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Taking The Luck Out of Your Social Security Payments
NewsWorried about how potential Social Security changes will affect your pot of gold? Don’t leave your retirement income to chance this St. Patrick’s Day; take control of your financial future by planning Social Security into your retirement plan.
According to the Social Security Administration, in 2023, an average of almost 67 million Americans per month will receive a Social Security benefit, totaling over $1 trillion in benefits paid during the year.
While Social Security can make up a significant portion of retirement income for many individuals (up to 40% of retirement income), it was never designed to be the proprietary source of cash for your golden years. Today, the future of Social Security remains uncertain, forcing people to ask questions like, “Will Social Security run out?”
According to long-term projections by the Congressional Budget Office, if changes are not made to the program, its funding could be exhausted by 2033.
Running Out of Time and Luck?
Due to the fact Social Security may only be able to pay full benefits for another decade, lawmakers in Washington are looking for ways to save the program, and the possible changes will affect the benefits Americans receive.
Broadly, that comes down to two potential key changes: raising the retirement age and increasing the amount of annual wages subject to the Social Security payroll tax. But this could be prevented.
“The Social Security fund will be insolvent in less than a decade. If Congress chooses to do nothing, current law requires painful 24% cuts to benefits and a daunting future for fulfilling our promises. If we come together now, we can preserve and protect the retirement security of all Americans now and long into the future,” Senators Angus King, I-Maine, and Bill Cassidy, R-Louisana, wrote in a recent statement.
The proposed plan is not yet fully developed which is leaving many Americans more confused than ever.
If you’re relying on luck when it comes to SSI payments in retirement, you could be in for a nasty surprise. Knowing where you stand now with Social Security will only pay off in the future.
Understand the Basics
First and foremost, retirees should familiarize themselves with the basic workings of the Social Security program. This includes understanding how benefits are calculated, when they can be claimed, and how they can be affected by factors such as retirement age, work history, and marital status.
To understand how Social Security benefits are calculated, it’s important to know that the formula takes into account the average of your highest-earning 35 years of work, as well as the age at which you start receiving benefits. Retirees should also be aware that claiming benefits before full retirement age (which is between 66 and 67 depending on your birth year) will result in a reduction in monthly payments.
Additionally, factors such as work history and marital status can impact your benefits, with certain spousal and survivor benefits available to eligible individuals. Understanding these basics can help retirees make informed decisions about when to claim benefits and how to maximize their overall Social Security income.
Maximize Your Benefits
Once you understand the basics, you can begin to explore strategies for maximizing your benefits. For example, delaying claiming benefits until age 70 can result in a significant increase in monthly payments. Additionally, claiming spousal benefits, taking advantage of the earnings test, and using restricted application strategies can all help retirees increase their overall Social Security income.
Delaying Social Security benefits until age 70 can result in a significant increase in monthly payments. The increase is based on your date of birth and the number of months you delay your retirement benefits. The following table explains how delayed retirement affects your benefits:
Retirees can also consider claiming spousal benefits, which may allow them to receive up to 50% of their spouse’s benefit amount if it’s higher than their own. Taking advantage of the earnings test may allow retirees to continue working while still receiving some Social Security benefits.
Using restricted application strategies can help maximize benefits for married couples, allowing one spouse to claim a spousal benefit while the other delays their own benefit to maximize its value. By exploring these strategies, retirees can potentially increase their Social Security income and ensure a more comfortable retirement.
Plan Ahead
Think of your social security payments as one piece of the puzzle when it comes to retirement income. While Social Security benefits are an important component of retirement income, they are unlikely to cover all of your expenses. Especially if you are a few years away from retiring and concerned payments will run dry.
That’s why it’s crucial to have a comprehensive retirement plan in place that takes into account your Social Security payments, as well as any other sources of income, such as pensions, investments, and personal savings. A well-rounded retirement plan can help retirees ensure that they have enough income to cover their expenses and enjoy a comfortable retirement.
By planning ahead, retirees can make informed decisions about when to retire, how to maximize their Social Security benefits, and how to make their retirement savings last as long as possible.
Seek Professional Advice
With the latest news of potential changes to come to the Social Security system, navigating the complexities of Social Security can be challenging. This is why retirees should consider seeking professional advice from a trusted Fiduciary planner who excels in retirement income planning.
