Planning for Higher Tax Bills for Retirees

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

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

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

Open a Roth IRA or Roth 401(k)

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 But the benefit is in retirement, as earnings can be withdrawn tax-free starting at age 59½.

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

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

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

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

Consider the timing of Social Security benefits

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

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

Make Qualified Charitable Distributions

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

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

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

Final Thoughts

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

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

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

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Two Financial Planning Topics to Bring to the Table This Thanksgiving

Agemy Financial

October 27, 2021

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

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

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

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

Organizing Finances

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

The 6 Best Free Instant Credit Reports of 2021 include:

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

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

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

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

Estate Planning

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

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

1. Living Will

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

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

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

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

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

2. Healthcare Power of Attorney

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

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

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

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

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

3. Financial Power of Attorney.

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

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

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

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

Final Thoughts

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

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

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

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The Pros and Cons of an Early Retirement

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

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

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

Let’s dive a little deeper…

Pros of Early Retirement 

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

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

  • Investing time in family and personal relationships

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

  • The opportunity to travel 

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

Cons of Early Retirement

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

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

  • Penalties for accessing funds early

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

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

  • Benefit Packages

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

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

  • Sacrificing the Power of Compounding

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

Final Thoughts

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

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

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Estate Taxes vs Inheritance Taxes (And Who Pays the Bill)

Agemy Financial

November 10, 2021

An inheritance tax is a state levy that Americans pay when they inherit an asset from someone who’s died, and is deemed a tax on your right to transfer property at your death. Inheritance tax is different from estate tax, and whether you pay might come down to the state you live in.

When a person passes away, their assets could be subject to estate taxes and inheritance taxes. This is depending on where they used to reside and how much they were worth. While the threat of estate taxes and inheritance taxes exists, the majority of estates do not charge federal estate tax because they are “too small”.

While it’s pretty uncommon for estates to be taxed, it’s still possible. As of 2021, only if the assets of the deceased person are worth $11.70 million or more can be taxed. So who is left to pay the estate tax? Here’s a look at understanding Estate and Inheritance Taxes and who is responsible for paying these taxes.

Estate or Inheritance? What’s the Difference?

Inheritance tax is a state tax on assets inherited from someone who passed away. For federal tax purposes, inheritance generally isn’t considered income. But in some states, an inheritance can be taxable. The person who inherits the assets pays the inheritance tax, and tax rates vary by state.

Mainly those in the bigger states face these taxes, but the chances are you won’t have to pay them. However, there are exceptions, and the specifics of your inheritance tax situation can dramatically change your tax bill.

The estate tax is a tax on a person’s assets after death. In 2021, federal estate tax usually applies to assets over $11.7 million, and the estate tax rate ranges from 18% – 40%. Particular states also have estate taxes and they might have much lower exemption thresholds than the IRS. Assets that spouses inherit generally aren’t subject to estate tax.

The main difference between an inheritance and estate taxes is the person who pays the tax:

  • Estate Taxes: These are calculated based on the net value of all the property owned by a decedent as of the date of death. The estate’s liabilities are subtracted from the overall value of the deceased’s property to arrive at the net taxable estate. Any resulting tax bill is paid by the estate.
  • Inheritance Taxes: These are calculated based on the value of individual bequests received from a deceased person’s estate. The beneficiaries are liable for paying this tax, although a will sometimes provides that the estate should pick up this tab as well.

Why They Both Matter

For tax purposes, both federal and state taxes are assessed on the estate’s fair market value. While that means appreciation in the estate’s assets over time will be taxed, it protects against being taxed on peak values that have potentially dropped.

Anything included in the estate that is handed down to a surviving spouse and is not counted in the total amount isn’t subject to estate tax. Spouses have the right to leave any amount to one another this is known as the unlimited marital deduction. When entering the situation of a surviving spouse who inherited an estate dies, the beneficiaries may then owe estate taxes if the estate exceeds the exclusion limit.

An heir can choose to decline inheritance through the use of an inheritance or estate waiver. The waiver is a legal document that the heir signs, declining the rights to the inheritance. In certain situations this waiver comes in hand when:

  • An heir chooses to waive their inheritance to avoid paying taxes.
  • To avoid having to maintain a house or other structures.
  • Bankruptcy proceedings – so that the property can’t be seized by creditors.

