Is an Early Retirement for You?

Early retirement or late retirement – that is the question! If you’re thinking about retiring early, you’ll want to carefully weigh this life-changing decision. Here’s what you should know!

Retirement plans can be affected by many factors, such as job loss, health, or family responsibilities. These issues can lead people to leave the workforce and retire sooner than expected. On the flipside, many are forced to work longer than they planned to make up for the shortfalls of such events. However, if you’re lucky enough to be in control of your retirement, it is important to note the benefits and pitfalls of retiring early before you make any decisions.

What is considered early retirement? Typically, leaving the workforce before the age of 65 is considered early retirement. But most see retiring “early” being in their 40s or 50s. Increasingly, employers are not offering traditional pensions to their employees, which in the past allowed them to supplement their guaranteed income and potentially retire early. What’s more, Social Security can begin being collected as early as 62, but you won’t receive your full benefits until age 66. With or without a traditional pension, it’s important to have a plan in place if you wish to make your dream to retire early a reality.

Pros of an Early Retirement

If you’ve had the same commute or schedule for years, it might be exhilarating to think of breaking free. Before doing so, you’ll need to ensure you have enough money set aside.

Improvement to Your Well-Being

Sleeping in and being able to do the things you have been wanting to do for an extended period of time sounds nice right? Many of us can imagine how good it feels to leave the office behind and opt in for healthier habits.

Studies have shown that retiring earlier in life makes you live longer. Obviously gender, race, ethnicity, education and other aspects of life play into that factor. An analysis in the United States found about seven years of retirement can be as good for health as reducing the chance of getting a serious disease (like diabetes or heart conditions) by 20 percent.Positive health effects of retirement have also been found by studies using data from Israel, England, Germany and other European countries.

More time to Enjoy Activities

Once you have retired, you no longer have to worry about taking time off from work to go do the things you’ve always wanted to do. One of the biggest benefits of retiring early is the health and flexibility you will have to retire. You will also have more time to see your friends and family, potentially more time with your grandchildren too. Oh the places you can go!

Plus, the earlier you retire, the more years you’ll have before health issues begin to limit your mobility.

New Opportunities

If you’re feeling like it’s time to make a change, don’t wait until later. Starting your own business or switching fields at age 60 tends to be a challenging and risky move. However, starting earlier will give you more time to get established in your new career path.

If changing careers is something that you do want to do, it’s better to retire early. A business that’s launched at age 60 could easily keep you intellectually challenged and out of mischief for another 20 years or more.

Reduce The Cost of Living by Moving

If you’re considering early retirement, you may be in a position to sell your home and move to a new city or state. This is especially true if you live in an area that has a high cost of living.

Let’s use the example of a homeowner who purchased a house in Connecticut in the 1990s and is considering selling it and moving to a state where the cost of living is much less, such as Colorado.

This is a clear win-win for the homeowner, who can sell the home that has increased significantly in value over the years since its purchase. The owner may move to a new state with a lower cost of living and purchase a similar-sized home for much less. Any remaining money from the original home sale can go into retirement savings

If Your Financial Advisor Recommends It – Do it!

Retirement is a big deal. It’s the culmination of a lifetime of hard work, and it’s a milestone that deserves to be celebrated. But if you’re ready to retire early, no matter how much you’ve saved up or how much you’ve planned for your golden years, it can still be a scary thing to do.

If your financial advisor signs off on an early retirement, go for it! The first 12 to 15 months of retirement can feel somewhat like jumping off a cliff — no doubt about it. This is natural: Retirees are adjusting and settling into an enjoyable retirement during this timeframe.

Trust that your advisor knows what is best for you. As Fiduciary financial advisors, it’s our job to provide an overview of their solutions and overall retirement plan — and the confidence regarding their decision on when to retire falls into place.

Cons of an Early Retirement

Even if you save enough, there’s no guarantee that bidding farewell to the workplace will bring happiness. For some, early retirement can even lead to a sense of anxiety or a desire to go back to work. Some of the main drawbacks include:

Your Social Security Benefits Fall

The sooner you start to take Social Security, the lower your benefits will be. If you were born in 1960 or later, for example, and you start taking benefits at age 62, the earliest age at which you’re eligible, your monthly benefits will be 30% less than if you wait until age 67, which Social Security refers to as your “full retirement age”.

