5 Key Mistakes to Avoid in Retirement Planning

The pandemic has pushed individuals across the nation into thinking about their retirement plans – or for many, their lack of plans. No matter where you’re at in your retirement journey, the road to a successful, stress-free future lies in proactive planning and learning how to avoid financial potholes that could set you back even further. 

Retirement planning is one of the most important financial goals for your future. When executed correctly, you’ll help you maximize your potential for financial independence later in life.

When done incorrectly however, you’re facing a future that could be laden with stress and worry. Now is a good time to look at what you currently have, what you may need in retirement and a solid plan to get you there.

A new survey from Credit Ninja shows that the financial uncertainty has 21% of people reassessing their retirement age. To avoid a negative outcome in your golden years, consider these 5 key mistakes to avoid in retirement planning, and make moves now to avoid them!

  • Not Having a Retirement Plan 

The most common mistake that many people make is not having a retirement plan in place. While short-term panicking isn’t the answer to your unpreparedness, trying to predict future expenses instead of focusing on future income is a recipe for disaster.

There are many factors that come into play when planning for retirement. Such as, where you will retire, the kind of lifestyle you want to have while in retirement, and most importantly, your health. What some people fail to realize is not having a retirement plan in place sets them back significantly.

It could mean working longer or making serious adjustments to your lifestyle to get you there. Most people without any 401(k) savings are put in that position because they don’t have access to a plan at work, which is caused by their employer not having a plan at all. Another situation could be, they’re part-time or they haven’t been at the company long enough to qualify for a retirement plan. The best way to get around this is to see if your company offers retirement plans, if they do make sure to contribute enough to take advantage of any match your company offers.

It’s never too late to start your retirement income plan, so reach out to your trusted financial advisor and get started today. 

  • Not Saving Money Now 

A rule of thumb for retirement planning is, you should always know your savings rate. Savings rates are calculated by dividing the amount in your savings by your annual income – and trying to increase it every year. The lower your savings rate, the less money you’ll have to last you through your golden years and the less you’ll have to afford all of the necessities you’ve grown accustomed to. 

According to the U.S. Bureau of Economic Analysis, the average American saved just 9.4% of his or her disposable income as of June 2021. However, most financial advisors recommend saving 10 to 15% of your income for retirement. No matter what sum you need or feel is right for retirement, the sooner you start saving and investing, the more secure you’ll be in the future. 

  • Spending too much

Many retirees start by pursuing all the things they didn’t get to do while working, such as travelling, picking up a new hobby, buying a new car or renovating their homes. But so many underestimate the actual cost of these monumental expenses. To avoid this mistake, create a detailed but realistic budget – and stick to it. Be sure to work with your financial advisor to find a withdrawal rate that will stretch your money for as long as possible.

To help compensate for the additional spending you have in mind, as retirement nears, you’ll want to make sure you are maximizing your 401(k) or individual retirement account contribution and decreasing your debt and spending. Take a look at anything that has double-digit interest and eliminate that. Ideally, you don’t want anything you are paying 5% interest on. A great example of this is home mortgages. Refinancing your loan could benefit you in the long run.

If you’re having trouble saving more of your income, take a look at your spending habits and see where you need to cut back. It can be eye opening to see how little things can add up. 

  • Not Planning for Medical Expenses & Long-Term Care Costs

Long-term care is expensive. A study by Fidelity Investments found that a couple retiring at 65 would need $295,000 to cover medical costs in retirement. That figure doesn’t even account for long-term care, such as assisted living or nursing home costs. The yearly average cost of a nursing home in the U.S. is $93,075 for a semi private room and $105,850 for a private room. Not considering these costs in your retirement plan now, means you could be like many families who run out of money within a year of entering a nursing home.

You might have a few medical bills now, but you’ll likely have more as you get older. If you’re having a hard time finding the money to pay for your current medical bills, you might have an even harder time paying medical expenses when you enter retirement. By saving money now, you won’t have to worry about not being able to pay hospital bills in the future. Planning for medical expenses is an important part of overall retirement planning. 

  • Not Implementing Estate Planning

While estate planning is an ongoing and ever changing strategy, there are common documents that are part of it: a Will, Living Trust, Powers of Attorney for your assets and healthcare directives, customized tax planning and other more complex components of a customized Trust. 

The overarching goal is to protect your assets on the journey to retirement and to make sure that your wishes are executed correctly, so that your loved ones have an easier process and your assets are maximized.

Effective estate management enables you to manage your affairs during your lifetime and control the distribution of your wealth after death and 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.

Final Thoughts

In 2021, the path to retirement success includes a mixture of saving strategies consisting of steady pension contributions from your employer, retirement annuities, estate planning, investments, emergency savings and more.

For those nearing retirement, reach out to your retirement income advisor. (Note: Not all financial advisors have the same level of experience or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.)

At Agemy Financial Strategies, we have an array of retirement planning solutions to help you save and grow your money. If you have any questions on our company, services, values or more, contact the retirement income experts at Agemy Financial here today. Our trusted advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call

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How to Manage Your Money Better in 2021

Being good with finances is about more than just making ends meet. And when it comes to managing your financial future, there really is no time like the present. 

There are many factors that come into play when managing your finances. Such as changes in tax laws, inflation, increased healthcare costs, job security and more. These uncontrollable and unknowable situations may make you feel powerless. Whatever your feelings about money are, it’s time to take control again.

*Spoiler alert: Money management doesn’t have to be stressful! If you follow these four steps, you’ll be able to move from financial stress to financial stability.*

1. Start Budgeting

If you are struggling to handle your finances, then you likely need to create a budget—a plan for how to spend your money each month, based on how much you typically earn and spend. A budget is your best tool to change your financial future. To start, write down your income and all your expenses, and then subtract the expenses from the income to determine your discretionary spending. To make this easier, use one of our financial calculators here to discover any problems for discounted cash flows, internal rates of returns, loan formulas, net present value and markup calculations and so on.