At Agemy Financial Strategies, our experienced professionals can provide you with personalized guidance based on your unique financial situation. Our team strives to assist you in making educated choices regarding Social Security benefits, tax-strategizing and more.
By working with a reputable and dependable Fiduciary planner, you can have confidence in your retirement plan and ensure that your retirement income is optimized to meet your needs.
Final Thoughts
Social Security payments can be a valuable source of retirement income for retirees, but with potential changes ahead, it’s important to take luck out of the equation by understanding how the program works.
This St. Patrick’s Day, make the most out of your money by maximizing your benefits, planning ahead, and seeking professional advice with Agemy Financial Strategies.
Get started today and receive a complimentary retirement planning consultation.
The Importance of Intergenerational Wealth Transfer
NewsBaby Boomers, the generation of people born between 1944 and 1964, are expected to transfer trillions of dollars in wealth to younger generations over the next many years, also known as the “great wealth transfer”. Is your family ready?
Over the next two decades, an enormous amount of wealth is set to change hands as baby boomers pass on their accumulated assets to their adult children in Generation X and millennials.
In fact, it’s estimated that this Great Wealth Transfer could amount to a staggering $68 trillion dollars. But what’s driving this historic transfer of wealth? And what will its impact be on the world’s economy? To answer these questions, we need to take a step back and examine the factors that have led us to this moment in time.
From the post-World War II economic boom to the rise of the technology industry, several key events have contributed to the accumulation of wealth by the baby boomer generation. And now, as they begin to retire and pass on their assets, we are about to witness a massive shift in the distribution of wealth across generations.
So, what can we expect as this wealth transfer takes place? And how can we best prepare for the changes to come? In this blog, we’ll explore the answers to these questions and more, as we delve into the impact of intergenerational wealth transfer on our society and economy.
What is Intergenerational Wealth?
The first step to understanding Intergenerational wealth is to know what it entails. Intergenerational wealth refers to the transfer of assets, resources, and financial well-being from one generation to the next within a family. It includes all types of assets, such as financial investments, real estate, businesses, and personal property.
Intergenerational wealth can be passed down through inheritance, gifting, or other means, and it is typically accumulated over time through a combination of hard work, wise investments, and other factors. The transfer of intergenerational wealth can have a significant impact on both the receiving and giving generations.
For the receiving generation, it can provide financial stability, opportunities for education, and the ability to pursue personal goals and passions. For the giving generation, it can offer a secure feeling of passing on a legacy and helping their loved ones achieve their dreams.
This topic has become an increasingly important issue, especially for those retiring in the not-far-far distance. If you find yourself in this situation, you may be wondering how you can pass your wealth to your children and grandchildren. With deliberate financial planning, the process doesn’t have to be overwhelming.
Start The Conversation Early
It’s never too early to start planning for intergenerational wealth. Even if your children and grandchildren are young, you can start setting aside money in a trust or savings account for their future. This can help you maximize the power of compound interest and grow your wealth over time.
However, dealing with multiple assets across generations can sometimes make it challenging to adopt an open communication approach. Most families find it uncomfortable to discuss death and the division of wealth, resulting in family financial planning being postponed or ignored.
Nonetheless, due to the enormity of the task, it is essential to have a clear plan in place. Seeking the help of a trusted financial advisor can be particularly useful in sensitive family circumstances as they can offer unbiased advice.
It is crucial to establish a solid financial plan that protects the interests of all parties involved to ensure the effective transfer of wealth within your family, which will have a significant impact on the protection of wealth for future generations.
Understand Your Options
Building intergenerational wealth can provide financial security for your family for generations to come. Seeking the professional guidance of a Financial Fiduciary Advisor is one of the most significant measures you can take to establish a strong wealth transfer strategy. By working with a financial advisor and taking a thoughtful, strategic approach, you can create a plan that aligns with your values and ensures your legacy.
Together, you can investigate your options regarding:
Pitfalls to Avoid
When figuring out the best way to pass along assets to the next generation, there are certain missteps you should avoid. A few to watch out for include:
Don’t Forget to Plan for Taxes
Taxes can take a significant bite out of your wealth, both at the federal and state levels. There are several different types of taxes that can come into play and affect the value of your estate that’s passed on to your heirs.
Whether you pay estate tax might come down to the state you live in. If you reside in Connecticut, the estate tax exemption for 2023 is $12,920,000 per individual (up from $9,100,000 in 2022). You can give up to those amounts over your lifetime without paying federal income tax. Any amount above is taxed at a hefty 40%.
