Ask an Advisor: Is Real Estate Income Still a Good Model?

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With evolving economic landscapes and fluctuating property values, a common question arises: Is real estate investment income still a good model for today’s investors approaching retirement?

Real estate has long been considered a stable and lucrative investment for many high-net-worth individuals (HNWIs). The appeal of steady cash flow from rental properties, long-term appreciation, and tax advantages has positioned real estate as a cornerstone in many retirement portfolios.

Let’s explore the current trends, potential risks, and advantages of real estate investments to determine whether they remain a solid choice for income and diversification in retirement.

What are Real Estate Investments?

Traditionally, real estate investment provides two key income streams: rental income and property appreciation. Investments in real estate can be either active or passive, with rental properties generating regular income through tenant payments. In contrast, property values appreciate over time, potentially yielding significant profits when sold.

These factors make real estate an attractive asset class for high-net-worth individuals (HNWIs) seeking income generation, portfolio diversification, and protection against inflation. However, like any investment, real estate carries risks. Market trends, policy shifts, and economic fluctuations can all affect the profitability of real estate—particularly for those nearing retirement, who may have less time to recover from market downturns.

Current Trends in Real Estate Investment

As of 2024, several key trends are shaping the real estate investment market. HNWIs approaching retirement should pay attention to these developments as they directly impact the profitability and attractiveness of real estate as an asset class.

Lower Borrowing Costs

Over the past year, the Federal Reserve’s interest rate cuts have lowered borrowing costs for real estate investors. Typically, when interest rates decline, mortgage rates follow, making it easier to secure favorable terms on home loans.

This presents opportunities for investors nearing retirement. Lower mortgage rates may make real estate investments more attractive, whether for purchasing a downsized home or a vacation property. The average 30-year fixed mortgage rate is 6.08%, the lowest since September 2022. While this rate is still below the historical average of 7.72% (dating back to 1971), economic experts do not expect mortgage rates to decrease significantly in the near future.

Although minor rate reductions could happen, those waiting for improved affordability may be priced out as home values continue to rise. Consulting with a fiduciary advisor can help maximize these lower rates while helping your real estate investments align with your broader financial goals.

Remote Work and Changing Property Demands

The post-pandemic shift to remote work has significantly altered the demand for residential and commercial real estate. Cities once prime real estate hubs may no longer offer the same rental returns. Conversely, suburban and rural areas have seen increased demand, rising home prices, and rental yields.

Commercial real estate, in particular, has faced challenges as office spaces remain underutilized in many urban centers, while residential real estate in the suburbs continues to experience strong demand. Investors should consider these evolving trends when evaluating potential real estate investments. Partnering with an advisor can help you navigate these changes and choose the best options for your portfolio.

The Benefits of Real Estate Investments 

Real estate has remained a popular investment for decades, offering opportunities for income generation, capital appreciation, or a combination of both. Whether through buying, owning, or managing properties, real estate often provides a steady and predictable cash flow, making it an appealing option for those seeking reliable income.

Here are a few key reasons why investors frequently include real estate in their portfolios:

  • Steady Cash Flow: Investing in properties like residential homes or real estate groups can generate regular income from tenant payments, offering a consistent revenue stream.
  • Diversification: Real estate helps diversify your portfolio. If you’re already invested in stocks or bonds, adding real estate brings a different layer of protection, as it tends to perform differently than other assets.
  • Tax Benefits: Real estate investments offer attractive tax advantages. Property depreciation can lower taxable income; some investors can offset other taxes with property-related losses.
  • Tangible Asset: Unlike some investments that exist solely as digital numbers, real estate is a physical, useful asset. Even if property values decline, it remains a functional asset that can generate income through rent.

Risks to Consider

As with any investment, real estate comes with risks, especially for those nearing retirement. It’s important to carefully weigh these risks before making any decisions.

  • Market Volatility: Real estate markets can be volatile, and regional conditions often determine profitability. A market downturn can lead to lower rental income or a reduced return when selling. This is particularly concerning for retirees, who may be unable to wait for the market to recover.
  • Property Management Challenges: Owning and managing rental properties can be time-consuming and costly. Direct property management may not be ideal for retirees seeking a more hands-off investment. Alternatively, real estate investment trusts (REITs) offer a more passive approach, though they can still be subject to stock market volatility, which may not suit every investor.
  • Liquidity Risk: Unlike stocks or bonds, real estate is not a highly liquid asset. Selling a property can take time, and market conditions may prevent a quick sale at a favorable price. This lack of liquidity can be problematic for retirees who may need immediate access to cash for unexpected expenses or opportunities.

Alternative Real Estate Investment Strategies

For those concerned about the traditional approach of buying and managing properties, several alternative real estate investment strategies may be worth considering:

  • Real Estate Investment Trusts (REITs): REITs allow investors to pool their capital and invest in a diversified portfolio of real estate assets. This offers a more liquid option than direct property ownership without the need for property management. In 2023, U.S. REITs had an equity market capitalization of more than $1.3 trillion, reflecting their growing popularity among investors.
  • Private Equity Real Estate Funds: For more experienced investors, private equity real estate funds offer an opportunity to invest in larger commercial properties or development projects. These funds can deliver strong returns but typically come with higher fees and longer lock-up periods, making them less liquid than REITs.
  • Crowdfunding Platforms: Platforms like Fundrise and RealtyMogul have made real estate investment more accessible, allowing individuals to invest in larger projects. While this provides access to a broader range of opportunities, it’s important to consider the risks. Many of these projects are not insured, and returns are not guaranteed. An advisor can help you decide if this is the right investment.

What Rate of Return Should You Expect to Earn on Investments?

When considering whether real estate income is still a good investment model, it’s essential to examine both current market dynamics and long-term financial goals.