Next, at the start of each month, set up a budget to allocate how discretionary funds get spent. Track the spending over the course of the month, and at the end of the month, determine whether you stuck to the budget. If you spent more than you made, you can fix your budget by cutting unnecessary expenses or, if possible, earning more. Implement the revised budget the next month to start living within your means.

And don’t forget, the moments you spend filling the fields in of these calculators will give you a target, so that your financial freedom turns into a real goal. They’re free, they’re simple, and they’re everywhere. All it takes is a few minutes of your time to use one, and see the path you need to take.

2. Maximize your Savings

When it comes to maximizing your savings, the value of high savings rates cannot be overstated. Like the financial markets, life doesn’t usually move in a linear fashion. There will always be setbacks and unexpected hurdles (did someone say COVID!?). So if you’re only saving the bare minimum across your investment and cash accounts, or haven’t invested outside of your 401(k), you may be in a tough spot when things don’t go according to plan.

Did you know your savings can take a hit if you’re not proactively managing your taxes? Understanding tax strategies and managing your tax bill should be part of any sound financial approach. Some taxes can be deferred, and others can be managed through tax-efficient investing. With careful and consistent preparation, you may be able to manage the impact of taxes on your financial efforts.

Lastly, always have an emergency fund. A sudden change in income or an unexpected expense can happen at any time, and you’ll need something to handle these moments. Most financial experts recommend saving three to six months’ worth of expenses in an emergency fund. So in addition to having a regular savings and checking account, you should consider putting your emergency money into a separate savings account. A high-yield savings account in particular can be a great way to take advantage of the earning potential on money you won’t be touching anyway.

3. Pay off your Debt

One of the most expensive mistakes that you can make is to carry a lot of debt, especially high-interest credit card debt into your retirement years. If you want to change your financial picture and gain more financial opportunities, pay off your debt as quickly as possible.

Start by listing all of your current debt, be it credit card debt, student loan debt, or a car loan, and figure out the minimum amount you owe to remain current with each one. Simply paying the minimum amount won’t get you out of debt quickly, so evaluate your fixed expenses, and determine how much of your discretionary spending budget you can allocate toward debt repayment.

Try to reduce the interest rate on the debt by asking the issuer for a lower rate, consolidating multiple debts into one, or transferring high-interest debt to a low-interest credit card, such as a balance-transfer card. Then, set up a debt-payment plan, and adopt sound spending habits to pay off the debt as quickly as possible.

Debt management also includes monitoring your student loans. These loans can saddle you with debt for years if you are not proactive about paying them off. Whether you need to refinance or consolidate them, see whether you qualify for a student loan forgiveness program, or add them to your debt-payment plan. Getting control of your student loans is an excellent step to take right now to improve your finances.

You don’t have to drastically step up your loan-repayment schedule, either; by paying half your student loan amount every two weeks, you will make a full extra payment every year. Some lenders will even reduce your interest rate by around 0.25% when you sign up to make automatic loan payments.

4. Invest in Your Future

Once these three steps are covered, it’s time to shift your focus to money management for the long term. AKA investing. Investing should be easy – just buy low and sell high – but most of us have trouble following that simple advice. There are 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.

You don’t have to figure this out on your own. Connecting with an experienced financial advisor can help you go over your options so that you can feel confident with your investment choices. They’ll walk you through the good times and the bad, and help you stay the course or make any necessary adjustments to reach your goals and help your money grow over time.

Conclusion

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.

If knowing how to manage your money is still feeling challenging or you’re feeling ready to take more advanced steps with your money, consider speaking with a financial advisor at Agemy Financial Strategies. While you are the CEO of your financial resources, you can think of us as your CFO, bringing you strategies and ideas designed for YOU in your unique situation, helping you make smarter decisions and letting you focus on enjoying life!

But whether you go it alone or get professional advice, with a little planning and a lot of ongoing discipline, you know now that it’s possible to not only avoid financial hardship but also to paint a bright financial future.

Contact us today for more information on financial planning.

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Tax Strategies to Lower RMDs in Retirement

Is there a way to limit the impact of required minimum distributions (RMDs)? If you’ve built substantial savings in your tax-advantaged retirement accounts, you may become a victim of your own success. Proactive planning can help you avoid penalties and minimize taxes as you pull money out of your 401(k) or IRA.

Retirement plans offer an array of benefits, from smarter savings strategies to lower taxes. But eventually, Uncle Sam makes you pay for these benefits by requiring you withdraw money from your account whether you need it or not. And as a result, your savings fall victim to much higher income taxes than you anticipated.

So what exactly is an RMD? An RMD is an amount you must withdraw each year once you turn 72. The following retirement plans have RMDs:

  • IRAs: Traditional, SEP, and SIMPLE
  • Traditional 401(k), 403(b), and 457 plans
  • Roth 401(k), 403(b), and 457 plans
  • Profit-sharing plans

If you have tax-deferred retirement accounts, managing your annual Required Minimum Distribution (RMD) is a critical part of your financial plan. The key to avoiding a big tax bill is to start planning for RMDs well before your 70th birthday. Here are 4 tax-smart ways to help lower your RMDs in retirement.

1. Work Longer

One key reason for RMDs is that the Internal Revenue Service (IRS) wants to get paid for previously untaxed income. However, savers in a 401(k) who continue working past 72 and don’t own 5% or more of the company, can delay distributions from the 401(k) at their current workplace until they retire. Note that this only protects you from RMDs from your current employer’s retirement plan. You’ll still have to take RMDs from any employer-sponsored accounts you still have from prior jobs, and you can’t avoid RMDs from traditional IRAs this way.