More Time Without Income

Leaving the workforce early means you’ll have to support yourself for a longer time, which could last for decades. As mentioned, Social Security benefits typically aren’t available until you reach age 62. There could also be tax penalties if you withdraw from certain retirement accounts before the age of 59 1/2.

You Could Pay More Health Insurance

Medicare kicks in for health insurance when you’re 65. Before then, you’re responsible! This also applies to health insurance benefits you could be receiving from your employer.

Your Money Needs to Stretch Further

If you retire at age 62 and live to 90, your individual retirement accounts (IRAs) and other savings will have to cover you for 28 years. If you retire at 70 and live for the same length of time, however, your savings will only have to last for 20 years. Working longer also means you’ll have more years to contribute to a 401(k) or another retirement plan, and the money in your plan will have more time to compound.

Loneliness

What’s the point of retiring early if you’re the only one doing it? Retirement is meant to be enjoyed, so keeping it in line with your spouse of great friends will mean less alone time for you. What’s more, office environments tend to create natural settings for social engagement. If you don’t schedule activities that involve others, you could soon be bored or disengaged with your community.

Early Retirement Planning with Agemy Financial Strategies

There is a lot at hand that needs to be considered before you decide to retire. Consider talking to your friends and family members who are pursuing early retirement before making a decision. You might also get in touch with your financial advisor to see if you have enough to retire early.

Having a trusted advisor on your side will make planning for the golden years easier –especially when it comes to creating a retirement plan.

At Agemy Financial Strategies, we take the time to handcraft a retirement plan for you based on your individual wants and needs. We’re here to help you navigate any questions you have regarding investments, retirement and anything else you may have questions on during your retirement process. As fiduciary advisors, it’s our duty to help you find the right solutions for your wants and needs.

If you have any questions regarding early retirement and our retirement planning services, contact us today.

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Important Tasks & Decisions for Each Phase of Retirement Planning

Retirement planning is a process that maintains your finances throughout the course of your post-career years. This process essentially has 5 steps, knowing where to start, seeing how much money you’ll need, setting your priorities, choosing accounts and choosing investments.

The retirement process begins ideally when you’re young, and when you can invest as aggressively as your budget allows. Over the course of time – as you get older – you dial back to a mix of investments.

We know this process can be stressful and often overwhelming. That’s why we’ve put together a road map for you. Read on to learn five key steps that will help you stay on track as you approach retirement.

When Can You Retire?

This boils down to when you want to retire, and when you’ll have enough saved to do so. The earliest age you can begin claiming social security benefits is 62 and full retirement age is recognized at 67.

Most people choose to retire early either because they can afford to do so or because they might have to. This generally applies  for people who decide to retire later in life. Many people have found that it’s ideal to ease into retirement and opt for a phased retirement, which is also an option you can discuss with your financial advisor. Ultimately, it all comes down to what makes the most sense for you, as there is no one size fits all plan.

Step 1: Knowing When to Begin Retirement Planning

When you first enter the workforce you’re most likely to be in your early twenties. This is when you want to start your retirement planning. The earlier you begin, the more time your money has to grow and the more risks you can take with those investments

That being said, it’s never too late to start planning for retirement. Even if you haven’t given much thought to how old you’ll be when you retire or what kind of lifestyle you want for yourself at that point, now is the time to start thinking about it—and taking action! Every dollar that goes into a retirement account now will be much appreciated when that day comes.

Step 2: Figure out How Much Money You Need to Retire

To determine how much money you’ll need to retire, you need to consider two factors: your current income and expenses, and how those expenses will change once you’re retired.

The typical advice is that retirees should expect to replace 70% to 90% of their annual pre-retirement income through savings and Social Security. For example, a retiree who earns an average of $63,000 per year before retirement should plan for $44,000 to $57,000 per year in retirement.