Federal and State Taxes

As mentioned above, for the tax year 2021, the Internal Revenue Service (IRS) requires estates with combined gross assets and prior taxable gifts exceeding $11.70 million to file a federal estate tax return and pay the relevant estate tax.

If you live in a state that has an estate tax, you’re more likely to feel its presence compared to when you have to pay federal estate tax. The exemptions for state and district estate taxes are all less than half those of the federal assessment. An estate tax is assessed by the state in which the decedent was living at the time of death. Here are the states that have estate taxes:

  • Connecticut
  • DC
  • Hawaii
  • Illinois
  • Maine
  • Massachusetts
  • Maryland
  • New York
  • Oregon
  • Minnesota
  • Rhode Island
  • Vermont
  • Washington

While the decedent is responsible for estate taxes, the beneficiaries have to pay the inheritance tax. So, if you receive property in the event that someone passes, you might be liable to pay this tax. Only certain states use it, however, instead of the estate tax. They include:

  • Iowa
  • Kentucky
  • Maryland
  • Nebraska
  • New Jersey
  • Pennsylvania

Among them, Maryland is the only one that uses both.

How to Keep Estate Taxes Low

To minimize estate taxes, keep the total amount of the estate below the $11.70 million threshold. For most families, that’s easy to do. For those with estates and inheritances above the threshold, try and set up trusts that allow the transfer of wealth, this can help ease the tax burden.

Another way to reduce estate tax exposure is to use an intentionally defective grantor trust. This is a type of irrevocable trust that allows a trustee to isolate certain assets as a separate income tax from estate tax. The grantor pays income taxes on any revenue generated by the assets but the assets can grow tax-free. By doing this, it allows the grantor’s beneficiary to avoid gift taxation.

There are ways to reduce estate taxes if you own a life insurance policy as well. On their own, life insurance proceeds are federal income-tax-free when they are paid to your beneficiary. One way to make sure things don’t go awry, is to transfer ownership of your policy to another person or entity, including the beneficiary.

How to Avoid Inheritance Tax

In most cases, assets you receive as a gift or inheritance aren’t taxable income at the federal level. However, if the assets you inherit later produce income (perhaps they earn interest or dividends, or you collect rent), that income is probably taxable. If you want to lower your estate’s tax burden and maximize the inheritance your beneficiaries receive, you’ll likely need to take steps before you pass away. You also want to watch out for capital gains taxes. If you sell any stocks, bonds, or other property that you received as part of an inheritance, capital gains taxes may apply to the profit you made.

Beneficiaries might not have much they can do to lower their bills, but they can work with their descendants or relatives on finding the best tax-saving strategy for passing on their wealth. These include strategies such as giving away assets before dying and possibly moving to a different state before dying.

Another way to help plan your assets and estate is to work with a financial advisor experienced in tax and estate planning. An trusted advisor can help you identify the best course of action for limiting your tax bill to ensure that you maximize the inheritance that you pass on to your beneficiaries.

Final Thoughts 

Ultimately, the key difference between Estate and Inheritance tax comes down to who is financially responsible for the property transfer’s taxation. In the case of an estate tax, it is the deceased and their estate. By contrast, an inheritance tax requires the deceased’s inheritor or heir to pay to receive the assets.

Effective estate management enables 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’re looking for a firm that handles estate planning and ways to reduce your taxes in life and death, look no further! Agemy Financial Strategies has a wide range of experienced advisors waiting for your call. For more information on our services, contact us today.

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The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. Some of this material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named representative, broker – dealer, state – or SEC – registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.

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Report: 41% of Americans Say it’s ‘Going to Take a Miracle’ to be Ready for Retirement

Agemy Financial

September 28, 2021

The last two years have made it exponentially harder to stick to those retirement savings goals. As a result, many Americans dipped into the largest chunk of money they have — their workplace retirement savings accounts. Despite the latest retirement study data, it’s not too late to get back on track, and you don’t need a miracle to get you there! 

The Covid pandemic has taken a heavy toll on Americans and their retirement security. Throughout living in a time where everything was uncertain, many lost their jobs. A majority of us had to dip into their savings and retirement accounts just to get by. A recent study found that saving for retirement has fallen behind due to job loss, unexpected expenses, giving financial help to family and friends or dealing with a health emergency.