Whether it makes sense to continue working to delay RMD taxes depends on a variety of factors, including your health, retirement goals and overall financial picture. If you enjoy your job and have no serious health issues that prevent you from doing it, delaying retirement might make sense for you.

2. Donate to Charity

If you make contributions to a charity or not-for-profit, you have the option with IRA’s to direct all or a portion of your RMD directly to these organizations. In doing so, you satisfy your RMD but avoid having to pay income tax on the distribution from the IRA…

A distribution from an IRA that is donated to charity is called a Qualified Charitable Distribution (QCD) and is not taxed as income. However, QCDs are not eligible to claim as a deduction if you itemize your tax deductions. You can also donate part of your required minimum distribution to charity and withdraw the rest as income.

3. Exploring Roth IRAs

There is one type of retirement plan that lacks RMDs: the Roth individual retirement account.

Allocating some of your retirement savings in an after-tax Roth account could set you up for tax-free investment growth and tax-free withdrawals in retirement. There are numerous factors regarding when and how much to convert to a Roth IRA. You have to do an analysis to make sure the benefits outweigh the cost to convert.

Be aware, though, that moving pre-tax money from a retirement account into a Roth IRA means you have to pay taxes all at once on those funds. Roth conversions can be expensive, whether you’re moving money from a 401(k) or a traditional IRA. Investigate your options in detail with your tax advisor.

4. Consider QLAC Annuities

A qualified longevity annuity contract (QLAC) is a multipurpose retirement-planning tool which can provide you with a guaranteed stream of income in retirement. You can fund a QLAC using money you’ve saved in your 401(k) or an IRA, and the annuity starts paying you back at the year of your choosing before you turn 85—when you must begin taking payments. Any money you move into a QLAC is excluded from RMD calculations.

If you’re interested in a QLAC, it’s important to understand what you’ll pay and what you’ll get in return, and the amount of retirement savings you can place in a QLAC is limited. For the 2021, you can contribute up to 25% of your retirement asset balance or $135,000, whichever is less. For example, if you have an IRA with a balance of $160,000, you can elect to contribute $40,000 to your QLAC, thus excluding $40,000 from your RMD.

Conclusion

If you have tax-deferred retirement accounts, your financial plan should always include managing your annual Required Minimum Distribution (RMDs). With some careful planning there may be ways to reduce what you owe.

If you’d like more resources on how you can minimize (or even prevent) unexpected retirement expenses, contact the retirement income advisors at Agemy Financial. Our firm exists for the purpose of helping people achieve their personal and financial goals. Our philosophy is to deliver quality financial programs and teach principles for successful living.

Located in Denver, Colorado and Guilford, Connecticut, we work hard to deliver a dependable retirement income strategy, in any market, so that our clients can enjoy the “best” of their lives during retirement. We look forward to working with you soon.

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Catching up on Retirement After COVID

The pandemic has had a big impact on saving for retirement, but things are starting to change now. With the economy rebounding, it’s a good time to get your retirement back on track with Agemy Financial. 

Since the pandemic started 16 months ago, hundreds of thousands of Americans have lost their lives, millions have lost their jobs and practically every family in America has endured online classes or work from home for months on end. We’ve changed how we work, how we shop and how we socialize.

In addition to everything else, the COVID-19 pandemic may have put a real dent in your retirement savings progress by hindering those who hadn’t started saving for retirement, the number of workers taking withdrawals from their 401(k)s last year jumped, and some companies cut their 401(k) matching contributions.

Regardless, it was probably the right move at the time, and you did what you had to do. But things are starting to change now. With the economy rebounding, it’s a good time to get your retirement back on track. To assist with that effort, here are three ways you can shore up your retirement plan for a financially secure future.

1. Reassess your plan

If you’re currently working and saving for retirement through a 401(k) or similar plan, it’s smart to stay the course, even if your employer, like many, temporarily suspended its match as a result of the pandemic. According to a November 2020 survey by the Plan Sponsor Council of America, nearly 95% of employers indicated they had not changed their retirement plans. That’s a much better outcome than what went down during and after the Great Recession.

If you had to take a 401(k) loan or withdrawal, empty an IRA out or dig into your Roth, there are ways you can get back on track without it greatly affecting your retirement goals. The first thing you need to do is take a look at where you are today and where you need to be in order to accomplish your goals.

Adding a little extra each month above your normal contribution and setting a calendar reminder every couple of months to nudge your contribution a bit higher are great ways to ramp up on saving opportunities. Big change is hard, but commit to small incremental changes to get your plan back on track. Consult with a financial advisor or planner to conduct a retirement income analysis, the results can guide you on the right path.

2. Revisit your investment portfolio

The COVID-19 outbreak has put tremendous pressure on stock prices, prompting some investors to blindly and indiscriminately sell positions at a time when the entire market is trending lower. As the world adjusts to a new normal after coronavirus, it’s time for associations to consider whether they need a new normal for their investment portfolios.  It’s important to ensure your asset allocation remains appropriate for your goals, risk tolerance, time horizon, or length of time you have to invest before reaching retirement, and rebalance as necessary.

When stock prices are trending lower, some investors can second-guess their risk tolerance. But periods of market volatility can be the worst times to consider portfolio decisions. A retirement strategy formed with a financial professional has market volatility factored in. As you continue your relationship with that professional, they will also be at your side to make any adjustments and help you make any necessary decisions along the way. Their goal is to help you pursue your goals.

3. Having a back up plan

As always, it’s important to have a backup plan. Many advisors suggest doing so to protect yourself from unexpected events, like say, a pandemic. Pulling from retirement accounts should be your last resort. A backup plan can combat the need to access funds earmarked for retirement during future financial crises.

