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5 Retirement Taxes You Should Know About for 2023
NewsThe IRS recently announced a number of changes to retirement savings accounts, social security and tax brackets for 2023. Additionally, the IRS issued technical guidance regarding the cost-of-living adjustments affecting dollar limitations for pension plans and other retirement-related items for the 2023 tax year.
Planning for retirement is one of the most important financial tasks most Americans have to consider. With so many moving parts, it can be difficult to keep up with all the changes that frequently occur in the retirement landscape. To make sure you get the most out of your retirement plan, it’s essential to be aware of everything that’s going. Here are 5 retirement tax changes you need to know for 2023.
Social Security
The cost of living adjustment (COLA) for Social Security payments has been increased to 8.7% in 2023. This is substantially higher than last year, when the payout was out 5.9%. This adjustment results in an average increase of $146 per monthly benefit. For the average retired worker, their monthly check will increase from $1,681 to $1,827.
New 401(k) Contribution Limits
For 2023, the annual contribution limit for 401(k)s, 403(b)s, most 457 plans and Thrift Savings Plans have been bumped up from $20,500 to $22,500 in 2023. Additionally, individuals above the age of 50 will be eligible for catch-up contributions for up to $7,500. In total, employees above the age of 50 can contribute up to $30,000 to their 401(k). And for those that work for companies with match programs, the total annual contribution limit is now up to $66,000.
New IRA Contribution Limits
For those who have retirement funds outside of their employers, annual contribution limits have increased for traditional IRAs and Roth IRAs as well. Next year, individuals will be able to contribute up to $6,500 to their IRAs. However, catch-up contributions have not been raised, remaining at $1,000.
IRA Income Phase-Out Range
For traditional IRAs, the phaseout range in 2023 starts at $73,000 and ends at $83,000 for single taxpayers covered by a workplace retirement plan. This means single filers who earn more than $83,000 in 2023 cannot contribute to an IRA if they are covered by a workplace plan.
For couples filing jointly, the new phase-out range is $116,000 to $136,000, only if the spouse making the contribution is covered by a workplace plan. If one spouse does not have a workplace plan, but the other does, the phase-out range is $218,000 to $228,000.
Roth IRA Income Phase-Out Range
There are income limits, so individuals making above a specified threshold are eligible for reduced contributions. Those in an upper range of the threshold may not be eligible at all.
For single filers or heads of household, the 2023 Roth IRA phase-out range is now $138,000 to $153,000.
Final Thoughts
From increased government payments to higher limits for savings, make sure you know what’s new ahead so you can successfully plan for retirement. But remember, you should never contribute more than you can afford. If you haven’t yet done so, check out our complimentary Tax Resources here where you’ll find forms, explanations, and other tools to help you manage your taxes.
Oftentimes, it’s best to consult a financial professional to ensure you’re making the best financial decisions for your situation. If you’re interested in getting started on building a strong retirement plan, Agemy Financial Strategies can help. No matter where you are in your financial journey, we can create a plan tailored just to you.
Learn more, and request an appointment with us today.
Cook Up an Estate Plan this Thanksgiving
News‘Tis the season to surround yourself with your loved ones to enjoy one another’s company. With family together this holiday season, now is a perfect time to discuss estate planning. It’s also an ideal time to plan for the future.
While Estate Planning may not immediately be the first thing that comes to mind over the holidays, it’s a great step to take in order to have some hard conversations. What would happen in a medical emergency, or your last wishes? Who would inherit your most cherished items?
The end of the year is a time where things start to slow down a bit and you make some space for family gatherings. You may also want to have a conversation or two with those who mean the most about your plans for the future.
Here are some estate planning tips to follow this holiday season as you gather around the table to feast.
All In It Together
One of the best things about the holiday season is that your family is all in one place together, even if it’s just for a short amount of time. Now more than ever, is a great time to have conversations around estate planning.
End of life plans and who gets the family home after you’re gone can be a hard thing to talk about. However, with everyone in one space it makes easing into these conversations a bit easier. When it comes to estate planning, more than 70 percent of families lose their wealth by the second generation, and 90 percent by the third. Nasdaq reports that this wealth loss occurs for three key reasons:
By strategizing now you can have clear and concise conversations about what your vision and intentions are.
Conversations to Cover
Once you’ve done the hard part of having the conversation, you’ll want to have an idea of what topics to cover. Most people assume that estate plans cover just inheritance–when there’s actually a lot more to cover.