Real estate has historically been a stable source of passive income, benefiting from property appreciation and rental income. However, factors like rising interest rates, fluctuating property values, and increased maintenance costs can impact profitability. A good benchmark for returns is aiming to earn about 8% per year after costs. This target ensures your real estate investment keeps pace with inflation, compensates for the liquidity and risk involved, and remains competitive with other investment options like stocks or bonds.

Achieving this level of return also allows you to build wealth over time through the compounding effects of capital appreciation and rental income. Real estate can be a key part of a diversified strategy for investors approaching retirement, offering tangible assets that generate steady cash flow. However, it’s important to consult with a fiduciary advisor before making any portfolio adjustments, ensuring that real estate remains aligned with your overall financial objectives and risk tolerance.

Is Real Estate Still a Good Model?

While real estate continues to offer compelling benefits like passive income, inflation protection, and tax advantages, the market conditions of 2024 require careful evaluation. Lower borrowing costs, market volatility, and shifting property demands have introduced new challenges for investors considering real estate.

Given the complexities of today’s market, it’s crucial to consult with a fiduciary advisor to determine how real estate fits into your overall retirement strategy. At Agemy Financial Strategies, we are dedicated to helping you navigate these complexities. Our fiduciary advisors help ensure that your investments align with your financial goals and provide a solid foundation for a secure retirement.

Final Thoughts

Staying informed about changes in the real estate market and adjusting your investment strategy is key to long-term success. Partnering with a fiduciary advisor can help mitigate risks and capitalize on opportunities. At Agemy Financial Strategies, we prioritize your best interests. Our fiduciary advisors are here to help you make informed decisions for a financially secure retirement.

Are you ready to see if real estate investments are right for you? Contact us today to schedule your complimentary consultation.

 

Disclaimer: The information provided in this blog is for educational purposes only and should not be considered as specific investment advice. While we aim to provide valuable insights, every individual’s financial situation is unique, and changes to your investment portfolio or financial strategies should only be made after consulting with a qualified financial advisor. We encourage you to reach out to our team before making any investment decisions to ensure they align with your personal goals and risk tolerance.

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Building a Robust Retirement Portfolio: Key Strategies for Pre-Retirees

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In 2024, despite global geopolitical tensions and economic uncertainties, the world’s economy has shown remarkable resilience and steady growth. For those looking to enjoy a comfortable retirement, however, it’s not enough to rely on general market trends. The key to financial security lies in building a well-balanced, carefully managed investment portfolio that can weather both global shifts and personal financial challenges.

As retirement nears, most pre-retirees share a common concern: making sure they have enough income to maintain their lifestyle without depleting their savings. Alarmingly, over 57% of workers believe they’re behind on their retirement savings goals. This is where a well-structured portfolio becomes essential to protecting your financial future.

For retirees in states like Connecticut and Colorado, adopting a strategic approach to income generation and risk management is more crucial than ever. In this blog, we’ll explore key strategies for building a strong retirement portfolio, review current statistics on retirement needs, and explain how Agemy Financial Strategies can help you navigate the complexities of retirement planning.

It’s important to note the following information provided is for educational purposes only and should not be considered as specific investment advice. We encourage you to reach out to our team before making any investment decisions to ensure they align with your unique personal goals and risk tolerance.

Understanding the Universe of Income-Generating Alternatives 

One common misconception among pre-retirees is that bonds or traditional stock market investments are the only viable sources of income during retirement. While bonds and stocks have their place in a diversified portfolio, they are not the only—or even the best—options for generating steady retirement income. Many overlook other income-generating investments that can provide reliable returns with reduced risk.

The universe of income-generating alternatives includes options such as:

  • Corporate Bonds: Corporate bonds offer fixed interest payments and the return of principal at maturity. They can provide a steady income stream without the risk and volatility associated with equities.
  • Preferred Securities: These securities combine elements of stocks and bonds, offering income generation and growth potential while generally less risky than common stocks.
  • Dividend-Paying Stocks: Certain stocks provide regular dividend payments, which can serve as an additional income stream during retirement. While these are more volatile than bonds, they offer income and capital appreciation potential.

Corporate Bonds: Stability and Predictability

Stability is crucial when constructing a retirement portfolio. Corporate bonds are an excellent option for pre-retirees who want a steady income stream without the risks associated with stocks. Unlike stock dividends, which can fluctuate or be cut, corporate bonds guarantee a fixed interest payment as long as the company remains solvent.

Over 2.5 million households in the U.S. invest in corporate bonds, and 65% of all transactions are retail size (100 bonds or less). This demonstrates the growing popularity of corporate bonds as a reliable income source for retirees. A well-researched bond can offer retirees predictable income security without the stock market’s volatility.

The Importance of Diversification in Retirement

Diversification is key to managing risk in any portfolio, but it becomes even more critical as retirement nears. For pre-retirees, a well-diversified portfolio can mitigate the impact of market volatility while still allowing for income generation and growth.

Here’s how diversification might look in a retirement portfolio:

  • Income-Generating Investments: Corporate bonds, preferred securities, and dividend-paying stocks. These investments provide steady income and reduce the need to sell assets during market downturns.
  • Growth-Oriented Investments: Although income is a priority in retirement, growth is still important to help ensure the portfolio can keep up with inflation. Stocks or equity funds can be part of a diversified portfolio to provide long-term growth.
  • Alternative Investments: Some retirees include real estate, private equity, or other alternatives to diversify further and reduce reliance on the stock market.

One of the common mistakes pre-retirees make is leaving their 401(k) or retirement accounts invested solely in equities or bond funds. While these might have served them well during their working years, they can expose retirees to unnecessary risk. As always, it is important to work alongside your advisor to see if this approach is right for you.