Establishing an emergency fund is critical — most Americans cannot cover an unexpected expense of $1,000. Having savings set aside for emergencies means you don’t need to tap your retirement accounts for financial surprises. Most advisors suggest three to six months of living expenses. Others suggest you can start smaller, with a goal of building your emergency fund up to $500, and add to it over time.

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 to Have Enough Money for an Early Retirement

The road to retiring early isn’t easy. It takes time and discipline to earn, save, and invest as much as you possibly can.

Many Americans dream of having more free time in their later years. Perhaps you want to relocate some place warmer. Or maybe you feel led to do volunteer work, or even set off on a brand new business venture. Whatever the reason, the question is the same: What would it take for me to retire at 60? Or even younger? Unfortunately the reality of quitting work can be far different from the fantasy.

In order to retire from your job early entails finding a way to replace the income it provides, or produce enough income to fund your lifestyle. which is why 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 an Employee Benefit Research Institute (EBRI) survey. For many of those who do take the plunge, the reality of early retirement can turn out to be far different than the dream. But it’s not impossible.

5 questions to ask yourself before retiring early include:

  • Can I really afford to stop working?
  • Do I need to get a part-time job to make ends meet?
  • How will I get health insurance?
  • What will I do to occupy my time?
  • Are my plans in sync with my spouse/partner’s?

Here are three moves to help make the early-retirement fantasy a reality.

1. Making Adjustments to your Current Budget

You can get by with less if you’ll have other sources of income. Retiring early means making some changes to how you earn and spend money, so in the future you get to relax. For many people, that means cutting their budget to the bare minimum. To learn to budget is a very important life skill. Here are some tips you can use to budget successfully.

  • Write down all your expenses: what you spend and what you have to pay back on loans.
  • Work out your income minus your expenses.
  • Work out a budget you can stick to.
  • Use a financial calculator
  • Check at the end of the month if you have spent what you budgeted for. If not, decide:
    − Where you can reduce your expenses on unnecessary items.
    − Whether your budget is perhaps unrealistic.
    − Whether you have to adjust your budget.

2. Calculate your Annual Retirement Spending

Living on a small portion of your income translates into needing less money for retirement. To do that, take a look at your current monthly spending and consider what will go down, what could go up, and what might be added or eliminated altogether. Add your final monthly expense estimates up, multiply by 12 and you have the magic number: your annual retirement needs. Most financial advisors recommend increasing it by 10% to 20% so you have some wiggle room.

There are a few exceptions to the early distribution rules. One popular among early retirees is to start a series of substantially equal periodic distributions, which are allowed by the IRS provided you follow specific protocol. Working with a financial planner to develop a strategy for tapping your investments while ducking taxes — where you can — and avoiding penalties.

3. Invest for Growth

When it comes to investing, there’s no shortage of ideas. At the risk of stating the obvious, retiring early means (1) you have a shorter period during which you can save, and (2) you have a longer period during which the money you’ve saved needs to support your spending.

Both of those mean investment returns are going to be your best friend. And to achieve the best returns, you need to invest in a balanced portfolio geared toward long-term growth. We recommend low-cost index funds, with an allocation that is tilted toward stocks for as long as you can stomach it. Here are5 smart investing strategies to follow when investing for growth.

  • Don’t time the market
  • Asset allocation
  • Investment selection
  • Dollar-cost averaging
  • Rebalance your financial portfolio

And remember, you can’t control all the risks associated with early retirement, but what you can control is having a plan. Work with a financial advisor that is knowledgeable in early retirement planning to develop a customized portfolio, and help you manage your finances before and during retirement.

Summary

It takes planning and discipline to retire early. The earlier you start investing, the more you can benefit from compounding. That’s why you need to get going as soon as possible!

Not all financial advisors have the same level of experience or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.

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

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How Retirement Planning and Life Insurance go Hand-in-Hand

Life insurance, first and foremost, is about protecting loved ones after you’re gone. But some insurance types can actually help you in retirement as well.

Most people think of life insurance in terms of the payout it provides beneficiaries after the policyholder dies. But did you know that certain life insurance policies can financially assist you through your lifetime and into your golden years?

Why Life Insurance is Vital

Life insurance plays a significant role in protecting you and your family during your primary income-earning years. Ultimately, striking the right balance between investing for your future so you can retire when and how you want to, and purchasing the right amount of life insurance to protect your interests today is ideal.

What’s more, insurance transfers the financial risk of life’s events to an insurance company, and a sound insurance strategy can help protect your family from the financial consequences of those events. A strategy can include personal insurance, liability insurance, and life insurance.

The Retirement Planning Connection

For many of us, life insurance is something to worry about “later.” Or, if provided by an employer, just another part of the employee benefits package. But life insurance can and should be an important aspect of retirement planning.

During retirement, it is well advised to financially prepare for unexpected expenses. Did you know that medical bills are the leading cause of bankruptcy in America? This disturbing fact is that over half of those who are forced to file for bankruptcy have health insurance. Without an emergency cash fund, where will you come up with the money to pay the doctor if your health insurance is denied?

You may be able to cover income shortfalls by using your life insurance for retirement income.