The top concern is how significant increases in government spending to get the economy back on track will lead to decreases in Social Security benefits. In this article we will do a deep analysis of the Natixis Global Retirement Index study and the things you need to do to prepare for retirement.

Key findings of the study included:

  • 41% of respondents, including 46% of Generation Y, 45% of Generation X and 30% of Baby Boomers, believe they will need a miracle to be able to retire securely;
  • 73% recognize it is their responsibility to fund retirement versus relying on a pension or Social Security, 42% say it will be difficult to make ends meet if Social Security benefits are lower than expected, 31% of those with a net worth of $1 million or more;
  • Nearly six in 10 (59%) accept that they will have to keep working longer, 36% believe they will never have enough money to retire, this includes: 51% of Generation Y, 48% of Generation X and one in five Baby Boomers (20%)
  • Two-thirds (68%) see long-term inflation as a big risk to their retirement security, while 64% worry that healthcare costs will consume savings.
  • Half (50%) are concerned that low interest rates will make it harder to generate income in retirement.

As you can see, the pandemic unfortunately took a toll on many aspects of life. According to the Fidelity Investments’ 2021 State of Retirement Planning Study, more than eight out of 10 Americans (82%) indicate what’s taken place this past year has impacted their retirement plans, with one-third estimating it will take 2-3 years to get back on track, due to factors such as job loss or retirement withdrawals. The good news is that the US Government is looking ahead to what’s to come. Stimulus packages helped stimulate the economy and provide relief for many families. It also cut or froze interest rates, and flooded the capital markets with unprecedented liquidity.

While these policies brought relief to people, the long-term risk is still high for retirees who are vulnerable to low yields and face challenges of generating a sustainable income in retirement. Fortunately for today’s policy makers, low interest rates make debt a little bit more manageable. Still, there are levels of public debt and the need for budgetary solutions that will force tough decisions about government spending, including public retirement benefits, raising taxes, raising the retirement age, and cutting benefits.

Getting Back on Track

There’s further good news: you should not need a miracle to right the wrongs the pandemic threw at us.

Even though everybody knows to expect the unexpected, no one could have predicted how the events of the past 20+ months would change the world. As a result, many people had to shift their approach toward financial planning and retirement savings and are now looking for ways to get back on track. To assist with that effort, try these actionable tips to help your retirement funds rebound:

  • Start now: Even if you are only able to contribute a small amount a month into a retirement account, that’s still better than contributing nothing, thanks to the power of compounding interest. The sooner you start to save again the better.
  • Don’t shy away from investing: It’s important not to become shy about investing while bulking up your savings. Remember, investing remains a critical part of your overall financial planning strategy.
  • Open a HSA (Health Savings Account): HSAs can be a valuable retirement funding vehicle and are considered ‘triple tax advantaged’ accounts and as such have benefits that may outweigh contributions to other types of retirement plans.
  • Get smart with your cash: Eliminating big debt and building back up your emergency savings will help protect you from future financial downfalls. COVID-19 (or whatever else comes along) then becomes a matter of statement pain, not long term financial pain.
  • Seek professional help: Getting back on track is a matter of setting goals, creating a plan to achieve them, and sticking to that plan. Speaking with an experienced financial advisor will help you create a solid foundation to help to withstand financial volatility.

Final Thoughts

While the pandemic has changed our outlook on a lot of things, one thing has remained the same: It’s never too late to start saving for retirement. And while COVID has thrown a curveball to so many Americans who have worked their entire lives to retire comfortably, we are a resilient people – and now is a good time to regroup, reassess your retirement situation and establish a plan based on your goals and your needs.

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

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How Much Will Your Social Security Check Increase in 2022?

Agemy Financial

October 27, 2021

As fall arrives, the changing of the season can be an ideal time to revisit your financial plans with a fresh perspective. This includes what you can expect for your income and expenses for the year ahead. Social Security beneficiaries will soon see the biggest jump in monthly checks in 40 years. Here’s what you need to know. 

The Social Security Administration (SSA) announced a 5.9% cost-of-living adjustment (COLA) for Social Security benefits for up to 70 million Americans, the biggest increase since 1982. This raise will kick in for those who receive Social Security benefits in January 2022.