Estate planning is often associated with making sure that your loved ones are taken care of after you’re gone. But did you know that an estate plan can also help you live a healthier, happier life?
You may think that your family members know what to do in the event of your incapacitation, but they might not have thought through all of the details. Make sure they’ve signed healthcare directives and selected Power of Attorney(s) so that their wishes are carried out in the event of a medical emergency.
Most estate plans come with several roles, each of which can be filled by a family member if you so choose. Sit down and discuss with your family to find and name Executors, Guardians, and Powers of Attorney (medical, financial, etc.)
Now is the time to talk about money and to make sure everyone has obtained or is in the process of obtaining a life insurance policy. Lastly, make sure they have named a beneficiary.
It’s common for immediate households to discuss assets, but it’s rare for extended families to gather and discuss family estates as a whole. One of the best ways to tackle this is to talk about the family estate with their aging parents about plans to divide up the estate. This may feel like an awkward conversation at first, but it’s better to be transparent and hash things out now to prevent infighting and ugly court battles in the future.
For example, you might discuss who will inherit what pieces of jewelry or art work in your family. If one sibling doesn’t want something because they already have a similar piece of jewelry, perhaps you could donate it —or give it to another sibling who hasn’t inherited anything yet.
Taxes and estates are a tricky subject. There are several estate and inheritance taxes, including generation-skipping taxes, that could affect the overall wealth of the family. This can be a complicated topic for families to discuss, but it’s important to have these discussions early on.
If Not Now, When?
If you’re reading this, you’re probably not just thinking about estate planning—you’ve already decided to take action!
And if it’s time to get started on your estate plan, there’s no time like the present. As we’ve discussed above, the holiday season is a time when the whole family comes together to celebrate the season and all they must be grateful for. It’s a time of bonding and looking forward to the future, and it’s the perfect time to ensure that you’re protecting yourself and your family, no matter what happens.
Working with Agemy
When it comes to estate planning, having a financial advisor that you trust is crucial to your planning success. The best way to protect yourself, your family, and your assets is by having a comprehensive estate plan in place.
An effective estate plan enables you to manage your affairs during your lifetime and control the distribution of your wealth after death. It can also spell out your healthcare wishes and ensure that they’re carried out – even if you are unable to communicate. It can even designate someone to manage your financial affairs should you be unable to do so.
If you’re ready to get started on your estate planning, give us a call today to set up a complimentary consultation.
Wishing everyone a safe, happy and healthy Thanksgiving from the entire team at Agemy Financial Strategies.
How to Determine Risk Tolerance During Retirement
NewsKnowing your risk tolerance can make the difference between a smart investor and a sorry investor.
Understanding your risk tolerance is essential in developing a successful retirement strategy. The overarching principle of risk is that the higher it is, the greater your potential for growth, but also the greater your potential for loss. Risk tolerance isn’t a static consideration. As your investments change over time, so should your tolerance for risk, especially as you near retirement.
Typically, the closer you are to retirement, the lower your risk tolerance will become. The younger you are, the more time you have to make up for short-term losses. However, if you’ve still got some ground to make up before or in retirement, you may need to accept additional risk for the opportunity to reach your financial goals.
Continue reading to learn more about risk tolerance, its importance and how to determine yours.
What is Risk Tolerance?
Essentially, risk tolerance is the degree of volatility in investment returns an investor is willing to withstand over time. In other words, it’s how much you can stand to lose in the short term. How much risk an investor can tolerate varies widely and is determined by a number of different factors. It can be influenced by the news, friends, family, your gut and emotional connections to particular investments and money in general. The most considerable influence on risk tolerance for your retirement accounts show be driven by two factors, time to retirement and retirement goal. Once you’re in retirement, your risk tolerance again changes. Generally, retirees have a much lower risk tolerance, and would look for conservative investments.
Levels of Risk Tolerance
With high investment risk tolerance, you are a natural risk taker and an optimist. You like weighting your portfolio with lesser-proven stocks or other investments that have the opportunity for big gains, but could also dip dramatically if certain assumptions about markets and demand don’t pan out.
If you can tolerate some risk, you probably prefer investments that are likely to produce solid gains over time but also have the potential to drop somewhat.
If you’re uncomfortable with anything but small risk, you’re most likely to only invest in conservative assets. You only feel comfortable with the type of investments that typically generate more moderate gains in share prices but are less likely to dip.
How to Determine Your Risk Tolerance
When assessing how much investment risk you can take on, thinking practically is important. Your financial circumstances may justify some reasonable chances or may merit more conservative choices. If you’re not sure what your level of risk tolerance is, start by asking yourself the following questions.