Using Life Insurance for Retirement Income

First things first, you need to understand the different types of life insurance and how they can assist your cash flow in retirement. Unlike ‘term’ life insurance, which covers only a set number of years, ‘permanent’ life insurance is meant to be for life. Permanent life insurance can provide a source of supplemental retirement income, which include whole life, universal, and variable life insurance policies. Here’s a breakdown of the differences you should be aware of:

  • Term insurance is the least expensive, so you can afford to purchase higher amounts of coverage. You can layer term life insurance on top of permanent life insurance to have protection during those high-need years when the loss of your income would be the most devastating to your family. It pays “if you die” during the set term period.
  • Permanent (or cash value) life insurance is an important foundation to establish protection over your lifetime. It pays “when you die.” The two primary types of permanent life insurance are whole life and universal life.
    • Whole Life Insurance offers consistency, with fixed premiums and guaranteed cash value accumulation.
    • Universal life insurance gives consumers flexibility in the premium payments, death benefits, and the savings element of their policies.

Determine a Retirement Plan That’s Right for You

Before deciding on an insurance plan, you should decide what you want your golden years to look like. Some key questions to consider include:

  • Do I have enough coverage now?
  • Is it the right type of coverage?
  • How much coverage will I need later?
  • What are expectations for the financial markets in the short and long term?
  • Which type of insurance will best meet my future needs?
  • How can insurance be integrated with other retirement assets?
  • Should I buy a term or permanent policy?
  • If I choose permanent, what type?
  • Which provider should I choose?

Since choosing a life insurance policy with a cash value component requires a bigger investment, it’s important to understand how this aspect of your policy works and what your options are for using it.

What Can I Do With the Cash in a Permanent/Cash Value Plan?

Permanent/Cash Value policies provide a living benefit, or a perk of your policy that you can use while you are in fact alive and well. Here’s a look at the ways you can use your life insurance to accumulate cash value:

  • Withdraw Cash: The cash value component serves as a living benefit for policyholders from which they may draw funds. But make sure to review how your policy works before you do so. Generally, withdrawing your cash value will reduce your death benefit, therefore a more tax-effective option is to withdraw only what you need each year.
  • Pay Premiums: These life insurance policies are often favored because they allow you to use the policy’s cash value to pay premiums. This strategy will only work for a short period of time if you start while the cash value is too small or if interest rates are low. Be sure to carefully monitor the cash value to make sure it doesn’t drop too far, or you may lose your coverage.
  • Exchange it for an Annuity: The IRS lets you swap your permanent life insurance for an annuity through a 1035 exchange, which is a tax-free transfer of one contract for another. This move can generate more retirement income.
  • Convert to a New Policy to Pay for Long-Term Care: If you’d like coverage for long-term care, consider converting your life insurance into another policy with a long-term care rider. You keep your life insurance, but part of the death benefit can be used to pay for long-term care expenses.
  • Use it as Collateral: The cash value is an asset that increases your chances of qualifying for a loan or mortgage from a lender. It can even serve as the loan’s collateral. Always ask your insurance expert before using cash value this way.
  • Let it Grow: Left alone, the cash value will continue to accumulate, leaving a larger inheritance for your heirs, as withdrawals and loans reduce the final death benefit.

Income Tax Advantages

While its primary function is to help protect loved ones in the event of your passing, life insurance, in particular whole life insurance, can also help you and your beneficiaries manage tax consequences. The following three advantages apply to whole life insurance and other permanent insurance policies: 

1. The death benefit is generally paid out income tax free: Life insurance policy payouts can be pretty hefty and avoiding a major tax bite can be consequential.

2. The total cash value accumulates on a tax-deferred basis: Whole life insurance builds up cash value over time as you pay premiums. This is money that grows without the IRS dipping their hands in.

3. You can access the cash value of the policy on a tax-advantaged basis: Money borrowed or taken from the cash value of a life insurance policy is not subject to taxes up to the “cost basis” – the amount paid into the policy through premiums.

Conclusion

Generating income during retirement is challenging. Fortunately, your life insurance policy can be a valuable source of funds to cover retirement expenses by offering tax-free income, (be part of a tax management strategy), and enhance the overall returns from an investment portfolio. 

And don’t forget that life insurance only gets more expensive the longer you wait, so starting as soon as possible will only help you in the long run. For more information on how you can best utilize your life insurance policy in retirement, contact the trusted financial advisors at Agemy Financial here today. 

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Why Choose Agemy to Achieve Your Personal and Financial Goals?

Not working with a financial planner? You could be missing out. If you are serious about building long-term wealth, Agemy Financial Strategies offers a variety of services you aren’t getting that you may not even know about.

Deciding whether to get a financial advisor or manage your own investments is a big decision. But did you know financial planners assist in more than just managing your money? A good financial planner can organize your overall financial picture and implement strategies that will help you achieve your goals, from organizing your estate to retiring when you want.

To answer the common question of “Do you need a financial advisor?” consider the services and benefits of a financial advisor:

  • Creating an investment strategy
  • Minimizing taxes
  • Avoiding emotional decisions
  • Lowering your risks
  • Structuring withdrawals from accounts, and so much more

Whether you’re a busy executive, business owner, working parent, caretaker or even retired – the truth is, everyone can use professional advice.

About Agemy Financial Strategies

Financial advisors aren’t exactly hard to come by. But not all financial advisors are created equal. Finding the right fiduciary for your financial needs, objectives, and unique circumstances is a must when it comes to building a solid working relationship that helps you make smart financial decisions.

At Agemy Financial, our services specialize in retirement income planning, or as we like to say, “helping you make it down the mountain.” Many financial advisors and financial planners will help you to build your assets and “get up the financial mountain.” However, Mr. Agemy, “a financial sherpa,” and his team focus on helping investors who have already “climbed the wealth accumulation mountain, plan and strategize to have enough income in retirement to have a safe and pleasurable journey “back down” and enjoy the best of life. Agemy Financial’s objective is to see that our clients can retire and stay retired.

Our purpose is to educate investors – whether that be planning for retirement, legacy planning, wealth management, or just holding your hand when it’s time to leap into retirement. Celebrating 30 years in business, and we remain steadfast in our dedication to serve and educate investors.

