills. Or, maybe you’re not even sure if you’ll be able to buy groceries for the week. If you’re in a financial state that requires you to depend on every penny from every paycheck, you’re bound to experience anxiety.

The biggest problem with this type of anxiety is that it might continue to grow as you near the end of your budget every pay period. That keeps you in a constant cycle of anxiety, which can wreak havoc on your system. The best thing you can do to combat financial stress is to get your finances in order. You could see a financial planner, set a budget, or work out a savings plan with your bank.

Financial planners can help ease their clients’ financial anxieties by including a questionnaire on the topic in their client intake process and by undergoing training to help them better identify and manage these situations as they come up. At the end of the day Financial planners are there to help you get back on track and by answering the questionnaires truthfully they’ll be able to get a better understanding of your financial situation.

2. You Overspend

It might seem counterintuitive, but a lot of people actually spend more money when they’re under heavy financial stress. It can help to ease their worries for a while. When you buy something new that you enjoy, you can temporarily push aside feelings of anxiety. As you might expect, though, those “good” feelings don’t last long. The more you spend, the more your financial woes will grow. And those fears will continue to grow along with them.

Keeping your spending habits in check is one of the best things you can do to combat the anxiety caused by financial stress. To get started, look at your bank statement for the last month. Note down all of your income streams and group them together. Then, split your expenses into two categories: fixed and variable costs. Fixed costs include expenditures that are difficult to change such as your rent, utility bills, and any debt repayments. Your variable costs include your payments that are easier to adapt such as money spent on groceries, subscriptions services, and clothing. From here you’ll be able to see:

  • If you have more money going out of your account than coming in every month
  • Any areas where you’re overspending

3. You Have Strained Relationships

We hear it all the time…one of the main causes of divorce is money. It’s not necessarily the money itself that causes it but the behaviors around money that create tension in relationships. This tension can cause too much strain over time and result in divorce. Therefore, it’s best to be able to recognize signs ahead of time that you or your spouse may be under financial stress.

No matter how close the couple is or how long the relationship has spanned, no couple see EXACT eye to eye when it comes to finances. For example, one spouse could have had a childhood of watching their parents overspend or worrying about bills, or having to shut down a family business. Whereas the other spouse could have had a much more stable and privileged upbringing – alas causing them to see money management differently. The answer? Communication. Creating a household money “practice,” or getting into the habit of regularly checking in with your finances as a couple, is the simplest way to shape a relationship with your money, and your partner.

Here are some further recommendations on how to help ease the anxiety.

Identify Areas Where You Can Save

If your outgoing expenses exceed your income, don’t worry. You can either decrease your spending in certain areas or, if possible, focus on bringing in some extra income each month. You can even decide to do both, but it’s important not to overwhelm yourself when creating better financial habits—especially at the beginning.

Once you’ve identified areas where you’re overspending, you’ll have a clear indicator of where you should start cutting back. Beyond that, the easiest place to begin reducing your expenditures is your variable costs. However, if you want to make some more drastic savings, you can consider targeting your fixed costs. This means, for example, finding ways to save on rent or utility bills.

Create A Budget

Next, it’s time to decide how much money you want to save each month and to create a budget to support that goal. As you begin to make changes that free up some extra money, you’ll get an idea of how much you can start to put towards a savings fund.

Adopting a savings mentality can take a little while to get used to, but it’s all about taking small, consistent steps towards your goal. One of the best tools against financial anxiety is having a solid budget helps you navigate your finances and keeps your financial health in check. From here, you can start making some smarter, forward-thinking financial decisions.

This could include saving for an emergency fund or contributing towards your pension. By creating a buffer between you and life’s surprises, you prevent your future self from spiraling into financial stress—you’ll certainly thank yourself for it later!

Explore Your Mental Health

Think: What is my anxiety trying to tell me?

A body check-in teaches people how to step to the side and be able to observe and witness more of what’s going on so we’re not so consumed with it. Start paying attention to your emotions and how your body reacts when you discuss money or make financial decisions. How do you feel when you check account balances online? What about when you share information about your latest investments with a loved one? Identifying financial anxiety triggers will help you consider what is in the conversation that is triggering these feelings. Is it how you communicate with your partner? Are you feeling guilty or ashamed?

Take a step back and work on observing emotions rather than working off of them.

Schedule Regular Money Check-ins with Agemy Financial Strategies

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.

A Fiduciary is a person or organization that acts on behalf of a person or persons and is legally bound to act solely in their best interests. As Fiduciaries, the advisors at Agemy Financial Strategies only have your best intentions at heart.

Scheduling time with us (or your chosen advisor) to address finances and help you focus on immediate actions to see where you are overspending – or where to invest your money. Start by sharing money stories with us, how you’re feeling and then move on to discussing values and how they show up in the way you save, spend or invest. The goal of these conversations is to help you understand your feelings about money — an important step toward getting on the same page and easing financial anxiety for yourself, and for your family.