Step 3: Prioritize Your Financial Goals

Your needs will likely change depending where you fall in this roadmap. If you’re just getting started on saving for retirement, it can be tempting to focus your efforts on the short term. However, if you’re nearing retirement, retirement is not your only savings goal. Many people have financial goals they feel are more pressing, such as paying down various forms of debt, or building up an emergency fund.

Generally, you should aim to save for retirement at the same time you’re building your emergency fund — especially if you have an employer retirement plan that matches any portion of your contributions.

Step 4: Choose a Retirement Plan Catered to You

Retirement planning is equal parts how much money you save, and where you save it. If you have a 401k or employer retirement plan, start by utilizing the company matching policy. If you don’t have a workplace plan in place, you can open your own.

There is no single best retirement plan, but there is likely a good combination of retirement accounts for you. In general, the best plans provide tax advantages, and, if available, an additional savings incentive, such as matching contributions. That’s why, in many cases, a 401(k) with an employer match is the best place to start for many people.

Here are some examples of retirement plans that might work for you:

  • 401k
  • Roth 401k
  • Traditional IRA
  • Self-Directed IRA
  • Simple IRA
  • SEP IRA
  • Solo 401k

Step 5: Choose Your Retirement Investments

Retirement is a time for celebration and reflection, but it’s also a time when you’ll have to make some big decisions about your investments. The two most important questions to ask yourself are:

  1.  How long do I have until I need the money?
  2.  How comfortable am I with risk?

Again, depending where you find yourself on this road map, you will have different choices to make in terms of investing strategies. If you’re young and have a long way to go until retirement, you can afford to invest aggressively. This is because there’s plenty of time for those assets to recover if the market goes down. However, as you get older, your retirement savings begin to account for a larger part of your total net worth, so even small losses could be devastating. In that case, it’s wise to review your investment portfolio and sit down with a fiduciary advisor to discuss all of your investment options.

As you move through life and gain more experience managing your finances, it’s important that your investments evolve alongside you—especially as you start thinking about what kind of lifestyle you want after retirement. This means making sure that when the time comes for drawing down on those savings you’re able to live comfortably without having to constantly make compromises.

Work With Agemy Financial Strategies

At Agemy Financial Strategies, we value the opportunity to get to know you and your situation so that we can create a plan specifically tailored to you. Our purpose is to educate our clients – whether that be planning for retirement, legacy planning, wealth management, or being by your side when it’s time to leap into retirement.

We want you to know that we’re here to help you navigate any questions you have regarding investments, retirement and anything else that comes up during your retirement process. As Fiduciary advisors, it’s our duty to act on your behalf in finding the right solutions for your individual wants and needs.

For more information on our investing, retirement and financial planning services, contact us here today.

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Fall Financial Checklist for 2022

With the final hot snap of summer in the rearview mirror, it’s time to get your finances ready for the last few months of 2022.

Having a fall financial checklist in place will allow you to make fall a financially productive season. It’s a great time to start thinking about what you can do to save some money, prepare for the following months, and improve your life.

There are a number of financial moves you can make in the final months of the year to ensure you are set up for success come January and throughout the new year.  Agemy Financial Strategies has put together a fall financial checklist to help you get your financial house in order.

The tasks on this fall financial checklist will help you to remember to sign up for health insurance, beef up your retirement savings, reviewing your estate plan and more!

Health Insurance

This is the time of year where we should get our health insurance information together. Open enrollment for 2022 through the Health Insurance Marketplace (HealthCare.gov) starts on Monday, November 1 and you have to enroll by December 15, 2022 for coverage that starts January 1, 2023. Some states have their own ACA exchanges which in turn have different date ranges for open enrollment. Colorado and Connecticut fall under this category.

State State Open Enrollment Period for 2023 Plans
Colorado November 1, 2022 – January 15, 2023
Connecticut November 1, 2022 – To Be Announced

If you have private health insurance or health insurance through your employer, you will want to find out what important dates you need to sign up for or get information from them, so that you do not miss out.

By doing as much research as you can now, you will ensure that you will have the best health insurance plan for you and your family. Holidays typically sneak up on us; you will probably be quite busy. By taking care of this now you can avoid many headaches in the future.