Americans who receive SSI benefits will see theirs increase a little earlier, starting on Dec. 30, 2021. How much is the new monthly benefit for the average American? And will the bigger payments combat the effects of inflation on household goods and health care? Here’s a look at how much your social security check will increase in 2022.

How the Social Security COLA is calculated

The annual Social Security COLA is based on the change in prices of a market basket of goods. To measure these changes, Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W).

For the 2022 COLA, they measured the change in the average CPI-W index from July, August and September of 2020 to the average CPI-W index for the same three-month span in 2021. The percentage change between the two quarterly averages is the COLA starting in January 2022.

The 2022 COLA was so large because prices of goods and services have significantly increased in the past year, due in part to extreme weather and COVID-19 outbreaks, which have driven up energy prices and strained the world’s supply chains. Since Congress initiated automatic annual COLAs in 1975, there have been three years in which benefits didn’t increase at all: 2010, 2011 and 2016.

Social Security Payment Increase

Due to the COVID-19 epidemic, it caused a major increase in goods and services. As the country started opening up, businesses had a hard time keeping up with the increased demand. This created a rise in prices, causing inflation to jump to 5.3%, which is the largest increase since Aug. 2008. The rise in inflation is the major driver for increases in Social Security payments.

The increased Social Security benefits are to be paid by American workers. The SSA announced increases to the wage base, which is the maximum amount an employee pays in Social Security taxes. The maximum amount of an employee’s wages subject to SS taxes has risen from $142,800 in 2021 to $147,000 for 2022, an increase of 2.9%. Even though everybody knows to expect the unexpected, no one could have predicted how the events of the past 20+ months would change the world.

As a result, many people had to shift their approach toward financial planning and retirement savings and are now looking for ways to get back on track.

How Agemy Financial Strategies can help you plan for 2022

At Agemy Financial Strategies, we have an array of will and retirement planning solutions to guide you through the entire process all with the help of our trusted financial planners. For those nearing retirement, reach out to your retirement income advisor. Not all financial advisors have the same level of experience or will offer you the same depth of services. It’s always important to do your due diligence and make sure the advisor can meet your financial planning needs.

It’s never too late to start saving for retirement. And while COVID has thrown a curveball to so many Americans who have worked their entire lives to retire comfortably, we are a resilient people – and now is a good time to regroup, reassess your retirement situation and establish a plan based on your goals and your needs.

No matter what your financial situation, there are a number of questions and concerns that should be addressed to help you prepare for retirement in 2022 and beyond.  For more information on how you can best prepare for retirement, contact the trusted financial advisors at Agemy Financial here today. 

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Should You Max Out Your 401(k)?

Agemy Financial

September 22, 2021

Whether you’re nearing retirement or still in the workforce, you probably wonder if there’s enough in your 401(k) to sustain your golden years. The answer really depends on your personal financial situation. Here’s what you need to know…

A 401(k) is a powerful retirement savings tool. If you have access to it through work, it’s important to take advantage of any employer match. If you still have extra money remaining, there are other ways to boost your retirement nest egg.

Maxing out Your 401(k) and What to Do Next

There are a number of reasons to consider maxing out your workplace retirement account if you’re financially able. Being proactive in your retirement planning will help ensure you will live out your older years in comfort, so it’s important to understand the ins-and-outs of this practice. Here are some of the options you have available to make the most out of your retirement savings strategy.

Employer Matching & 401(k)

Employers offer their employees 401(k) plans, most may match contributions in order to compensate and attract employee involvement. This means that for every dollar you contribute to your employer-sponsored plan, the company matches a certain percentage. This increases the amount of money saved in your account. Some match as much as 50% of your contribution while others do a dollar-for-dollar match up to a certain limit.

Roth 401(k) plans are typically matched by employers at the same rate as traditional 401(k) plans. One notable difference between traditional and Roth 401(k) contributions is that the employer’s contribution is placed in a traditional 401(k) plan—taxable upon withdrawal. Most financial planners encourage investors to max out their 401(k) savings.

On average, individuals earn about $0.50 on the dollar, for a maximum of 6% of their salaries. If you can easily afford to max out your contribution based on the yearly limits, without it causing a large impact to your budget, you might want to do so.

Investing after Maxing out your 401(k)

Although 401(k) offerings can be hard for some newcomers to understand, most programs offer low-cost index funds, which are ideal for new investors. As you approach retirement age, it’s advised to shift most of your retirement assets to bond funds. Those who contribute the maximum dollars to their 401(k) plans can boost their retirement savings with a number of different investment vehicles.