There is no estate or inheritance tax in Colorado.
Though taxes are not always completely avoidable, the best wealth transfer strategies work to minimize this tax liability.
Gift and State Tax Exclusions Expire in 2025
The opportunity to make significant and tax-efficient wealth transfer gifts is set to expire at the end of 2025.
A result of the 2017 Tax Cuts and Jobs Act, the gift and estate tax exclusion as well as the generation-skipping transfer tax exclusion effectively doubled from their 2017 levels – allowing individuals to make generational wealth transfers at a reduced transfer tax cost. Indexed for inflation, the current exclusions allow gifts of more than $12 million before triggering gift, estate, and transfer taxes. Those exclusion levels expire at year-end 2025, when the exclusion level for those taxes will drop to just more than $6 million.
Creating Your Wealth Transfer Plan
An intergenerational wealth transfer plan is an important part of the estate planning process.
Agemy Financial Strategies offers professional financial advising services to help individuals and families create and implement a comprehensive financial plan tailored to their unique needs and goals. An elaborate estate plan will account for your current assets and liabilities as well as future cash flows to determine the best method for distributing your assets.
By working with our trusted Fiduciary advisors, we’ll help you create a plan that positively affects all members of your family unit, both young and old, to ensure your loved ones are all better off in the long-term.
Contact us today to learn more and schedule your complimentary consultation.
Preparing For The Great Wealth Transfer
NewsThe great wealth transfer, or intergenerational wealth transfer, is the transmission of family assets from generation to generation. Baby Boomers are on the verge of transferring trillions of dollars in wealth to younger generations in the coming years, signifying a notable shift in financial dynamics. Is your family ready to navigate and benefit from this historic transfer of wealth?
Over the next two decades, a massive amount of wealth is set to fall into the hands of Generation X and Millennials. The great wealth transfer recipients are estimated to inherit $84 trillion in assets by 2045, with $72.6 trillion going directly to heirs and $11.9 trillion to charity.
So, what can we expect as this wealth transfer takes place? And how can we best prepare for the changes to come? Today, we’ll explore the answers to these questions and more as we explore the impact of intergenerational wealth transfer on our society and economy.
How Intergenerational Wealth Was Born
This new era of intergenerational wealth began unfolding in the mid-2010s, coinciding with the Baby Boomer generation’s retirement. Born into unprecedented prosperity following World War II, Boomers entered the workforce during an economic boom in history, helping them amass wealth through investments in real estate and the stock market.
Between 1983 and 2023, the value of homes soared by 500%, with stock market gains even more impressive. Americans have roughly $156 trillion in assets, but half of that wealth — $78.1 trillion — belongs to the baby boomers. The rest is spread across Generation X, the Silent Generation, and Millennials. Understanding how intergenerational wealth works is important as it is key in protecting assets that will one day be passed down to you.
How Intergenerational Wealth Works
Intergenerational wealth can be passed down through inheritance, gifting, or other means, and it is accumulated over time through a combination of hard work, wise investments, and other factors. The transfer of intergenerational wealth can significantly impact both the receiving and giving generations.
For the receiving generation, it can provide financial stability, educational opportunities, and the ability to pursue personal goals and passions. For the giving generation, it can offer a secure feeling of passing on a legacy and helping their loved ones achieve their dreams. With deliberate financial planning, the process doesn’t have to be overwhelming.
Starting The Conversation Early
This topic has become an increasingly important issue, especially for those nearing retirement. If you find yourself in this situation, you may wonder how to pass your wealth to your children and grandchildren. Even if your children and grandchildren are young, you can set aside money in a trust or savings account for their future.
This can help you maximize the power of compound interest and grow your wealth over time. However, dealing with multiple assets across generations can sometimes make adopting an open communication approach challenging.
Nonetheless, due to the size of the task, it is essential to have a clear plan in place. Seeking the help of a trusted fiduciary advisor can be particularly useful in sensitive family circumstances as they can offer unbiased advice. It is crucial to establish a solid financial plan that helps protect the interests of all parties involved. This can help secure the transfer of wealth within your family and protect the wealth for future generations.