If you are nearing retirement, this is an especially important step to protect your nest egg. Did you know that health care continues to be one of the largest expenses in retirement? To help fill a gap in saving for health care expenses, consider increasing contributions to your tax-advantaged accounts, especially HSAs (if you have one), which enable tax-free spending on health care in retirement.

Max Out Your Retirement Savings

Saving for retirement is one of the best financial strategies you can take part in. Everyone will hopefully retire at some point in their lifetime. Saving early on in life for your golden years will help prevent you from running out of money. Whether you’re on track for retirement or need to catch up, a Fiduciary financial advisor can help prepare you for your later years. Here are a couple ways you can max out your savings:

  • Take advantage of your company 401k or 403b
  • Apply for retirement savings credits
  • As mentioned, contribute to a health savings account (HSA)

It’s important to look at your retirement plan and see if any of our tips could maximize your savings. If you’re like most people, qualified-retirement plans, Social Security, personal savings and investments are expected to play a role. Once you have estimated the amount of money you may need for relocating in retirement, a sound approach involves taking a close look at your potential retirement-income sources.

Tax Return Extension

If you received an extension on your tax return, make sure you complete and file it by October 17, 2022. You can get an automatic extension of time to file your federal income tax return by filing Form 4868. This gets you from April 18, 2022, to October 17, 2022, to file without incurring any penalties.

However, getting an extension doesn’t give you more time to pay, it only gives you more time to file your return. Anything you owe after the deadline is subject to interest and a late-payment penalty–even if you get an extension. Fortunately, you may be able to catch a break on the late-payment penalty if you’ve paid at least 90% of your actual tax liability by the deadline.

Tax-Loss Harvesting

Tax-loss harvesting may be able to help you reduce taxes now and in the future.

Tax-loss harvesting allows you to sell investments that are down, replace them with reasonably similar investments, and then offset realized investment gains with those losses. The end result is that less of your money goes to taxes and more may stay invested and working for you.

If you have more capital losses than gains, you may be able to use up to $3,000 a year to offset ordinary income on federal income taxes, and carry over the rest to future years.

Rebalance if Needed

Rebalancing refers to the process of returning the values of a portfolio’s asset allocations to the levels defined by an investment plan. Those levels are intended to match an investor’s tolerance for risk and desire for reward.

This sound investment strategy involves cashing in some profits on your better-performing assets and reinvesting the proceeds into your laggards. Rebalancing assumes you own a mix of investments and have a target for how to allocate them, holding certain percentages in stocks, bonds, cash and so on, including subcategories such as small or international stocks. It also assumes that hot investments will cool off, and laggards will perk up, eventually.

Review Your Estate Plan

Benjamin Franklin said it: “Nothing in this world can be said to be certain but death and taxes.” Perhaps once a year, you should verify that you have listed the right people to take over your wealth should the time come.

Once you’ve created your estate plan, it may be tempting to put it on a shelf and forget about it. However, factors that affect your estate plan can quickly change, resulting in a need to update your plan so that it continues to match your goals and minimize taxes.

Budget for the Holiday Season

The holidays are right around the corner. With Halloween, Thanksgiving, Christmas, New Year’s and many other holidays, the holiday season can be expensive. If you haven’t yet, creating a holiday budget can help you save in the long run. Start saving money for the holidays if you haven’t done so already, and find ways to make extra cash if you think your budget is cutting it close.

A great way to start is by creating a list of all of your expected expenses. For example:

  • Travel
  • Holiday meals
  • Gifts for loved ones
  • Charitable donations

Final Thoughts

As we head towards the holidays, it’s important to know where your financial assets stand so you can avoid any missteps when it comes to managing your money.  It’s always important to meet with your Financial Advisor to get the facts from the source. Preferably a Fiduciary. “Fiduciary” means trust, and a person with a fiduciary duty has a legal obligation to maintain that trust.

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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Relocating for Retirement? Connecticut Tax Laws You Should Know

Agemy Financial Strategies

September 06, 2022

Connecticut is a state with a lot to offer. As you near retirement, your mind may wander to fulfilling your life’s dreams; and for many, that involves relocating. Here’s what you need to know about taxes if you’re moving to the Nutmeg State. 