What Are Your Investment Goals?
Why are you investing? Everyone has their own reasons for investing but some common goals include:
Determining the why of investing is the first step in understanding how much risk you’re willing to take on. Additionally, having a goal in mind helps assess your time horizon and estimate how much money you’ll need.
What’s Your Time Horizon?
Your time horizon is the amount of time until you plan to use the money you’ve invested.
Generally, the larger your time horizon, the more risk you can take on. If your investments lose value, you have more time for them to recover. While downturns occur and past performance is no guarantee of future results, the stock market has historically bounces back, offering long-term returns.
A shorter time horizon means your investments have less time to recover from a potential downturn. If your goal is to earn a big return in a short period of time, larger risk is necessary. The closer you are to retirement, or if you’re already there, your time horizon would be short.
Do You Have an Emergency Fund?
Regardless of your risk tolerance, it’s important to have savings set aside in liquid accounts. If you face an emergency, you want to have easy access to cash without having to liquidate investments. However, if you keep a large portion of your savings in cash because investing makes you nervous, this is a sign you’re risk averse.
Keeping a specific amount in cash to help ride out market fluctuations is extremely important, so always make sure your emergency fund is topped up.
How Comfortable are You Taking Short-Term Losses?
It’s common for investments to fluctuate in the short term. With stocks and similar investments, it’s important to remember that your shares may decline in value, but you don’t realize the loss until you sell the investment. If you’re in need of the money in the near-term, you may be forced to sell at a loss. Investors with a longer time frame have the ability to hold onto the investment with the hopes of recovering and potential increases in value with time.
Final Thoughts
Every investment comes with risk, but it’s important to understand the balance of risk and reward that is best for you and is appropriate for your portfolio. Generally, as you near retirement or enter into it, it’s much safer to add more conservative, low risk investments into your portfolio. Of course, this always just depends on personal preference and what makes sense with your own financial situation.
Risk tolerance is a highly individual matter and can be sensitive once you move into retirement. You should consider working with an experienced and trusted financial advisor who can help further shape your risk capacity and suggest products that fit within it. At Agemy, we specialize in retirement income planning, helping you take care of yourself and your loved ones. Whether you’re looking to change up your financial strategy, need assistance with wealth management or legacy planning, or just want someone with you while you jump into retirement, we’re here for you!
Six Common Issues That Can Cause Stressful Inheritance Disputes
NewsEstate Planning can be a difficult topic to prepare for – but nonetheless, it’s essential to have.
Estate Planning is about more than just managing your assets and wealth. It’s also about making sure that your wishes are carried out, even when you’re not around to communicate them.
When you take part in estate planning, you’re planning for when you become incapacitated or dead. It’s even less fun to talk about unorganized estate planning, which oftentimes leaves your loved ones heartbroken or left with strained relationships.
Here is a look at six common issues that can cause inheritance disputes, and how you can avoid them.
Leaving Behind Surprises
We all want to keep our loved ones out of the dark, but there are some things that are just easier to talk about first with a financial planner. Estate planning is one of those things.
The biggest problem when it comes to estate planning is the tendency to keep things secret. That’s why conversations should start with a trusted advisor. Most clients are actually more comfortable talking to their advisors about difficult topics like debt, divorce, and you guessed it – death and incapacitation.
But it’s always in best practice to go home and talk to your loved ones about your plans as well. Talking about what’s going to happen when you die is a difficult subject, and we understand the impulse to push the conversation off. Planning ahead of time and talking as openly as possible now will alleviate heartache when the time comes.
Naming the Wrong Executor
When you decide to pass on and leave your estate to whomever you choose, it’s important to consider who will act as an executor on your behalf. The role of an executor can be with a person for years, and can include going to court, traveling, and working through reams of paperwork.
Executors take on a big role and it’s important to assign the role to someone who can handle it maturely. Too many times, estate issues will arise because the person in the role of executor was just not able to handle the responsibility.
The best way to handle this issue is by creating a short list of individuals you think are up for the job, and then think about their strengths and weaknesses. Are they responsible? Organized? Ethical? Do they have the flexibility in their schedule to handle the tasks they will need to accept as executor of your estate? Will they have the financial ability to ensure that your assets don’t lose value? Whoever you choose it is best practice to discuss with other family members on who you ultimately choose for the task.