Seeking the professional guidance of a fiduciary advisor is one of the most significant measures you can take to establish a successful wealth transfer strategy. By working with a fiduciary and taking a thoughtful, strategic approach, you can create a plan that aligns with your values and helps protect your legacy. Together, you can investigate your options regarding:
Avoiding Common Mistakes
When figuring out the best way to pass along assets to the next generation, there are certain mistakes you should avoid. A few to watch out for include:
Don’t Forget About Taxes
Taxes can take a significant bite out of your wealth at the federal and state levels. Several types of taxes can come into play and affect the value of your estate passed on to your heirs.
Whether you pay estate tax might come down to the state you live in. If you reside in Connecticut, the estate tax exemption for 2023 is $12,920,000 per individual. You can repay those amounts over your lifetime without paying federal income tax. Any amount above is taxed at 12%.
There is no estate or inheritance tax in Colorado. Though taxes are not always completely avoidable, the best wealth transfer strategies work to help minimize this tax liability.
Creating Your Wealth Transfer Plan
An intergenerational wealth transfer plan is an important part of the estate planning process. Agemy Financial Strategies offers experienced financial advising services to help individuals and families create and implement financial plans tailored to their unique needs and goals.
Our trusted financial advisors will help you create a plan that positively impacts all family members to help ensure your loved ones are better off in the long term.
Contact us today to learn more and schedule your complimentary consultation
Strategies to Generate Additional Income in Retirement
NewsUnlocking additional income streams during retirement is not only about financial security but also about embracing newfound passions and experiences.
More than 1 in 4 retirees say they’re spending more than they can afford, according to an October 2022 survey by the Employee Benefit Research Institute. With inflation rates’ unpredictability in 2023, it’s not surprising that savings aren’t going as far as they used to. But there are ways to bring in extra income without taking on a full-time job.
In this blog, we will explore strategies to help wealthy retirees generate extra income while basking in the golden years. Let’s explore what you need to know.
Invest Wisely
Investing is a key strategy for retirees seeking to generate additional income during their retirement years. With ample financial resources, retirees can explore various investment avenues, including stocks, real estate, and bonds, to maximize returns and create a steady stream of passive income.
According to ICI.org, Americans had $6.8 trillion invested in 401(k)s and $12.5 trillion in IRAs in the first quarter of 2023. This number further Illustrates the importance of retirement savings and the potential for significant wealth generation through wise investment decisions.
However, making sound investment choices during retirement requires careful consideration of individual circumstances and financial goals. This is where the guidance of a trusted financial advisor becomes invaluable. About 4 in 10 retirees use a personal financial advisor for retirement planning information and advice, which underlines the need for more retirees to seek help. A qualified advisor can assess a retiree’s risk tolerance, income needs, and desired lifestyle to tailor an investment strategy that aligns with their retirement objectives. See here for further investment strategies.
Rental Properties
Investing in rental properties can be a lucrative strategy for retirees to generate additional income during their retirement years. Real estate offers unique advantages, such as a reliable source of rental income and the potential for long-term appreciation. Owning properties in desirable locations can provide consistent cash flow and potential for capital appreciation.
In 2022, there was a notable shift in investment trends among Americans. The percentage of investments in target-date funds increased to 45%, while equity and balanced funds accounted for 55% of investments. This rise in popularity of target date funds also increased Real Estate Investment Trusts (REITs) ownership, leading to a growing number of Americans investing in REITs.
Moreover, real estate investments have the potential for capital appreciation over time. As property values increase, retirees can benefit from the growth in the market value of their properties. This appreciation can further bolster their wealth and provide a valuable asset to future generations.
Dividend-Paying Stocks
Investing in dividend-paying stocks can be an attractive option for retirees seeking a steady income stream. Dividend stocks are shares of companies that distribute a portion of their earnings back to shareholders in the form of regular dividends. These dividends can be reinvested to compound wealth over time or used to cover living expenses.
The allure of dividend stocks lies in their ability to provide a reliable income, especially when investing in companies with a history of stable and consistent dividend payouts. Companies with a track record of increasing dividends over time are often referred to as “dividend aristocrats” and can be particularly appealing to retirees looking for a dependable source of income.
Additionally, dividend-paying stocks offer the potential for capital growth. As the company’s stock price appreciates over time, retirees can benefit from both the income generated by dividends and the potential increase in the value of their investments.
High Yield Bonds
High-yield bonds, also known as “junk bonds,” are another income-generating option for retirees. These bonds typically offer higher interest rates than government or investment-grade corporate bonds, making them an attractive source of income for those seeking higher yields.