Managing Market Volatility in Retirement

Market volatility is a significant concern for retirees who rely on their portfolios to cover living expenses. Unlike younger investors who can ride out market downturns, retirees often don’t have that flexibility. A sudden drop in the market could severely impact savings, making it challenging to recover.

In fact, 84% of Americans agree that recent market volatility underscores the need for guaranteed income in retirement. This highlights prioritizing stability over high-risk, high-reward investments as retirees focus on preserving their financial security.

Consider income-focused investments, such as corporate bonds and preferred securities, to mitigate this risk. These options provide reliable income even during market downturns, allowing retirees to avoid selling assets at a loss. With a well-planned portfolio, retirees can generate enough income to cover living expenses without relying on unpredictable stock market returns.

The Role of Annuities in a Robust Portfolio 

Certain annuities can be a key component of a diversified retirement portfolio, offering stability and peace of mind. In fact, total U.S. annuity sales reached a record-high $385.4 billion in 2023, driven by the need for secure, guaranteed income in an increasingly volatile market.

For some retirees, annuities can play a valuable role in providing guaranteed income. Fixed annuities, for example, offer a fixed rate of return for a specified period, similar to bonds, but they come with the additional benefit of tax-deferred growth. This can be particularly advantageous for retirees looking to minimize their tax liabilities while still generating income.

However, not all annuities are created equal. Variable annuities, for example, can be risky and come with high fees. It’s important to consult with an advisor to help navigate the complex world of annuities. An advisor can help ensure they choose products that align with their income needs and risk tolerance.

How Agemy Financial Strategies Helps Pre-Retirees Build Robust Portfolios

Agemy Financial Strategies focuses on helping pre-retirees build robust portfolios that can weather market volatility and provide the income needed for a comfortable retirement. Here are some key ways our fiduciary advisors can help:

  1. Customized Portfolio Construction: Each retiree’s financial situation is different. We work closely with clients to design a portfolio that reflects their risk tolerance, income needs, and long-term goals.
  2. Income-Focused Strategy: We prioritize investments that generate reliable income. This helps ensure clients have the cash flow they need without selling assets during market downturns.
  3. Ongoing Portfolio Management: Retirement planning doesn’t stop once the portfolio is set up. Agemy continually monitors clients’ portfolios, adjusting as needed to adapt to changing market conditions and life circumstances.
  4. Tax Efficiency: Retirement income isn’t just about how much you earn—it’s also about how much you keep after taxes. We incorporate tax-efficient strategies into portfolio planning, helping retirees maximize their after-tax income.
  5. Risk Management: Our advisors help retirees balance the need for income and preservation of capital with the potential for growth by incorporating a mix of lower-risk investments with growth opportunities.

Take Control of Your Retirement with Agemy Financial Strategies

Building a robust retirement portfolio requires a strategic approach that balances income generation, risk management, and growth. By focusing on income-generating investments, pre-retirees can help ensure they have the financial stability they need to enjoy retirement.

At Agemy Financial Strategies, we are committed to helping pre-retirees in Connecticut, Colorado, and beyond develop personalized retirement strategies that align with their goals. Whether you are nearing retirement or already retired, now is the time to take control of your financial future.

Contact us today to learn more about how you can build a robust portfolio that will provide the income and security you need for a stress-free retirement.

Frequently Asked Questions

Q: How do corporate bonds help retirees generate income?
A: Corporate bonds provide retirees with fixed interest payments over a specified period, offering a predictable and reliable source of income. Upon maturity, retirees receive their initial investment (the principal) back. This stability makes corporate bonds a great option for retirees who want to avoid risks while generating income.

Q: Why is diversification important for retirement portfolios?
A: Diversification is critical in retirement because it helps spread risk across different asset types, reducing the impact of market volatility on your savings. By including a mix of income-generating investments like bonds, preferred securities, and dividend-paying stocks, along with some growth-oriented investments, retirees can achieve a balance between stability and growth.

Q: What is the benefit of working with a fiduciary advisor like Agemy Financial Strategies?
A: A fiduciary advisor is legally obligated to act in your best interest, helping ensure that your financial plan meets your retirement goals. Agemy Financial Strategies helps pre-retirees create customized, income-focused portfolios that balance growth and stability, offering ongoing management and tax-efficient strategies to maximize your retirement savings.

Q: Can I rely solely on my 401(k) for retirement?
A: While a 401(k) is a valuable retirement savings tool, relying solely on it may not provide the financial security needed for a comfortable retirement. A well-rounded retirement plan should include additional income sources, such as corporate bonds, annuities, or dividend-paying stocks, to ensure stability and minimize risks associated with market volatility.

Q: How can I protect my retirement savings from market volatility?
A: To protect your retirement savings from market volatility, focus on income-generating investments, such as corporate bonds and preferred securities. These investments provide reliable income even during market downturns, allowing retirees to avoid selling off assets at a loss. A well-diversified portfolio that balances growth with income generation is key to minimizing risk.

Disclaimer: The information provided in this blog is for educational purposes only and should not be considered as specific investment advice. While we aim to provide valuable insights, every individual’s financial situation is unique, and changes to your investment portfolio should only be made after consulting with a qualified financial advisor. We encourage you to reach out to our team before making any investment decisions to ensure they align with your personal goals and risk tolerance.

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How the Fed’s Rate Cut Impacts Your Retirement Strategy

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The Federal Reserve’s recent decision to lower interest rates for the first time in four years has created a ripple effect throughout the economy. This move will likely impact every corner of the financial landscape, from housing markets to stock portfolios and businesses to consumer loans. 

Federal fund rates currently sit at 4.75% to 5%, and the implications of this rate cut will affect everything from borrowing costs to investment strategies. Understanding how this shift affects their financial strategy is essential for investors nearing retirement. Let’s explore the Fed’s rate cut for investors preparing for retirement, from how it might affect your investment portfolio to its influence on key financial decisions and long-term retirement planning. Here’s what you need to know.