Not Planning for Incapacitation
The last thing you want to think about when planning your estate is what happens when it’s your time to go. But it’s actually one of the most important things to prepare for, especially as we age.
While it is easy to forget that estate planning does more than help our loved ones after we’re gone; it can also provide them with critical guidance about our wishes while we’re still alive, but incapable of carrying those wishes out on our own.
You can have a POA (power of attorney) in place to make sure that you have someone to handle your affairs while you are still alive. This person can be someone close to you who has your best interests at heart, or it can be an attorney who specializes in these types of matters. Having a POA in place will help avoid any potential financial disasters that could come up during a time like this.
Not Having Correct Names Listed on Estate Documents
It’s easy to get confused about where you should list your beneficiaries. If you’ve listed a beneficiary on your will, but that same person isn’t listed on the account level, it can cause delays and even cause your estate to become the subject of contentious disputes.
This is a very simple and common issue that can cause problems further down the road. If there are any contradictions it can lead your estate to become open to contentious disputes. Make sure to check, double check, and triple check where you list your beneficiaries before filing.
Not Claiming/Allocating Personal Assets
Preparing for incapacity and death is an important process. While many people take the time and care to clearly indicate to whom their financially valuable assets will go after their death, they often neglect to make plans regarding sentimental items. This can cause awkwardness later on as family members may feel confused about what they can take.
One of the best ways to avoid this issue is by gathering your family members and discussing who takes what. There are many ways you can go about this, but one of the most popular ways is by having some sort of color coding method and having everyone take turns on claiming the items that they would like to inherit one day
Once this task is completed, have a document or spreadsheet in place that lists the items and their claimants and include it in your will.
Estate Planning Solo
When it comes to estate planning, having a financial fiduciary advisor you trust is key to ensuring all of your belongings will be left to your beneficiaries.
The process of estate planning can be difficult and intimidating. It’s important to have someone who has experience, who you trust, and who can guide you through the process so that you’re leaving everything to the right people in the right amounts.
Estate Planning with Agemy Financial
At Agemy Financial Strategies, we understand that you want to make sure your estate is handled properly and distributed according to your wishes.
We can help you craft an effective estate management strategy that will enable you to manage your affairs during your lifetime and control the distribution of your wealth after death. An effective estate strategy can spell out your healthcare wishes and ensure that they’re carried out – even if you are unable to communicate. It can even designate someone to manage your financial affairs should you be unable to do so.
If you have any questions regarding estate planning and other will planning services, contact us today.
How to Prepare for Retirement in a Volatile Market
Investment Management, NewsFor every investor, the world has become a hard place. But for those reaching retirement, pressure is significantly mounting. Here’s how to cope with a roller-coaster market on the lead up to your golden years.
When you think of retirement, many Americans imagine a fun and relaxing lifestyle. However, preparing for retirement is no easy task– especially with volatility and rising interest rates. This past year has been especially challenging to plan for retirement. The economy has been turbulent and many are having a hard time keeping up with the cost of living.
It’s estimated that 1.5 million retirees have re-entered the U.S. labor market over the past year due to such factors as more flexible work arrangements, rising costs, and the inability to keep up while on a fixed income (according to an analysis of Labor Department data by Nick Bunker, an economist at Indeed). Additionally, 25% of Americans feel they have to delay their retirement plans because of disrupted savings resulting from increased prices and market instability.
During such an uncertain time many are second guessing their road to retirement. However, a down market should not deter you from reaping the benefits of a fruitful retirement. Here are a few tips to help you prepare for your golden years in a volatile market.
Evaluate Risk Tolerance
When it comes to risk tolerance, having a diversified portfolio will help minimize the impact of risk and total loss in a volatile market. The right mix of investments for you will depend on your unique circumstances, including your age, investment goals, and risk tolerance.
The key is to find the right balance of risk and reward for you.
Investing Without Emotions
It can be hard not to invest with emotions. After all, it’s your hard-earned cash you’re watching rise and fall. Market volatility is a stressful environment for anyone with money in the stock market. Investing with emotions can lead to significant losses.
It can be difficult to impulse buy or sell stocks when the market is experiencing a hiccup. In the end, it’s hard to predict market behavior—so try not to make any risky or permanent decisions regarding your portfolio when it’s likely that current market conditions are temporary. Stick to your investment plan and build on these important building blocks:
Your plan is like a safety belt when the market starts seesawing. Stay on track by sticking to it during market swings.