Our Process

We understand personal finance isn’t interesting to everyone! And it doesn’t have to be. But if you’re neglecting your finances, it’s likely worth giving us a call. When we get started working with you, our initial assessment includes gathering a complete picture of your assets, liabilities, income, and expenses.

We then synthesize all of this initial information into a comprehensive financial plan that will serve as a roadmap for your financial future. Our full spectrum of financial services includes:

Estate

Manage personal affairs while you’re alive and control the distribution of wealth upon your death.

Insurance

A well-structured insurance strategy can help protect your loved ones from the financial consequences of unexpected events.

Investment

Create an investment strategy that’s designed to pursue your risk tolerance, time horizon, and goals.

Lifestyle

How to strike a balance between work and leisure is just one aspect of the wide-ranging Lifestyle matters.

Money

Managing your money involves more than simply making and following a budget.

Retirement

Steps to consider so you can potentially accumulate the money you’ll need to pursue the retirement activities you want.

Tax

Understanding tax strategies can potentially help you better manage your overall tax situation.

 

Our Core Values

Our firm exists for the purpose of helping people achieve their personal and financial goals. Our philosophy is to deliver quality financial programs and teach principles for successful living. We live, work and breathe by the following three values:

  • We Listen: We specialize in conservative retirement strategies with the goal of minimizing our client’s risk with an effective return. Our core objective is to satisfy our client’s needs.
  • We Partner: A customized approach is used with each individual situation. There are no preconceived ideas as each person has very different needs, backgrounds and circumstances. Being sensitive to each person’s situations, issues and concerns is a core value of our organization.
  • We Care: We aim to use a servant’s attitude to develop long-term relationships as we strive to treat others as we would like to be treated.

Summary

Not all financial advisors have the same level of experience or will offer you the same depth of services. So when contracting with an advisor, do your own due diligence first and make sure the advisor can meet your financial planning needs.

If you have any questions on our company, services, values ore more, contact us here today. Our trusted advisors in both Denver, Colorado and Guilford, Connecticut are waiting for your call.

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Your Easy-to-Understand Guide on Retirement Planning in 2022

Agemy Financial Strategies

December 29, 2021

The road to retirement may seem rocky at best, especially with the ever-changing legislation. Although everyone’s retirement is different, 2022 is going to have some big differences from 2021 that will affect almost every retiree and retirement saver to some degree. But fear not, Agemy Financial Strategies is here to help simplify the process and help set you up for a positive retirement outlook.

The ultimate goal for so many is a wonderful and relaxing retirement. Ideally, the road to retirement would come off without any major snags and roadblocks in your plan. Unfortunately that is not normally the case and retirement plans always face challenges. This can be from the volatility of the markets, healthcare plans and the affordability factor or even the risks posed by annual inflation. In addition, you’re likely to face decades on a fixed income, and won’t necessarily have flexibility in your finances like you may have had in previous years.

Retirement planning in 2022 can seem more difficult and complex. There are more volatile conditions than ever with healthcare costs going up, and uncertainty with Social Security. This is why it’s so important to be as prepared as possible before you’re retired and always make room in your planning for unexpected problems. Here is an easy-to-understand guide on retirement planning in 2022 to make sure you’re ready for anything the future may bring.

Review Your Current Financial Retirement Plan

Your life isn’t set in stone, and your financial plan shouldn’t be either. When’s the last time you tweaked yours? Where will your retirement money come from? If you’re like most people, qualified-retirement plans, Social Security, and personal savings and investments are expected to play a role. Once you have estimated the amount of money you may need for retirement, a sound approach involves taking a close look at your potential retirement-income sources.

If you haven’t already, the first thing we recommend to do before creating a retirement plan is to review your financials. It’s important to assess the current retirement plan that is tailored to their goals and factors in things like cost of living, Social Security, and medical expenses. Paying off your debt before retirement to give you more financial flexibility. Financial planning is a process, and it’s one that requires proactivity to work well. While some of the other milestones listed here are good indicators that it’s time to review your plan, don’t wait until something happens to do something about it.

Planning Your Retirement Distributions

Saving money for retirement is only part of ensuring a financially secure future. The other half involves making smart decisions about withdrawing that cash.

The typical “Retirement Age” or the date at which you plan to retire is always established by the contribution plans defined in plan documents. The important thing to remember, this date cannot be later than when you or the retiring party reaches 65 years old. 65 is additionally the age of retirees where the defined benefit plan is calculated.

To make it simple, when you reach this age of retirement, you have the option to receive your benefits in full. If it is a defined benefit plan, then your benefit will come in installments similar to salary paychecks.

There’s a lot of retirement distribution strategies that can be used to stretch money further for a long retirement, and these can be combined and changed over time. Current market conditions, tax rates and a person’s expected longevity are all factors that need to be considered.

Rather than pick a single method to use throughout retirement, talk to Agemy Financial Strategies about how to make the following retirement withdrawal strategies work together.

  • Use the 4% rule.
  • Take fixed dollar withdrawals.
  • Limit withdrawals to income.
  • Consider a total return approach.
  • Create a floor.
  • Bucket your money.
  • Minimize mandatory distributions.
  • Use account sequencing.

With the right professional guidance, selecting the right combination of methods can help ensure retirement accounts don’t run dry.

Prepare for Inflation

A study by the National Endowment for Financial Education showed that 96 percent of Americans experienced four or more such “income shocks” by the time they reached age 70. As shown in 2021, inflation can really pick up at times that are unexpected and can severely impact anyone who isn’t prepared. It can also devastate a financial plan that relies heavily on fixed income investments like bonds. If you don’t have the option to re-invest your retirement income, inflation will hit your purchasing power hard. Over time, your dollars will be worth much less.