However, retirees must be mindful of the associated risks with high-yield bonds. Because companies that issue these bonds with lower credit ratings carry a higher default risk than investment-grade bonds. In other words, there is an increased chance that the issuing company may be unable to fulfill its debt obligations.
Retirees should work closely with a financial advisor to navigate the risks associated with high-yield bonds. A qualified advisor can help select suitable bonds that align with the retirees’ financial goals and risk tolerance. Diversification is also key when investing in high-yield bonds to spread the risk across various issuers and industries.
Philanthropic Investments
Philanthropic investments offer retirees a unique and fulfilling opportunity to align their financial goals with social impact. Impact investing involves supporting companies and projects that aim to generate financial returns and strive to make a positive difference in society or the environment.
Through impact investing, retirees can direct their financial resources towards causes they are passionate about, such as education, healthcare, environmental conservation, and more. This approach allows them to make a meaningful contribution to the betterment of society while potentially earning additional income.
These investments can encompass various sectors, including renewable energy and social enterprises, to name a few. Engaging in philanthropic investments can foster a sense of purpose and fulfillment during retirement. For retirees who have achieved financial success, impact investing provides a meaningful way to leave a lasting legacy by contributing to the greater good and creating a positive impact for future generations.
Working with experienced financial advisors or impact investing professionals can help retirees identify reputable and impactful investment opportunities that align with their values and financial objectives.
CDs
If you are retired and need to fill a gap in your monthly income stream, save for other medium-to-long-term goals or supplement your existing investment mix, Certificates of Deposit (CDs)– including Discover’s CDs and tax-advantaged Individual Retirement Account (IRA) CDs — is one of the safest and easiest ways to make retirement income.
One CD strategy for generating cash flow is called a CD ladder. Open a series of CDs that mature at different times. When the first CD matures, harvest the interest income, but reinvest the principal in another CD at the top of your “ladder.” This approach can create a consistent and ongoing income stream to last throughout your retirement years. With Discover CDs, you always have convenient renewal options at maturity, making it easy to put this income-management practice into effect.
The downside is that interest rates are just above all-time lows, making it a not especially lucrative time for CD investors. That said, CDs are easy to buy, and CDs at FDIC-backed banks are practically completely safe.
Working With a Fiduciary Advisor
A Fiduciary Advisor provides invaluable guidance in determining investment objectives, creating personalized retirement plans, and offering ongoing portfolio management. When choosing an advisor to help see you through retirement, asking relevant questions about their experience and approach to retirement planning is a great first step. By doing so, you can find out if the advisor/firm aligns with your goals, needs, and beliefs.
At Agemy Financial Strategies, our team of Fiduciary Advisors is well-versed in comprehensive retirement planning services to help you reap a steady stream of income throughout your golden years. We are dedicated to helping clients navigate the intricacies of investment management during retirement to help ensure you never outlive your savings, so you and your family can gain peace of mind knowing that your retirement income plan is in capable hands.
In today’s volatile economy, it’s not the easiest thing to generate income these days. But some legwork and a lot of planning ahead of time can help you find the best returns out there.
Contact us today to take the first step towards a prosperous and rewarding retirement!
The Tax Implications Of Retirement Savings
NewsThere are a lot of critical steps to preparing for retirement. One of the most important can be understanding the tax implications of your savings and planning for them accordingly.
It’s not just about figuring out how much income you’ll need to cover your post-retirement expenses; it’s also about understanding how taxes will affect your financial well-being during those years of relaxation.
In this blog, we’ll delve into the tax implications of retirement savings, equipping you with the knowledge you need to make informed financial decisions for your golden years. Here’s what you need to know.
Understanding Taxes and Retirement Income Sources
In retirement, your income will likely be a blend of resources, including Social Security, investments, and personal savings like 401(k)s and IRAs. Yet, it’s common for soon-to-be retirees to underestimate the intricate connection between these income sources and the tax implications they carry.
By acquiring a solid understanding of how taxes interplay with your retirement income, you gain the ability to make more informed financial choices. Making smart financial decisions can help you optimize your financial situation, help minimize tax liabilities, and help guarantee your retirement nest egg lasts so it can support the lifestyle you desire during your golden years. Let’s explore some of the key tax rules to keep in mind as you navigate retirement.