Final Thoughts

Money Management and Financial Anxiety go hand in hand when managing different aspects of your personal finances. At Agemy Financial Strategies, our job is to help ease those feelings of financial anxiety and help you improve your money management skills by regularly evaluating your current money management plan and making necessary changes that make sense for you.

When you create a roadmap of where you want to go, there will be changes along the way. At Agemy Financial Strategies, our team of financial advisors are here to help you through those changes and to help you understand the ins and outs of money management.

For more information on our financial advisory services, contact us here today.

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Bringing Meaning to Money Management

Agemy Financial Strategies

February 08, 2022

Generally speaking, money management refers to the processes of budgeting, saving, investing, spending, or otherwise overseeing the capital usage of an individual or group. But we’re all wired differently, and therefore mastering your finances looks different for everyone. Here’s how to create a money management plan that has structure and meaning to your unique needs and goals. 

Money management covers a broad domain of knowledge including everything relating to handling money wisely. Whether it’s budgeting, saving or investing in your personal assets. To embrace money management means to learn financial practices that help you accumulate wealth and security, while understanding the key to preserving that wealth.

Implementing the management of your money takes your unique needs, goals, and risks into consideration while focusing on your financial decision making and your previous habits that could stand in the way of your success. Here’s a look at the basics of money management and why it’s important to start implementing these practices into your financial strategy.

The Basics of Money Management

Not understanding the foundation of money can create some issues for you down the road. Without a firm, educated grasp of financial matters, you’ll likely end up like the majority of Americans; locked into years of debt, paying high fees, and unsure where all of your money is going.

Money management can help people accumulate wealth instead of potentially spending all of their money. When you accumulate wealth, you will be able to increase your capital, create security for your family, make positive investments, better your standard of living, and develop a cushion in the form of assets and savings. Overall, money management increases your lifestyle, providing security and greater opportunity for you and your family. Take a look at a couple steps below to see how you can begin to implement money management into your life.

  • Create Goals to Manage Your Money

The bottom line in money management is that you need to know where you’re headed. Without a clear destination, you’re more than likely going to keep going around in circles. That’s exactly what it’s like to be dealing with money without goals. However, if you establish your financial goals, you have a roadmap of where you’re at and where you want to end up financially. You’ll be prepared to intentionally use or save every dollar that comes your way.

By setting your goals, you’ll also be able to set some smaller goals that act as steps along the way. These small goals are basically milestones that help you to progress further down the path to your financial destination. Your goals will give you clarity and vision, helping you make the best decisions for reaching them.

  • Develop an Investment Strategy

Having a long-term investment strategy is often the key to strong and effective money management and wealth accumulation. When you create a long-term strategy, you’re more likely to keep your eyes on the prize and not be swayed by the many things that come your way.

An investment strategy helps people stay focused, moving towards their small milestones instead of veering off in every which way. They are better able to ignore the stepping stones that others are putting in their path in order to keep on heading in the right direction towards their own goals.

  • Money Management & Tax Efficiency

Understanding your taxes is a big part of money management. While everyone knows that they pay taxes, they’re not really aware of how much they pay. They certainly don’t know about unnecessary taxes and how they can actually hinder the accumulation of wealth. When you are managing your money, you aren’t thinking of your income as everything you make. Instead, you know that your income is really whatever you make after taxes, enabling you to better allocate your finances.

In regards to investments, you will want to consider your account location, essentially allocating your money based on their tax status. You will then do the same for your various investments, allocating them in the same manner. This will give you a better understanding of your overall wealth, your options for wealth distribution, and will help you accumulate wealth faster.

  • Portfolio Risk Management

In the financial world, risk management is the process of identification, analysis, and acceptance or mitigation of uncertainty in investment decisions. Poor management of risk is one of the main causes of investment underperformance. You need to be proactive when it comes to risk management, understanding the risk-return relationship and acting on it.

How much volatility an investor should accept depends entirely on the individual investor’s tolerance for risk, or in the case of an investment professional, how much tolerance their investment objectives allow.

When you have a seamless money management plan, you will understand the market risks and the likelihood of negative returns. You will be cognizant of the fact that holding your portfolio longer means more negative returns, yet also means a greater probability of a positive annual return.

Final Thoughts

From managing different aspects of your personal finances, to developing a coherent plan that maximizes financial growth while minimizing risk, money management is not to be taken lightly.

You can improve your money management skills by regularly evaluating your current money management plan and making necessary changes that make sense for you. When you create a roadmap of where you want to go, there will be changes along the way. At Agemy Financial Strategies, our team of financial advisors are here to help you through those changes and to help you understand the ins and outs of money management.

For more information on our financial advisory services, contact us here today.

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Retirement Planning for Couples this Valentine’s Day

Agemy Financial Strategies

February 02, 2022

With Valentine’s Day around the corner, what better time to sit down with your sweetheart to discuss all of your aspirations and goals for when you reach retirement? To help protect your lifestyle in retirement — and protect against the risk of outliving your savings — you and your partner can develop a holistic financial plan for every stage of your financial life. 