Connecticut is a small state in the New England region in the northeastern part of the United States. Although a part of New England, it is considered a part of the ‘Tristate area’ along with New York and New Jersey because of its proximity to both. The state is known for its rustic beauty, brilliant history, amazing landscape, and of course, Yale University. When the time to retire comes, many people consider retiring in Connecticut with the dilemma of whether to stay in their current city or move somewhere new.

There are many factors to consider when deciding where to retire, including the cost of living, climate, access to healthcare, and recreation. Depending on where you currently reside, you may need to pay a little more if living in Connecticut. But is it worth it? If you’re looking for reasons to retire in this state, you should become aware of its tax laws. With our office HQ residing in Guilford, CT, we know a thing or two about what you’ll need to retire here. Here’s what you should know.

Connecticut Income Tax

Connecticut’s state income tax structure is graduated, meaning that the amount people are taxed increases as their earned income increases. This is similar to the federal government’s income tax system and differs from states that use a flat tax rate.

Additionally, while Connecticut has a higher sales tax rate than the national average, there are no local sales taxes charged, which produces a balancing effect for the net amount of taxes collected.

Connecticut personal income tax rates
Tax rate Single, married filing separate Married filing jointly
3.0% $0-$10,000 $0-$20,000
5.0% $10,001-$50,000 $20,001-$100,000
5.5% $50,001-$100,000 $100,001-$200,000
6.0% $100,001-$200,000 $200,001-$400,000
6.5% $200,001-$250,000 $400,001-$500,000
6.9% $250,001-$500,000 $500,001-$1,000,000
6.99% $500,001 or more $1,000,001 or more

While the state doesn’t have a standard deduction, the personal exemption is $15,000 for single taxpayers and $24,000 for married couples.

Connecticut Sales Tax

The State of Connecticut has a single, statewide sales tax. Because there are no additional sales taxes imposed by local jurisdictions in Connecticut, the rate of 6.35% applies to the retail sale, lease, or rental of most goods and taxable services. 

However, there are exceptions:

  • The tax on the rental or leasing of a passenger motor vehicle for a period of 30 consecutive calendar days or less is 9.35%.
  • A tax rate of 7.75% applies to the following: the sale for more than $50,000 of most motor vehicles, the sale for more than $5,000 of jewelry (whether real or imitation), the sale for more than $1,000 of an article of clothing.
  • The sales and use tax rate is 4.5% on the sale of motor vehicles to a nonresident member, or a member and his or her spouse jointly, of the armed forces of the United States stationed on full-time active duty in Connecticut.

Connecticut Property Tax

Connecticut homeowners pay the fourth highest property taxes in the U.S., with an average effective rate of 2.14%. The state’s average effective property tax rate is double the national average, which is 1.07%.

The state is unusual in that counties are not responsible for administering property taxes. Instead, cities and towns set rates and collect the taxes.

Connecticut Inheritance and Estate Tax

Connecticut does not have an inheritance tax, but that doesn’t mean you can avoid paying state-level taxes on the property you inherit. If your grantor lived in a state that has an inheritance tax, it will probably apply to you as well.

This is especially true if your grantor lived in Kentucky, where all in-state property is subject to inheritance tax even if the inheritor lives out-of-state. If someone who lives out-of-state leaves you something, make sure to check the local laws in your grantor’s state to see if you owe inheritance tax.

If you’re looking to relocate to Connecticut for retirement, check out our guide for tips on estate and inheritance taxes.

Last Thoughts

If you’re interested in starting your retirement in Connecticut, check out our pros and cons series here. It’s important to look at your retirement plan and see if retiring here would benefit you. 

Once you have estimated the amount of money you may need for relocating in retirement, a sound approach involves taking a close look at your potential retirement-income sources and seeing how far they will stretch in your chosen state.

At Agemy Financial Strategies, we want you to know we’re here to help you navigate retirement and any questions that come up during your retirement process, including relocation opportunities. As Fiduciary advisors, it’s our duty to act on your behalf in finding the right solutions for your individual wants and needs.

For more information on our retirement and financial planning services, contact us here today.

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