You can contribute up to $6,000 to an individual retirement account (IRA) in 2021, provided your earned income is at least that much. If you’re 50 or over, you can add another $1,000, although some IRA options carry certain income restrictions. When it comes to your future, investing money is always a good thing to do. Diligent savers who max out their 401(k) contributions have other retirement savings options at their disposal.

When it’s NOT a Good Idea to Max Out Your 401(k)

The maximum 401(k) contribution is $19,500 for 2021 ($26,000 for those age 50 or older). But depending on your financial situation, putting that much into an employer-sponsored retirement account each year may not make sense. Rather, you may want to fund other accounts first. 

When trying to decide what route is best for your financial future, meet with your trusted financial advisor to go over the following questions: 

  • Do you have an Estate Plan in place? (This should include a basic will and trust plan.)
  • Do you have an emergency fund saved? (This should be around 6 month’s worth of living expenses)
  • Do you have an Insurance Strategy in place? (This should include health insurance, disability insurance, long term care insurance and life insurance.)
  • Do you have any large debt hanging over you? (If so, pay that off ASAP.)

If the answer is “no” to any of the checklist items above, it is wise to first have these goals in place before maxing out your 401(k). If you’re unsure about your current strategy, it’s best to work with a financial advisor so they can answer your questions as they come up.

Final Thoughts

Whether you need the extra money or not, you’ll need to start taking it out of retirement accounts at age 72. This forces retirees to recognize taxable income and sacrifice future years of tax-deferred growth. Even if you reinvest the money in a brokerage account, you’ll still have to pay regular income tax on withdrawals from pre-tax retirement accounts. This is one of the reasons investors often save for retirement in a diversified mix of taxable, tax-free Roth, and tax-deferred accounts.

Plans that don’t bend will break, so flexibility in your savings strategy is paramount. The more you’ve saved along the way in your working years, the easier it will be to deal with unexpected challenges as they arise. Whether you’re already retired or just starting to think about it, contact the retirement income advisors at Agemy Financial. We’ll help you find answers to some of the most pressing 401(k) and IRA questions, and help set you up for a stress-free retirement.

 

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Why Estate Planning is Not Just for the Wealthy

Simply the word ‘Estate’ alone can throw most people off including an estate plan in their retirement strategy. However, there is a lot more to who gets your belongings when you die. Spoiler alert: You don’t need millions or billions to get planning! 

Estate planning is a financial strategy that prepares an individual to pass on their wealth and possessions to loved ones. Even if you don’t have a lot to give in your eyes, most people have assets they want to pass upon their death. Therefore it’s important to note that an estate plan is not just for the rich or elderly.

A well designed estate plan can do a lot for you and your loved ones. Deciding what happens to whatever is left of your money when you die is often passed over. There are many parts to estate planning, we’ve simplified a couple of those parts and how you can leverage estate planning to cater to you and your families needs.

Wills

A will is a document that spells out who gets what when a person passes. It’s important for everyone to have a will made in case of emergencies. Assets covered by a will go to those named in the will. This might include bank and investment accounts, personal property, collectibles and other assets. It can also specifically exclude those who someone doesn’t want to benefit from their estate.

Both financial advisors and attorneys play a big role in will planning. The right advisor should encourage their clients to review their will and have any needed changes made every few years. This is especially true if there has been a life change such as a marriage, divorce, or death of a spouse. Wills should be prepared by a professional who is well-versed in estate planning, including the laws of their specific state.

Beneficiary Designations

Certain assets pass to heirs based on beneficiary designations. These are known as “will substitutes.” This means that the beneficiary designation overrides anything that might be in the client’s will regarding the distribution of the asset. A couple of examples of these assets would be:

  • IRA accounts
  • Workplace retirement accounts such as a 401(k)
  • Life insurance policies
  • Annuities

It’s important that these beneficiary designations are current, especially after a major life change like getting divorced or getting married.

Trusts

A trust is a legal vehicle that holds assets for the benefit of the trust’s beneficiaries. A trust may conjure images of the rich and wealthy, but trusts can work well for people at various levels of wealth. Trusts can be used to ensure that assets are managed for the benefit of heirs until they are ready to manage them on their own.