Taxes on Retirement Income
In retirement, different kinds of income are taxed differently:
Retirement accounts like 401(k)s and IRAs are powerful tools for building your nest egg, but they come with rules, especially regarding withdrawals and taxes. Investing in Roth accounts can help shield you from unexpected taxes in retirement. However, if you’re using a traditional account and your withdrawals, be prepared to manage these extra costs on top of your regular expenses.
What About RMDs?
Required minimum distributions (RMDs) are the minimum amounts you must withdraw from your retirement accounts each year. Required Minimum Distributions (RMDs) are for investors who have reached age 73 and have a traditional 401(k) or individual retirement account (IRA). For years, the age threshold was 70½, but it was raised to 72 following the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The RMD age was increased again at the end of 2022 to 73 as part of SECURE 2.0.
The onset of RMDs can put eligible taxpayers in between the rock and the hard place. If you don’t take them or withdraw the right amount, you’ll owe major penalties. But if you do take them, they’ll boost your taxable income—and hence, your income taxes for the year (unless the account in question is a Roth IRA or 401(k) that has been funded with after-tax dollars).
So, how can you navigate these potential tax challenges? Here are some tips:
By staying mindful of the potential tax implications and adopting a strategic plan, you can secure your retirement savings and reach your financial goals without an unnecessary tax burden.
Reduced Social Security Benefits
Many older adults in the United States have been surprised by the higher-than-expected Social Security payments and the substantial taxes accompanying them. Social Security benefits are subject to taxation in eleven states, such as Colorado and Connecticut, and the amount you may owe in taxes can reach up to 85% of your Social Security benefits, depending on the rules set by the Internal Revenue Service (IRS). Here’s how it works:
The primary way to reduce the income tax on your Social Security benefits is by keeping your combined income below the specified threshold. Some effective strategies to help you lower your threshold include:
By exploring and combining these strategies, you can work towards minimizing the taxes on your Social Security benefits and improving your financial situation in retirement.
Estate Planning for Gifting and Legacies
A sizeable nest egg can position you well to financially assist family members or contribute to causes close to your heart. This could range from contributing to a grandchild’s college fund, helping with a relative’s medical expenses, or donating to your preferred charities. Transferring wealth can help you avoid high estate taxes, which can exceed income tax rates. Some states also impose inheritance taxes on what your heirs inherit. Here are some key points to remember:
A strategic approach to mitigate over-saving is taking full advantage of annual and lifetime gift tax exclusions. In 2023, the annual tax-free gift limit is $17,000 per recipient, increased from $16,000 in 2022. You can give this amount to multiple individuals without incurring federal gift tax. Married couples can jointly give up to $34,000 per recipient. Staying within these limits eliminates the need to file a gift tax return for the year. Working alongside a trusted Advisor can aid in helping secure your financial legacy.
Work With A Financial Professional
If you’re worried about retirement planning, working with a Fiduciary Advisor can be beneficial. They can offer personalized plans and investment strategies to help you reach your retirement goals with ease.
At Agemy Financial Strategies, we are committed to educating our clients on various financial matters, including retirement planning, legacy planning, and wealth management, and we even provide support during the transition to retirement. With over 30 years of experience helping individuals retire, our unwavering dedication to educating and serving our clients remains at the core of our mission.
Final Thoughts
Tax planning is an important aspect of retirement planning that cannot be overlooked. Retirees who take the time to understand their tax obligations early can enjoy a more secure financial future.
While certain taxes may be deferred, others can be minimized through tax-efficient investment planning. This is why a Fiduciary advisor can be a valuable resource for those seeking to navigate the complexities of tax planning.
At Agemy Financial Strategies, we can help you explore your options to help ensure you’re not missing out on tax strategies that could help boost your retirement savings.
Let’s put together your personalized plan with a complimentary strategy session. Set yours up here today.
Inheriting Wealth: Your Roadmap To Financial Success
NewsInheriting wealth can be both a blessing and a daunting responsibility. While it provides financial security and opportunities, it also comes with the challenge of managing and preserving that wealth for future generations.
Whether you’ve recently inherited a significant sum or anticipate it in the future, understanding the steps to take after inheriting money is crucial to help ensure that you make the most of this windfall while protecting your financial well-being. In this blog post, we’ll explore some key considerations for navigating wealth transfer effectively. Here’s what you need to know.