What this means is you need a financial plan that already factors in for inflation. What we typically recommend is building up a financial plan that has growth assets included. This way your income has more potential to rise over time and you won’t be left making the same income you did for the last decade or more.

With prices rising at their fastest rate in decades, people in retirement or approaching it should take extra care to protect their savings.

Plan Healthcare Carefully

This may or may not come as a surprise; but retiring present day is equal to how much health insurance costs. If you’re someone that is putting off retirement until you’re old enough to get Medicare, double check that this is the cheapest alternative for you and look into all healthcare options.

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

While planning for retiring in 2022, it’s important to have an affordable healthcare plan. However, it’s not as simple to know what the options are and set up a plan as it was when you were employed and working with your employer on a healthcare plan that worked for you. The retirement income advisors at Agemy can help you achieve your healthcare goals in a safe and secure manner.

Final Thoughts

A retirement plan in 2022 may seem like a daunting task, but financial advisors at Agemy Financial Strategies are here to help you put yourself and finances in the best position for success.

Finding the right financial advisor that fits your goals and lifestyle doesn’t have to be hard. The trusted team at Agemy Financial Strategies is here for your every step of the way to make some real progress on your journey to financial freedom this coming year.

After the stress of the end of a year has settled down for 2021, give us a call to get your retirement plan on track in 2022. Our team at Agemy Financial Strategies wishes you a happy, healthy, and prosperous New Year!

 

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Volatility Returns to the Stock Market, and May Well Stick Around

September was a rocky month for the stock market and may have offered a stark preview of what the final weeks leading up to the presidential election will be like for Wall Street. Towards the end of the month, both the Dow Jones Industrial Average and the S&P 500 were flirting with correction territory, which officially means a 10% decline from their peak highs.* Meanwhile the Nasdaq was down by more than 10%, as the tech rally that has helped buoy the index and the markets in general throughout the Covid-19 crisis ended. With one of the most contentious elections in American history now just weeks away, and the coronavirus still pummeling parts of the economy, a nervous, mostly down-trending market may very well be the norm right up to November 3rd, and possibly beyond that.

In truth, what we saw in September was typical from a historical perspective. The two months before a presidential election are almost always a volatile period for the markets for two reasons. One is simply uncertainty over the election’s outcome, and that’s obviously a big factor where this race is concerned. Most polls continue to show Joe Biden leading among voters, and Wall Street knows a Biden victory would likely mean a rollback or amendment of the Trump administration’s corporate tax cuts. That, of course,

could further undercut economic growth at a time when it’s already shrunk massively due to the pandemic. On the other hand, there is plenty of debate as to whether a Trump victory would automatically be better for the economy and trigger a new market rally—particularly in light of the pandemic.

The other issue that typically makes big investors nervous just before an election is the legislative inertia that occurs. Politicians are too focused on politics to get anything done, and that’s a major concern this year since the House and Senate have yet to agree upon a follow-up to the Coronavirus Aid, Relief and Economic Security (CARES) Act approved in March.** This is true despite the fact that lawmakers and economists almost universally agree that additional relief measures are needed, especially with all the uncertainty still surrounding the pandemic as we head into fall.

Autumn’s Unknowns

As I’m sure you’re aware, the U.S. surpassed 200,000 deaths linked to Covid-19 in September, the most of any nation in the world.*** Meanwhile, infection rates began spiking again across much of Europe, and in parts of America as schools reopened. Will that trend continue as autumn deepens? It’s possible, and the economic impacts could ramp up again too as outdoor seating options that have allowed many restaurants and other businesses to hang on during the summer months disappear in colder parts of the country. The dining industry has already been hit extremely hard by the pandemic. According to an economic impact analysis by Yelp, over 50% of its restaurants had already closed permanently by early summer, and the number has likely increased since.****

Even if no major resurgence in infections does occur this fall, the economic fallout of the coronavirus crisis seems likely to drag on for other reasons. Those include the psychological impact of the pandemic, and the comfort level most consumers have attained with alternative forms of shopping and recreation. Already, major chains have announced they will not host traditional in-store “Black Friday” sales this year, and for the first time ever, the Macy’s Thanksgiving Day Parade will be an entirely virtual event!

So far, the massive shift to things like e-commerce, videoconferencing, and virtual entertainment has managed to offset the impact of business closures and social distancing rules and helped limit some of the economic damage from Covid-19. However, the longer-term repercussions of this shift have probably yet to be felt as they relate to things like jobs, bottom-line corporate growth, and overall economic stability. Big investors know this, and it’s another reason they’re likely to keep “one finger on the trigger” in the last quarter of the year, ready to pull out if nervousness gives way to fear and triggers another major market downturn.

Uncommon and Unprecedented

While a nervous market in the months before an election is historically common, there also some things about our current situation that make it very uncommon—namely the pandemic and the highly divisive political climate surrounding this election. So far Wall Street has shown amazing resilience in the face of these issues, but that’s due largely to another factor that isn’t merely uncommon but entirely unprecedented. That is the massive amount of artificial stimulus the Federal Reserve has pumped into the economy since the Financial Crisis 10 years ago— which has become even more massive as a result of the pandemic.*****

Will the Fed’s “steroids” continue to pump up Wall Street and stave off another major correction even if coronavirus cases see another major spike this fall? Or even if another relief and stimulus package is not approved? Or even if there is a lengthy legal and congressional battle over the results of the election that prolongs legislative inertia and keeps Washington stuck in the muck like a stalled Jeep?

The bottom line is that these are all important questions to consider as you review your financial strategy this fall. Are you playing smart and sufficient financial defense at this crucial time? Are you well-positioned to take advantage of new opportunities that may emerge one day when the markets and economy are more stable again? Because, rest assured, that day will come!