Understanding The Fed’s Rate Cut 

On September 18, 2024, the Federal Reserve cut its benchmark interest rate by half a percentage point. This marked the end of its longest cycle of rate hikes in over a decade. According to Joe Brusuelas, chief economist at RSM US, the Fed’s pivot signifies a return to a more normalized economic environment. “We had three years of extremely aggressive policy out of the Fed. We’re now pivoting toward normalizing rates in the post-pandemic economy,” Brusuelas said.

From a fiduciary standpoint, the Fed’s decision could have immediate and long-term implications for those nearing retirement. Michael Madowitz, a principal economist at the Roosevelt Institute, notes that the rate cut underscores the Fed’s confidence in controlling inflation and signals that the economy has recovered enough to support sustainable growth. But what does this mean for your retirement strategy? Let’s break down the areas most affected by the rate cut.

Mortgage Rates and Housing: Opportunities and Challenges

For many Americans, especially those approaching retirement, the housing market is a key part of their financial plans. Whether you’re considering downsizing, buying a second home, or refinancing your current mortgage, the Fed’s recent rate cut could lower borrowing costs. Typically, when interest rates drop, mortgage rates follow, making it easier to lock in favorable terms on home loans.

This could create opportunities for investors nearing retirement. Lower mortgage rates might make it more appealing to invest in real estate, such as purchasing a smaller home or a vacation property. However, it’s important to understand that the effects of the Fed’s rate cut may take some time to fully materialize. Working alongside a financial advisor can help you capitalize on the benefits of lower interest rates while helping your investments align with your financial strategy.

Savings and Investments: Adapting to a New Landscape

Interest rates on savings accounts and certificates of deposit (CDs) are a key consideration for those nearing retirement. Historically, high rates have benefited savers, offering a safe way to grow wealth without market risk. However, those yields will likely decrease with the Fed’s rate cut.

While lower interest rates may reduce the return on savings accounts, this also presents opportunities for more strategic investment. As rates fall, Americans will likely shift money fromsavings accounts into the stock market. The prospect of better returns in equities may drive this shift, particularly for HNWIs with a higher risk tolerance.

As fiduciaries, we help clients navigate these changes thoughtfully. Exploring alternative strategies for retirees relying on interest income can help provide income and growth. Our goal is to help your investment portfolio align with your long-term objectives, even as the interest rate environment changes.

The Stock Market: Potential Gains and Increased Volatility

Historically, lower interest rates have been positive for the stock market, reducing business borrowing costs and encouraging investment. However, the current rate cut comes when the market is already volatile. There is no consistent pattern in how markets respond after significant rate-hiking cycles, and some analysts believe the Fed’s decision may already be priced in.

While lower rates may support higher stock prices, market volatility remains a significant concern. Investors nearing retirement should approach the market cautiously, balancing the potential for gains with the need for stability in their portfolios. Here are some investment strategies that can help you manage volatility:

  • Diversification: Maintaining a diverse portfolio that includes a mix of asset classes (stocks, bonds, real estate) helps manage risk and reduce exposure to market volatility.
  • Dividend-Paying Stocks: These stocks provide income through dividends, offering more stability than growth stocks during volatile times.
  • Bonds: Bonds, especially government or high-quality corporate bonds, tend to be less volatile than stocks and can offer steady returns, making them a safer option during uncertain periods.

With the potential for increased volatility, it’s essential to regularly review your investment strategy to ensure it aligns with your risk tolerance and long-term retirement goals. Working with a fiduciary can provide valuable guidance and help you make informed decisions in your best interest.

Keeping an Eye on Inflation 

One of the primary goals of the Federal Reserve’s previous rate hikes was to curb inflation. The current annual inflation rate is 2.5%, the lowest since February 2021. While the risk of inflation seems to have subsided for now, certain goods and services may continue to rise in cost due to factors outside of the Fed’s control.

For retirees, managing these escalating costs is crucial. Rising healthcare expenses, unpredictable insurance premiums, and fluctuating housing costs can impact your financial stability during retirement. A comprehensive retirement strategy can help account for these potential increases to help ensure long-term security.

Here are some key areas to consider when planning for inflationary impacts:

  • Healthcare & LTC costs: Medical expenses tend to rise faster than general inflation, making planning for long-term care and health-related expenses essential.
  • Housing costs: Whether you own or rent, housing costs can fluctuate, especially with supply shortages and high demand in certain areas.
  • Insurance premiums: As climate-related risks grow, premiums for homeowners’ insurance and other policies could increase, requiring careful coverage review.

As fiduciaries, we emphasize the importance of creating a retirement plan that accounts for rising costs in critical areas such as healthcare. Ensuring adequate savings and insurance coverage is essential for financial security in retirement.

The Importance of Fiduciary Guidance

At Agemy Financial Strategies, we recognize that the Federal Reserve’s decisions can have significant implications for those approaching retirement. As fiduciaries, we aim to provide personalized, unbiased advice that puts your best interests first. The recent rate cut presents opportunities and challenges, making careful planning essential to protect your financial future. Here are a few ways our financial team can help you:

  • Personalized Retirement Planning: We take the time to understand your unique financial situation, retirement goals,and risk tolerance. Whether you’re considering adjusting your investment portfolio or reevaluating your income streams, we craft a tailored plan to meet your long-term objectives.
  • Investment Strategy Adjustments: We’ll help you determine the right investment mix to balance risk and reward and help your portfolio stay resilient through market fluctuations.
  • Planning for Care Costs: We’ll work with you to develop a custom plan for long-term healthcare expenses, including potential insurance needs, helping you secure your financial well-being.
  • Tax-Efficient Strategies: Tax-efficient planning becomes even more important with changing interest rates. We’ll help you navigate the tax implications of your financial decisions, from withdrawals to capital gains, optimizing your tax strategy to preserve wealth over the long term.