Navigating An Inheritance Windfall
The first step after inheriting money is to take a moment to breathe and come to terms with the emotions that often accompany the loss of a loved one. Grief, relief, or a mix of emotions can be overwhelming during this period. According to the Federal Reserve’s Survey of Consumer Finances, slightly over 20% of U.S. households had experienced an inheritance at some point.
A financial windfall, or “sudden wealth”, is an unexpected and substantial financial gain that arrives suddenly. Financial windfalls can materialize through various methods, including inheritances, lottery winnings, successful investments, or generous gifts.
An inheritance windfall can usher in a significant and abrupt change in one’s financial situation, offering newfound opportunities, financial security, and the potential to achieve long-standing financial goals. Nonetheless, effective management of a financial windfall is important. This can help ensure your newfound wealth is preserved, grown, and utilized for the recipient’s benefit to enhance their financial future.
Sudden Wealth Syndrome (SWS)
“Sudden wealth syndrome” is not a recognized medical or psychological disorder, but it is a term used colloquially to describe the psychological and emotional challenges that can arise when individuals come into a large amount of money or wealth suddenly, often through events like winning the lottery, receiving a large inheritance, or experiencing a significant financial windfall.
While not an official diagnosis, sudden wealth syndrome refers to a range of emotional and behavioral issues that some people may experience when their financial circumstances change dramatically. These issues can include:
Resisting the impulse to make hasty decisions regarding your inheritance is crucial. Take the time to research and carefully contemplate major financial choices thoroughly. Seek advice from a financial professional and gather all necessary information before making substantial financial decisions.
Long-term Impact of Your Inheritance
When you receive an inheritance, it’s important to consider the long-term effects. Once you’re in a clear state of mind, start by evaluating your current financial situation and setting your goals. It’s important to understand your inheritance clearly. For example, knowing how much you receive and what assets are included. This includes cash, real estate, stocks, bonds, or business interests. A complete picture of your financial situation is crucial before making any decisions.
Inheriting money can bring both good opportunities and potential issues. Think about how it might affect your relationships with family and others. Decide on the best way to handle the assets. This could mean selling real estate and other assets or retaining them for rental income. Throughout this process, it’s essential to prioritize the needs of all beneficiaries and remain attentive to potential tax implications. This can help provide a balanced approach to your wealth management.
Understanding Tax Implications
Estate Tax is a tax on property (cash, real estate, stock, and other assets) transferred from deceased persons to their heirs. A state applies a tax rate to the value of an estate that exceeds a certain threshold. The rate and the exemption threshold differ by state. A typical state with an estate tax exempts $2 to $5 million per estate and applies rates ranging from 1 percent to 16 percent to the value of property left to any heirs except a spouse. On average, fewer than 3 percent of estates — very large ones owned by the wealthiest individuals — owe state estate taxes.
For 2024, the federal estate tax threshold is $13.61 million for individuals, which means married couples don’t have to pay estate if their estate is worth $27.22 million or less.
It’s important to note that an estate tax differs from an inheritance tax. They are often referred to as the “death tax,” The inheritance tax is levied after the money has been passed on to the heirs of the recently deceased. While there is no inheritance tax in Colorado or Connecticut, some states might charge an inheritance tax if the decedent dies in the state, even if the heir lives elsewhere.
In Colorado, there is no estate tax, but if you live in Connecticut, there is an estate tax. As of 2024, there is a flat estate tax rate of 12%.
Seek Professional Advice
Seeking professional advice is crucial when it comes to inheritance for many reasons. Here are a few reasons why:
Getting a professional point of view on your inheritance situation is a wise choice. Financial professionals can help you address legal, tax, investment, and communication aspects, ultimately contributing to a smoother and more successful wealth transfer process.
Final Thoughts
It is important to carefully consider who you want to inherit your wealth and how you wish it distributed. By carefully considering who you want to inherit your wealth, you can help protect your legacy and support your family and the causes you care about.
With Agemy Financial Strategies, you can have full confidence in discussing your new financial situation with our fiduciaries because it is our duty to never disclose customer details to a third party. Our mission is simple: we want our clients to feel confident knowing they have someone looking out for them and their estate planning needs. When you work with our team of fiduciaries, you can rest assured knowing your finances are secured for the years to come. Our advisors are here to guide you in making well-informed decisions on estate planning, retirement planning, and every other financial consideration.
To schedule a consultation and discuss your options for estate planning, contact us here today.