*Marketwatch.com **“Virus Bill Blocked in Senate as Prospects Dim for New Relief,” AP, Sept. 10, 2020 ***“Unfathomable US Death Toll from Coronavirus Hits 200K,” AP, Sept. 22, 2020 ****“Yelp Finds 53% of Restaurants Have Permanently Closed,” Eater.com, June 26, 2020 *****“Stock Markets Have Now Seen the Peak of Fed Stimulus,” MarketWatch, Sept. 17, 2020

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Big Tech & the Fed are Still Keeping Wall Street Happy — For Now

Two down and one to go. Or should I say two up and one to go? I’m talking, of course, about the top three major stock market indexes. In August, the S&P 500 joined the Nasdaq in surpassing its record peak high from before the start of the Covid-19 pandemic.* Only the Dow Jones Industrial Average has not yet (as of this writing) set a new record—although it, too, has been getting close. The situation reveals some interesting and important things about the market’s recovery overall, and about how things could play out in the next two months leading up to one of the most contentious presidential elections in U.S. history.

As you know, all the major indexes dropped by nearly 40% in March right after Covid-19 was declared a pandemic. That was a flight to safety, and all the markets fell quickly before starting to inch back up as the economic impacts of the crisis became clearer. One impact was that some industries would actually benefit from all the shutdowns, including the tech industry. That’s why the Nasdaq—which is very tech heavy—managed to rally past its pre-pandemic peak by early June. The S&P rallied more slowly but has also benefited from having the nation’s seven largest tech giants among its 500 companies. In fact, those seven companies—which include Microsoft, Apple, Amazon, and Facebook—make up 25% of the index’s weighting, and therefore its growth. So, if those companies are doing really well, it skews the index, making it somewhat deceiving as a snapshot of the recovery overall.

Normally, when the whole stock market is at or near a record high, it means that more than half the stocks being traded are also at record highs. However, right now the opposite is true: far less than half the stocks are at record highs, and the market is largely being carried by these tech companies and a few other major players, such as large retailers who’ve adapted to the pandemic with online sales.** The bottom line is that this recovery has very little breadth, and we’re still waiting on a broader recovery that includes more of the traditional high-dividend-paying consumer companies. In the meantime, the market may continue nudging higher based on pure momentum, even pulling the Dow up past its pre-pandemic peak eventually (provided investors aren’t creating another tech “bubble” that’s destined to burst and bring the whole market down with it, as we saw in early 2000).

The Fed Factor

Of course, the even bigger factor in the market’s recovery (as I’ve pointed out frequently) is the Federal Reserve. In response to the pandemic, the Fed announced more quantitative easing and lowered interest rates to near-zero—moves that always make Wall Street happy because they create cheap money and push everyday investors up the risk curve and into the stock market. Then in August, the Fed announced plans to keep interest rates near zero for the next three or four years, giving the markets a level of forward guidance that was (like many of the Fed’s actions in recent years) unprecedented. While I still believe the stock market could see another big correction of at least 20% or more before this crisis is over, if anything can prevent that downturn from happening, it might be this latest announcement by the Fed. Here’s why:

Low interest rates (as I already mentioned) push everyday investors up the risk curve by making other investment options appear less attractive. They also artificially inflate the present value of stocks by making discount rates lower. In addition, while low interest rates are supposed to stimulate the economy by creating so-called “healthy” inflation, we’ve already learned from the Financial Crisis that it doesn’t work that way. The Fed kept interest rates near zero for seven years after 2008, and all it really did was fuel a big asset recovery that was largely out of whack with the much slower and weaker economic recovery. I foresee the same thing happening again because Baby Boomers are still the nation’s biggest spenders. With interest rates low, the market high, and the economy plagued by uncertainty, I believe they are more likely to continue saving and investing rather than spending. All of this could help keep the stock market buoyed even if earnings and employment numbers remain below pre-pandemic levels for a while.

Of Pandemics and Presidents

On the other hand, all that economic uncertainty I mentioned could end up playing a much bigger role in the markets than it has so far, regardless of the Fed. The coronavirus pandemic has been blamed for over 200,000 American deaths, and although new cases have decreased from the huge spikes we saw in July, they remain as high now as they were at the height of the economic shutdown in March and April. With schools reopening this month and cooler weather soon to limit outdoor dining and recreation options in many states, cases and deaths could very well start rising again, leading to more business closures and more unemployment. Let’s not forget, too, that an estimated 30 million Americans are still collecting unemployment now, and that Congress has yet to agree on a second round of coronavirus relief.*** Could all these factors be a time bomb ticking away at the base of the booming markets? Only time will tell.

Of course, the other big factor heading into the fall is the presidential race, one of the most divisive and uncertain in our nation’s history. While Wall Street—generally speaking—loves Donald Trump, a large faction of the country does not. Most polls have shown Democratic nominee Joe Biden leading among voters for some time, and a Biden victory would most likely mean a rollback of Trump’s corporate tax breaks and a resulting decrease in corporate profits. If Biden is still leading by a healthy margin in October (which is historically already a shaky month for the markets), could it trigger a major selloff? Again, only time will tell. For now, my advice for investors in or near retiring is to stay focused on income—and on setting your portfolio up to take advantage of some potential new opportunities that may emerge when the uncertainty lessens and the world makes a little more sense again.

 

*“S&P 500 Sets First Record Since February”, Wall Street Journal, Aug. 18, 2020

**“Stocks Mixed but Tech Shares Keep Party Rolling,” Yahoo Finance, Sept. 1, 2020

***“How Many Americans Are Out of Work Right Now?”, Market Place, Aug. 6, 2020

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