Trusts can be established to hold assets while clients are alive and also be funded upon their death in other cases. An irrevocable trust is a trust that allows the creator of the trust to get the assets placed in the trust out of their estate and not be subject to any estate taxes. In exchange they surrender all ownership of and control over these assets.

A Couple of Things to Consider

Once you have your estate plan made, it is not something that you can forget about. As you approach your review process, you are looking to ensure that your intentions have not changed, that the right people are included, that major life changes are reflected, and that all other major changes are notated.

Effective estate management enables 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.

At Agemy Financial Strategies, we have an array of will and estate planning solutions to guide you through the entire process of creating last wills and testaments, living trusts, powers of attorney, and living wills — all with the help of our trusted financial planners.

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

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5 Facts About Survivors Benefits

More than 5.9 million people were receiving Social Security survivor benefits in May 2021. Typically, monthly payments go to the spouse, or children of the person who was receiving Social Security benefits. In certain situations, parents, grandchildren or stepchildren of a late worker may also qualify for survivor benefits.

Survivor benefits are based on the amount the deceased was receiving from Social Security at the time of death. Here are 5 facts about survivor benefits and how it will better prepare you and your family in the case of a loved one passing.

  • Social Security benefits are paid monthly

The government pays Social Security benefits monthly. The benefits are paid in the month following the month for which they are due. For example, you would receive your July benefit in August. Generally, the day of the month you receive your benefit payment depends on the birth date of the person for whose earnings record you receive benefits.

For example, if you get benefits as a retired worker, we base your benefit payment date on your birth date. If you receive benefits based on your spouse’s work, we base your benefit payment date on your spouse’s birth date.

  • They don’t pay benefits for the month of death

If a person receiving Social Security benefits dies, the social security office needs to be notified. They can’t pay benefits for the month of death. That means if the person died in July, the check received in August (which is payment for July) must be returned.

If the payment is by direct deposit, notify the financial institution as soon as possible so it can return any payments received after death. Family members may be eligible for Social Security survivors benefits when a person dies.

  • Survivors’ benefits can replace a percentage of the worker’s earnings for family members

The eligible family members of a retired or disabled beneficiary may receive a monthly payment of up to 50 percent of beneficiary’s amount. Survivors’ benefits usually range from about 75 percent to 100 percent of the deceased worker’s amount.

  • Work credits determine eligibility for benefits

You can continue to work and still get Social Security retirement benefits. Retired workers need 40 work credits to be eligible for benefits, but your work credits alone do not determine how much you will receive each month. Your lifetime earnings are used to calculate your monthly benefit amount. When we figure your retirement benefit, we use the average of your highest 35 years of earnings.

Your earnings in and after the month you reach your full retirement age won’t affect your Social Security benefits. They will reduce your benefits, however, if your earnings exceed certain limits for the months before you reach your full retirement age. The full retirement age is 66 and 10 months for people born in 1959 and increases to 67 for people born in 1960 or later.

  • If you receive retirement benefits before you reach age 65, you will be automatically enrolled in Medicare.

When you’re already receiving retirement benefits, we automatically sign you up for Medicare Parts A and B when you turn 65. Medicare Part Ais hospital insurance and it helps pay for inpatient care in a hospital or skilled nursing facility following a hospital stay. It also pays for some home health care and hospice care. Medicare Part B is medical insurance, and it helps pay for services from doctors and other health care providers, outpatient care, home health care, durable medical equipment, and some preventative services.

When you’re signing up for a plan, you can decline Part B if you decide you choose not to take part in it, this plan requires a monthly premium. It’s important to know your options and all the costs that come with healthcare plans when you’re planning for retirement. If you are not receiving retirement benefits as you approach age 65, you should contact Social Security three months before age 65 to sign up for Medicare Part A and B.

Learn More 

Survivor Benefits could help take care of your loved ones if you die prematurely. The most accurate way to determine your potential survivors’ benefits is to create an account at www.ssa.gov and view your Social Security statement. In addition to information about your own benefits, you can find estimated survivors benefit amounts, whether you’ve earned enough credits for your family to qualify, and the maximum total survivors benefits that could be collected on your work record.

As always, the team at Agemy Financial Strategies are here to help you plan for retirement, including making sure you’re aware of every financial benefit available to you as you enter your golden yeas. Contact us here today to learn more.