Final Thoughts

The Federal Reserve’s rate cut marks a significant shift in the U.S. economic landscape, and it’s essential for those preparing for retirement to understand how this change impacts their financial strategy. At Agemy Financial Strategies, we are committed to helping you make informed decisions that align with your long-term goals. In this evolving economic environment, now is the time to review your retirement plan and ensure you are well-positioned for future growth.

Contact us to learn how we can support your financial goals and help you navigate this evolving environment.

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Ask an Advisor: Best Strategies for Charitable Giving in 2024

In 2023, charitable giving in the United States reached an impressive $557.16 billion. For many high-net-worth Americans approaching retirement, philanthropy becomes a central focus. It’s not just about the satisfaction of making a difference; it’s also about aligning generosity with financial strategies that maximize impact and tax efficiency.

But navigating the complexities of charitable giving can be challenging. That’s where asking an experienced fiduciary advisor can make all the difference. A knowledgeable advisor can help you develop a giving strategy tailored to your unique financial situation, helping your contributions effectively support the causes you care about while complementing your overall retirement plan.

In this blog, we’ll provide insights for HNW retirees looking to enhance their year-end giving strategies. Here’s what you need to know to make the most of your charitable contributions.

Why Charitable Giving Matters

Charitable giving is more than just a financial transaction; it’s a powerful way to make a meaningful and lasting impact on the causes you care about. Beyond the immediate benefit to the organizations and communities you support, it helps align your values with your financial plans. This creates a dual benefit of doing good while managing your wealth strategically.

With ongoing economic shifts and changes in tax laws, understanding the best ways to give can help you maximize your philanthropic contributions and financial position. Choosing the right methods and timing for your donations can help reduce your taxable income, minimize capital gains, and potentially lower your estate taxes. Let’s take a look at some of the best strategies you can use for your charitable giving efforts.

1. Leverage Donor-Advised Funds (DAFs)

A Donor-Advised Fund (DAF) is one of the most popular and flexible strategies for charitable giving. It allows you to contribute assets—such as cash, stocks, or real estate—to a tax-advantaged fund, which can then distribute grants to multiple charities over time. DAFs offer several benefits, including potential tax deductions, centralized giving, and investment growth opportunities. Here’s a closer look at the advantages:

  • Tax Benefits: Donors can receive an immediate tax deduction for a DAF contribution, which is especially beneficial in high-income years. For 2024, the deduction limit for gifts to donor-advised funds is up to 30% of adjusted gross income (AGI) for non-cash assets held for more than one year and up to 60% of AGI for cash donations.
  • Flexibility: DAFs can distribute funds to multiple charities over time, allowing donors to choose the timing and recipients of their donations according to their philanthropic goals.
  • Investment Growth: While the assets are held in the DAF, they can be invested, potentially growing the value of the charitable gift over time. This growth can result in even more significant support for the charities of your choice.

2. Utilize Qualified Charitable Distributions (QCDs)

A Qualified Charitable Distribution (QCD) allows you to transfer funds directly from your IRA to a qualified charity, helping to lower your taxable income. This strategy is particularly beneficial for those taking Required Minimum Distributions (RMDs), as it allows you to satisfy the RMD requirement without increasing your taxable income while supporting a cause you care about.

  • How It Works: If you are an IRA owner aged 70½ or older, you can exclude up to $100,000 of QCDs from your annual gross income. For married couples, each spouse aged 70½ or older with their own IRA can exclude up to $100,000, for a combined total of up to $200,000 annually.
  • Tax Benefits: QCDs are excluded from your taxable income, providing a tax benefit even if you do not itemize deductions. This makes them especially valuable for those who typically take the standard deduction.
  • Eligibility: QCDs can only be made from IRAs, not 401(k)s or other retirement accounts. As always, it’s important to consult with a fiduciary advisor to determine eligibility and whether this strategy is right for you.

3. Bunching Charitable Contributions

For many taxpayers, itemizing deductions can be challenging due to high standard deduction thresholds. In 2024, the standard deduction amounts are $14,600 for Single or Married Filing Separately, $29,200 for Married Filing Jointly or Qualifying Surviving Spouse, and $21,900 for Head of Household. To exceed these thresholds and benefit from itemizing, “bunching” charitable contributions into a single tax year can be an effective strategy.

  • How It Works: Instead of spreading donations evenly over several years, you “bunch” two or more years’ contributions into one year. This allows you to itemize deductions in the year of the large donation, potentially maximizing your tax benefits while taking the standard deduction in other years.
  • Who Benefits: This approach is particularly advantageous for high-net-worth individuals with fluctuating incomes or those anticipating a high-income year when maximizing deductions would be most beneficial.

4. Consider Charitable Remainder Trusts (CRTs)

A Charitable Remainder Trust (CRT) is a powerful tool for individuals seeking income streams while making a meaningful charitable contribution.

  • How It Works: You contribute assets to the CRT, providing you (or other beneficiaries) an income stream for a set period or lifetime. At the end of the trust term, the remaining assets are donated to your chosen charity.
  • Tax Benefits: The donor receives an immediate charitable deduction based on the present value of the remainder interest that will eventually go to charity. Appreciated assets can be sold within the CRT without incurring immediate capital gains taxes.
  • New IRS Guidance: In 2024, the IRS has issued new guidance on calculating CRT payouts, making it crucial to consult with a fiduciary advisor to ensure compliance and maximize benefits.

5. Incorporating Charitable Giving into Estate Planning

Estate planning and charitable giving often go hand in hand for HNWIs. Incorporating charitable strategies into your estate plan can help meet your philanthropic goals while minimizing estate taxes.