While it might not seem the most romantic of ways to spend the day, this Valentine’s Day is the perfect opportunity to evaluate your retirement plans to help you reach the dreams of a lifetime together. Here are some tips on how to discuss retirement planning for young couples, middle-aged couples and couples nearing retirement.

Young Couples: It’s Never Too Early To Start Planning

If you and your partner are at the start of your careers and life together, your financial concerns might focus on balancing immediate matters, such as buying your first home and starting your family, and paying down debt from student loans. Most Millennials are concerned with keeping up with the cost of living as well as the cost of meeting their children’s financial needs. Student loans, credit card debt and mortgage debt round out the top five.

Saving for the future should not take a back seat to your current expenses. Time is on your side if you use the power of tax-deferred compounding. Make an effort to start early and maximize your contributions on your 401(k)s and traditional IRAs. If both of you are working, be sure that you work together to save for retirement.

Compare the funds in your employers’ qualified plans and work as a team to select the best investments for your shared goals, instead of making these choices on your own. If one partner is not working outside the home, a spousal IRA may allow you to make contributions on their behalf. If one or both of you qualify for a Health Savings Account (HSA), this can be a way to save for future medical expenses while reducing your current taxable income.

Middle-Aged Couples: Protect Assets to Protect Against Outliving Savings

By now, you have had several years of planning and setting money aside for retirement. Both of your careers are on track, you’re earning more, you’ve built equity in your home, you’re saving to send your kids to college.

To continue on the right path, have you considered using dollar-cost averaging to build wealth over time? Dollar-cost averaging requires the investor to invest the same amount of money in the same stock on a regular basis over time, regardless of the share price. The number of shares purchased each month will vary depending on the share price of the investment at the time of the purchase. The idea being when the share value rises, your money will buy fewer shares per dollar invested. When the share price is down, your money will get you more shares. Over time, the average cost per share you spend should compare quite favorably with the price you would have paid if you had tried to time it.

As you both progress towards your retirement years, concerns about protecting your assets may rise. Especially as volatility starts to feel like the new norm. Roughly two-thirds of pre-retirees expect volatility to increase in the next 12 months!

It’s always important to meet with your Fiduciary financial advisor to work on a strategy that’s built for you and your unique needs and goals as a couple. As your portfolio becomes more conservative, including more fixed income, you might consider asset location as a strategy to enhance your returns.

Couples Nearing Retirement: Income Now and for Life

At this point, you and your partner should already have a strategy to maximize your qualified accounts such as Social Security. It helps you maximize benefits as a couple if the higher-earning spouse waits until full retirement age, or later, to begin collecting.

In many cases, this means the lower-earning spouse can start collecting benefits as early as age 62, then apply for spousal benefits later when the higher-earning spouse begins collecting. With smart planning, a couple can secure higher benefits the longer the high earner waits — and this could also mean higher survivor’s benefits for the spouse who lives longest.

To complement Social Security, you could convert a portion of your portfolio into a guaranteed income stream by investing in a single premium immediate annuity (SPIA). This is also the time to consider “turning on” the income stream from any annuity you have available to you.

Another vital aspect for when you’re nearing retirement is factoring in healthcare. If you retire before age 65, you have several options for health insurance until you reach eligibility for Medicare. Which options you are eligible for and are best for you depend on your individual circumstances. You may enroll in the state health insurance marketplace, continue your employment-related benefits through COBRA or state continuation, enroll in your spouse’s health plan, or apply for Medicaid. The Affordable Care Act (ACA) has made health insurance coverage when retiring before age 65 a much less challenging situation. This is especially true for people with medical conditions or limited finances—both of which could be obstacles for early retirees seeking coverage in the pre-ACA era.

If you’re unsure where to begin, it’s always best to consult with a trusted financial advisor.

For ALL Ages: Communication is Key

The first step in creating a retirement plan is communication.

Couples who work through later-in-life decisions with respect and care for each other have a solid retirement communication plan. They will find that their golden years can often be happier because they know themselves better and can find peace together. With the increased likelihood that couples will reach and surpass their 50th wedding anniversary, keeping marriage harmonious by resolving conflict with a team approach will yield great contentment and increased satisfaction in companionship.

Undoubtedly, there will be difficult conversations and compromises that need to be made on your journey. Couples planning for retirement may experience many challenges as listed above. Open honest communication can transform your relationship as you enter the next phase of your lives. Each of you should discuss your expectations as a married couple for retirement to ensure that both of you are on on the same page.  Once you have both communicated about your retirement expectations, it’s time to move onto the financial aspects of retirement with your Fiduciary.

Final Thoughts

Retirement planning for couples involves navigating the waters together and it could, possibly, be the most challenging period of your relationship.  This Valentine’s Day, don’t just dream about a lifetime with the one you love. Make the initiative to be proactive and work together as a team with your partner and your advisor to ensure that you are financially prepared for the future.

At Agemy Financial Strategies, finding the right financial advisor that fits your goals and lifestyle doesn’t have to be hard. The trusted team at Agemy is here for you every step of the way to make some real progress on your journey to retirement.

Contact us here today to get started on a retirement plan as a couple. 

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