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Financial Planning Tips for Fall

Now that the dog days of summer are winding down, there are many reasons why you should make financial planning a priority this fall. Start by revisiting your savings goals and getting your financial health in tiptop shape before the year’s end.

As the seasons change and we get closer to the end of the year, it’s a great time to get a head start on end of year planning. When a calendar year ends, the window slowly closes on a set of financial opportunities.

Here are a few things to keep in mind to get your financial plan in shape as we enter the fall season.

Organize your Financial Records

As you work towards building your dream retirement this autumn, you should begin by getting a clear picture of where you are currently positioned. Work very deliberately on all of the data collection to give yourself the best 360 degree view as a base to make improvements.

Use this opportunity to organize where you keep all of your financial information. This includes but is not limited to:

  • Bank investment statements.
  • Insurance policies.
  • Updated spreadsheets of monthly expenses.
  • Copies of estate documents.

Once this data is collected, sit down with your financial advisor to analyze the year to date, and take a look at where your money’s been going and what you can cut back on.  Using a tool like Agemy Financial Strategies’ online calculators is a great resource – from tracking expenses to investments, they will tag your transactions, gains and losses and categorize them, so it’ll show you what areas you need to make improvements on.

Harvest Tax Strategies

As we enter the last quarter of the year, it’s a good time to brainstorm tax planning strategies. Now is the time to conduct 2021 tax planning and think about 2022 tax planning as well. A proactive approach to tax planning now can help you make material changes while there is still time. Some ideas will help cut your tax bill for the current year; others may allow you to minimize future taxes.

Tax-loss harvesting is a strategy that can help investors minimize any taxes they may owe on capital gains or their regular income. It can also improve overall investment returns. As a strategy, tax-loss harvesting involves selling an investment that has lost value, replacing it with a reasonably similar investment, and then using the investment sold at a loss to offset any realized gains.

Tax-loss harvesting only applies to taxable investment accounts. Retirement accounts such as IRAs and 401(k) accounts grow tax-deferred so are not subject to capital gains taxes. This leads nicely into our next financial tip…

Autumn Investing

Changes happen all the time in the finance world, especially taxes and laws, and these tend to go into effect as the new year rolls in. If you’re looking ahead with your other investments, such as your stock portfolio, be proactive and well educated about your options and about what’s happening—and expected to happen—moving forward. The best course of action is to touch base with your financial advisor, who can steer you on the path that’s right for you.

At Agemy Financial Strategies, we offer principles and strategies that may enable you to put together an investment portfolio that reflects your risk tolerance, time horizon, and goals. Understanding these principles and strategies can help you avoid some of the pitfalls that snare some investors.

Reconsider your 401(k) Terms

Can you max out your contribution to your workplace retirement plan? Most employers sponsor a 401(k) or 403(b) plan, and you have until the end of December to boost your 2021 contribution.

Can you do the same with your IRA? You can withdraw contributions tax-free at any time, for any reason, from a Roth IRA. This year, the traditional and Roth IRA contribution limit is $6,000, or $7,000 if you’re age 50 or older by the end of the year; or your taxable compensation for the year. You can withdraw earnings from a Roth IRA, but it could trigger taxes and penalties depending on your age and that of the account. Due to the CARES Act, you can withdraw as much as $100,000 from a Roth or traditional IRA without paying a penalty for being under 59½, if you have been affected by COVID-19.

Start Planning for the Holidays

With Halloween, Thanksgiving, Hanukkah and Christmas on the horizon, the best part of fall financial planning is looking ahead to the holidays. But while it’s great fun to spend time with family and friends, it can also put a huge strain on your budget. Make sure to craft your holiday budget now and start planning for it. That way when the holiday craziness starts, you won’t be taken by surprise and there won’t be a big hole in your budget. If you’re planning on traveling over the holidays, don’t put it off until the last minute – start planning now. Air fare and hotel prices tend to skyrocket the closer it gets to the holidays, so the further out you can book the better.

Final Thoughts

The return of cool breezes, comforting foods, and pumpkins can be invigorating. It’s also a bookmark of sorts, especially for your finances—a perfect time to take stock of your spending after the summer’s over to see what lies ahead.

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

Contact us today for more important information on financial planning throughout the rest of 2021 – and into 2022 and beyond.

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