  • How It Works: One of the simplest ways to include charitable giving in your estate plan is by making properly structured gifts and donations. You can remove assets from your estate before the total is tallied and taxed.
  • Tax Benefits: For 2024, the annual exclusion from the gift tax—the amount you can gift annually to individuals without incurring tax consequences—has increased from $17,000 to $18,000 per recipient. The lifetime exclusion amount, the total amount you can transfer without incurring federal gift or estate taxes, is currently $13.61 million per individual. Staying informed about these limits is essential, as they can change periodically.
  • Review and Update: Given the potential for changes in tax laws, it’s crucial to review and update your estate plan regularly to help ensure it aligns with current regulations and your personal and financial goals. Working with a fiduciary advisor can help you navigate the complexities of gifting and estate planning, helping align your financial decisions with your long-term objectives.

Partner with a Fiduciary Advisor: A Strategic Approach to Giving

Charitable giving can be complex, and the rules and regulations change frequently. This is where working with a fiduciary advisor can be beneficial. At Agemy Financial Strategies, we understand the unique needs of HNWIs in Connecticut, Colorado, and beyond and offer personalized strategies to help you maximize your charitable impact while aligning with your financial goals.

  • Risk Management: We meticulously vet and evaluate potential beneficiaries to help ensure your contributions to reputable and financially stable organizations. This thorough due diligence minimizes the risk of misappropriating or misusing your funds.
  • Customized Strategies: We understand that each giver has unique financial circumstances and philanthropic goals. Our team works closely with you to develop a personalized giving strategy that aligns with your values, maximizes the impact of your contributions, and optimizes your tax benefits.
  • Legacy Planning: If you aspire to create a lasting philanthropic legacy, our fiduciaries can help guide you. We assist in setting up trusts, endowments, or foundations that perpetuate your giving beyond your lifetime.
  • Compliance and Reporting: Agemy Financial Strategies is well-versed in the complex regulations and reporting requirements associated with charitable giving. We handle all compliance matters so that your donations adhere to legal guidelines and that you receive the full range of tax benefits.

Make Your Impact Count in 2024

At Agemy Financial Strategies, we are committed to providing our clients guidance on charitable giving as they plan for retirement. We recognize your generosity’s profound impact on your community and financial well-being.

Our team of experienced fiduciaries is here to support you every step of the way, helping your retirement years be both fulfilling and financially sound. With our help, you can create a lasting legacy that reflects your values while potentially maximizing your tax benefits.
Contact us today to set up a complimentary strategy session and discover how we can help you achieve your philanthropic and financial goals.

Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.

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Exploring Retirement in Colorado: A Comprehensive Review

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Colorado is swiftly emerging as a top destination for retirees looking for an ideal blend of natural beauty, vibrant culture, and economic stability. The Centennial State, home to approximately 5.8 million people, boasts a substantial retirement community, with over 16% of its population aged 65 and older.

Whether you are considering moving to, staying in, or relocating from Colorado, Agemy Financial Strategies is here to help make your retirement planning easier. With offices in Denver, we provide personalized guidance to help you navigate this important phase of life.

In this blog, we’ll explore what makes Colorado such an appealing place to retire and discuss key factors to consider when planning your future in this beautiful state. Here’s everything you need to know.

Why Retire in Colorado?

Colorado is renowned for its vibrant arts scene and abundant outdoor activities year-round. The state offers a dynamic lifestyle that appeals to various interests and preferences. Here are a few compelling reasons why Colorado is a standout choice:

1. Stunning Natural Landscapes: Colorado is known for its breathtaking landscapes, making it a wonderful place for retirees to enjoy the outdoors at their own pace. Whether taking a stroll along scenic trails, marveling at the majestic mountains, or simply soaking in the serene beauty of places like the Great Sand Dunes National Park, there’s something for everyone. With an estimated 252 days of sunshine each year, Colorado provides a pleasant climate that allows retirees to enjoy nature comfortably, whether they prefer active adventures or more relaxed outdoor experiences.

2. Thriving Cultural Scene: Colorado offers a vibrant cultural environment with a rich tapestry of art, music, theater, and food. Denver, the state capital, is a hub of cultural activity featuring world-renowned museums, galleries, and music festivals. Boulder, another popular city among retirees, offers a unique mix of outdoor adventure and artistic communities. It is a perfect spot for those looking to immerse themselves in a dynamic cultural setting.

3. Popular Retirement Communities: Retirement communities offer an excellent opportunity to connect with like-minded individuals, fostering social interactions and shared interests. Colorado boasts over 240 retirement communities across the state, providing ample options for retirees seeking vibrant social environments. These communities allow you to have the best of everything with neighbors your age and loads of activities to keep you as social and busy as you want.

Things to Consider for Retiring in Colorado

While Colorado offers many benefits, there are also important factors to consider before deciding to retire in the state. However, there are several factors to consider when planning your retirement:

1. The Cost of Living 

Retiring in Colorado has many benefits, but being mindful of the cost of living is essential. According to the Colorado Office of Economic Development and International Trade, the state’s overall cost of living is about 12% higher than the national average. This elevated cost is primarily due to housing that tends to be more expensive in popular cities like Denver, Boulder, and Colorado Springs.

While the state offers a high quality of life, retirees should carefully assess their financial situation to ensure they can sustain their desired lifestyle. According to GoBankingRates, here is what you can expect in retirement:

  • Total expenditures: $60,593
  • 20% comfort buffer: $15,148
  • Cost of a comfortable retirement annually: $75,742

Partnering with a fiduciary advisor can help you effectively plan and prepare for the financial demands of living in Colorado, helping you to enjoy your retirement to the fullest.