Having a Plan in Place
When it comes to planning for retirement, having a long-term plan can help ease stress and keep you on track for the long-run. Market volatility can tempt you to want to ditch your plan, but it’s important to think long-term. If you’re nearing retirement it may be an appropriate time to make some small changes in order to reduce the chances of major risk. Make sure to rebalance your investment plan on a regular basis — quarterly, semiannually or once a year. Why? Because volatile markets can change the proportion of your funds in different asset classes. Therefore, rebalancing resets your portfolio to your desired investment mix.
Note: It’s important not to make any significant changes without consulting your financial advisor. A trusted advisor is crucial to your success when preparing for retirement during a volatile market.
Final Thoughts
Don’t let market volatility derail your retirement savings plan. With the market’s current conditions, it may not be as smooth of sailing as you’d hope for–but market downturns don’t last forever.
The investment professionals at Agemy Financial Strategies can help you make sure your investments and assets are mixed to create a balanced plan for your unique retirement goals. Regardless of a volatile market, we can help strategize asset allocations to help stomach inflation, or revise your current plan to make helpful amendments.
If you’re looking for more ways to prepare for retirement with inflation, connect with the team at Agemy Financial Strategies here to help you get started on your portfolio diversification journey today.
How to Create a Diversified Portfolio for Retirement
NewsWe’ve said it before and we’ll say it again: Diversify your portfolio! This practice is designed to help reduce the volatility of your portfolio over time. Let’s take a deeper look.
What does it mean to have a diversified portfolio? And why is it important? Diversifying your investments is a complicated process that requires spreading out your money into different types of investment vehicles. By diversifying your portfolio you are reducing your chances of risk and allowing your money to grow.
In life, you have probably heard the saying “Don’t put all your eggs in one basket.” Essentially, don’t put your money all in one investment, because if it fails, you’ll lose it. Diversification is part of long-term investing strategy and should be taken with a balanced approach in order to build your wealth for the years to come.
Here is what you need to know about creating a diversified portfolio for retirement with Agemy Financial Strategies.
Why is Diversification Important?
One reason why most financial advisors suggest diversification is because it reduces your chances of risk. When it comes to investing there will always be some sort of risk involved. However, by having different types of investments you can still grow your money without destroying your financial future if one investment turns out poorly.
Here is an example. If you put retirement savings into one stock, what happens when the company goes under? Your investments are gone, and you can’t get them back. That is why investing in single stocks is not the best option.
Diversification by Assets
When it comes to diversification, having various types of asset classes in your portfolio is a good strategy to implement. Here are the most common types of investments:
Second, be sure your stock investments are diversified. You can achieve this in a few different ways:
If you own your home, you are already taking part in diversification. Being a homeowner is a great way to build equity outside of traditional investing options. There are also many ways to invest in real estate. Investing in mutual funds is also another great approach in diversifying your portfolio.
Here are some reasons why mutual funds are slightly better than traditional asset classes:
Now that you know a little about why diversification is important, we can take a look at ways to implement diversification into your portfolio for retirement.
Choose Your Account
You probably already know that spreading your 401(k) account balance across a variety of investment types makes good sense. If you’re still in the workforce, get started by opening your 401(k) or 403(b) at work and see what mutual fund options you have. Workplace retirement plans like these have many advantages—they give you a tax break, they can be automated through your payroll deduction, and your employer most likely offers a match.
If you don’t have access to a retirement account, then your best option is a Roth IRA. Using a Roth is an added bonus as your money will grow tax-free!
Diversify Through International Funds
As you explore your account, you’ll see a list and description of your fund options. Here are the four types of mutual funds you should spread your investments into:
In order to diversify your portfolio, it’s important to put your money in different funds and classes. That way, if one type of fund isn’t doing well, the other three can balance it out.
Never Forget Risks Involved
As mentioned, the primary goal of diversification is to spread out your risk so that the performance of one investment doesn’t necessarily correlate to the performance of your entire portfolio. Diversified portfolio or not – always remember there is risk involved.
Examples include:
In general, the more assets your portfolio holds, the more diversified and resilient to different types of risk it is.
Let’s Talk Strategy!
You’ve probably got lots of questions about how to get started diversifying your portfolio. The investment professionals at Agemy Financial Strategies can help you make sure your investments and assets are mixed to create a balanced plan for retirement.
We provide solutions for your specific financial situation. Whether it’s helping you strategize asset allocations to help stomach inflation, or revising your current plan to make helpful amendments –we are here to help.
Connect with the team at Agemy Financial Strategies here to help you get started on your portfolio diversification journey today.