2. Healthcare Considerations 

Access to quality healthcare is crucial for retirees, and Colorado does not disappoint. The state is home to some of the top-rated hospitals in the U.S. UCHealth University of Colorado Hospital and Denver Health Medical Center are known for their excellent geriatric care services. This focus on quality healthcare helps ensure retirees have access to the medical care they need to maintain a healthy and active lifestyle.

However, even with access to excellent healthcare facilities, planning for the potential costs associated with medical care during retirement is important. Recent data shows a healthy 65-year-old couple might need over $395,000 for healthcare in retirement. It’s advisable to consider supplemental health insurance plans and long-term care insurance to cover these potential expenses.

3. Tax Considerations

When planning for retirement, making your money last throughout your golden years is essential. One crucial factor is how state-specific taxes can affect your retirement income. While Colorado does tax retirement income, it also offers several tax benefits that may work in retirees’ favor. Here are four common types of taxes to keep in mind:

  • Income Tax: The state has a relatively low, flat income tax rate of 4.40%, which appeals to retirees looking to maximize their retirement savings.
  • Sales Tax: Colorado has a 2.90% state sales tax rate and an average combined state and local sales tax rate of 7.81%. Although sales taxes are higher in Colorado, they do not apply to essential items like groceries or medications, helping to reduce overall living expenses.
  • Property Tax: Colorado has a 0.45% effective property tax rate on owner-occupied housing value.
  • Estate Tax: Another significant benefit of retiring in Colorado is the absence of an estate tax. This allows you to pass on your wealth to your loved ones without incurring additional taxes, which can be a substantial advantage for retirees who wish to preserve their legacy and provide for their families.

Working with a fiduciary advisor can help you navigate any questions regarding Colorado taxes. By understanding these considerations, you can better plan for a financially secure retirement in Colorado.

Planning Your Retirement in Colorado With Agemy

At Agemy Financial Strategies, we help guide individuals through the complexities of retirement planning, with a focus on those living in Colorado and Connecticut. Our team of dedicated fiduciary advisors offers personalized strategies tailored to your unique financial needs and goals, including:

We take an educational approach, helping you navigate Colorado’s financial landscape and understand its potential challenges and opportunities. From effective tax management to optimizing retirement income, we provide comprehensive guidance on every aspect of your financial plan, ensuring you are well-prepared for the future. To explore our full range of services, click here.

Final Thoughts

Colorado offers many opportunities for retirees, from stunning natural beauty and a vibrant cultural scene to tax advantages and quality healthcare. However, like any major life decision, retiring in Colorado requires careful planning and consideration of various factors, including cost of living, climate, and healthcare needs.

By partnering with Agemy Financial Strategies, you can confidently navigate these complexities and create a retirement plan that aligns with your goals and aspirations. Whether you envision a dynamic urban lifestyle in Denver or a peaceful retreat in Colorado Springs, we are here to help you achieve a secure and fulfilling retirement.

Contact us today and schedule a consultation with our experienced fiduciary advisors today.

Disclaimer: This content is for educational purposes only and should not be considered financial or investment advice. Please consult with the fiduciary advisors at Agemy Financial Strategies before making any investment decisions.

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Avoid the RMD Tax Trap: How to Handle Distributions Wisely

Agemy Financial Strategies

September 16, 2024

We’re all familiar with Required Minimum Distributions (RMDs), but new rules have made it more crucial than ever to plan carefully. Failure to do so could result in a costly tax burden and erode your retirement savings. In this blog, we’ll explore strategies to optimize your RMDs and avoid financial pitfalls, while also uncovering a lesser-known RMD trap that could impact your retirement healthcare plan.

Retirement should be about enjoying the fruits of your labor, not worrying about complicated financial decisions. Yet, one decision that often goes overlooked is what to do with your Required Minimum Distributions (RMDs). For many retirees, the default action might be to deposit these funds directly into their checking accounts. Still, this approach can lead to missed opportunities for tax efficiency, growth, and strategic financial planning. But there’s good news—you have options.

Let’s dive into smarter ways to handle your RMDs, helping ensure they align perfectly with your retirement goals and keep your money working for you.

Understanding RMDs

Required Minimum Distributions (RMDs) are mandatory withdrawals from certain tax-advantaged retirement accounts that owners must make at retirement age. The IRS states this age threshold to help ensure retirees begin drawing down their retirement savings and paying taxes on deferred income. The Secure 2.0 Act raised the age that account owners must begin taking RMDs. For 2023, the age at which account owners must start taking required minimum distributions goes up from age 72 to age 73, so individuals born in 1951 must receive their first required minimum distribution by April 1, 2025.

Understanding the timing and requirements for RMDs is crucial for retirement planning. While RMDs are unavoidable, how you manage them can significantly impact your financial health and long-term retirement strategy. To estimate your RMDs, use our free online RMD Calculator here. Consulting with a fiduciary advisor can help ensure compliance with RMD rules.

Why Avoid Dumping RMDs into Checking Accounts?

If you don’t immediately need the cash from your RMDs, there are smarter ways to handle these funds than depositing them into a checking account. By exploring alternative strategies, you can make your RMDs work harder for you. Here’s why avoiding a direct deposit into your checking account might be the better choice:

  1. Potential Tax Implications: Moving your RMDs straight into a checking account can inflate your taxable income, potentially pushing you into a higher tax bracket. This can also affect your Social Security benefits and Medicare premiums.
  2. Missed Growth Opportunities: Cash sitting in a checking account typically earns little to no interest. By reinvesting or reallocating these funds wisely, you can continue to grow your wealth even in retirement.
  3. Overspending Risk: A large influx of cash into a checking account can tempt some retirees to overspend, derailing their carefully planned retirement budgets.

Before making any withdrawals, it’s advisable to consult with a fiduciary to understand the tax implications fully. They can provide personalized guidance based on your financial situation and help you make informed decisions about your retirement withdrawals.

1. Reinvest in a Taxable Brokerage Account

One of the most straightforward ways to keep your RMDs working for you is to reinvest them in a taxable brokerage account. While this won’t shield you from taxes on your RMDs, it allows your money to grow. Here’s how it works:

  • Growth Potential: By investing in a diversified portfolio of stocks, bonds, and other assets, you can earn a return that outpaces inflation.
  • Flexibility: Unlike retirement accounts, taxable accounts offer the flexibility to withdraw funds without penalties, making them ideal for funding major expenses or managing cash flow needs.

2. Qualified Charitable Distributions (QCDs)

Before diving into charitable giving, reflecting on your values and philanthropic goals is essential. Consider the impact you aspire to create and whether you lean towards supporting local, national, or international charities. If you are charitably inclined, QCDs may be an option for you.

Each year, an IRA owner age 70½ or over when the distribution is made can exclude from gross income up to $100,000 of these QCDs. For a married couple, if both spouses are age 70½ or over when the distributions are made and both have IRAs, each spouse can exclude up to $100,000 for a total of up to $200,000 per year. This strategy counts toward your RMD but is not included in your taxable income, providing a win-win situation:

  • Tax Benefits: QCDs reduce your taxable income, which can help keep your overall tax bill lower.
  • Philanthropic Impact: Supporting causes you care about can be a fulfilling way to utilize your RMDs.

Working alongside a fiduciary advisor can help you evaluate how well your contributions align with your goals. Be open to adjusting your giving strategy as your circumstances and priorities evolve.

3. Set Up a Roth Conversion Ladder 

A Roth conversion involves transferring funds from a Traditional IRA or 401(k) into a Roth IRA, requiring you to pay taxes on the amount converted. Unlike regular contributions, there is no limit on the amount you can convert — the annual contribution limit ($7,000 or $8,000 if you’re 50 or older) does not apply to conversions. This strategy can be tailored to your unique financial situation to maximize the benefits of a Roth IRA.

Although you cannot directly convert RMDs, you can strategically plan Roth conversions to reduce future RMDs:

  • Tax-Free Withdrawals: Funds in a Roth IRA grow tax-free, and withdrawals are tax-free, providing flexibility and tax efficiency in later years.
  • RMD Exemption: Roth IRAs are not subject to RMDs during your lifetime, giving you more control over your retirement assets.

You can use the IRS’s Uniform Lifetime Table to determine the amount you need to withdraw. Working with a fiduciary advisor can help you effectively manage RMD withdrawals. With strategic planning, you can optimize your retirement income and minimize unnecessary tax burdens.

4. Purchase a Deferred Income Annuity

A Deferred Income Annuity (DIA) can be a valuable tool if you want to secure a reliable income stream in your later years. Using a portion of your RMDs to purchase a DIA, you can convert a lump sum into guaranteed payments that begin at a future date, often several years later. Here are some benefits that can offer you peace of mind

  • Customized Payments: Payments can be tailored to start at a specific age, providing predictable income to cover essential expenses.
  • Higher Payouts: The monthly payments will be larger for longer deferral periods. This helps you to benefit from increased income when you need it most.
  • Tax-Deferred Growth: During the deferral period, your funds grow on a tax-deferred basis. This can be particularly advantageous for those in higher tax brackets who wish to delay the taxable event in the future.

With the flexibility to customize payments and the security of guaranteed income, a DIA could be a vital component of a well-rounded retirement plan. Discuss this option with a fiduciary advisor to determine how it fits your overall strategy.

5. Fund a 529 Plan for Grandchildren’s Education

RMDs can also be a tool for leaving a legacy for future generations. By funding a 529 plan, you can help pay for a loved one’s education expenses while also removing taxable income from your estate:

  • Tax-Free Growth: Investments in 529 plans grow tax-free, and withdrawals for qualified education expenses are also tax-free.
  • Gift of Education: Helping with education costs can be a meaningful way to support future generations without impacting your standard of living.

A Second RMD Hidden Healthcare Trap

Healthcare is expensive, especially as we age – which is why properly planning for these costs now can help your nest egg in your golden years. Did you know 2024 Medicare Part B & D Premiums are based on income? And RMDs may be pushing you into higher Medicare Part B & D Premiums!

As individuals progress through their retirement years, understanding the factors that influence Medicare premiums is crucial. These factors include earned and self-employment income, investment returns, real estate and rental income, retirement withdrawals, Social Security benefits, and pensions.

Beneficiaries who file individual tax returns with modified adjusted gross income: Beneficiaries who file joint tax returns with modified adjusted gross income: Part B Premium Part D Surcharge
Less than or equal to $103,000 Less than or equal to $206,000 $174.70
Greater than $103,000 and less than or equal to $129,000 Greater than $206,000 and less than or equal to $258,000 $244.60 $12.90
Greater than $129,000 and less than or equal to $161,000 Greater than $258,000 and less than or equal to $322,000 $349.40 $33.30
Greater than $161,000 and less than or equal to $193,000 Greater than $322,000 and less than or equal to $386,000 $454.20 $53.80
Greater than $193,000 and less than $500,000 Greater than $386,000 and less than $750,000 $559.00 $74.20
Greater than or equal to $500,000 Greater than or equal to $750,000 $594.00 $81.00

Required Minimum Distributions (RMDs) can push you into higher Medicare Part B and Part D premiums because they are considered taxable income. When you take RMDs from your retirement accounts, the amount is added to your adjusted gross income (AGI). If this increase pushes your AGI above certain thresholds, it can cause your Medicare premiums to rise due to the Income-Related Monthly Adjustment Amount (IRMAA).

IRMAA is a surcharge that applies to higher-income Medicare beneficiaries. For those whose income exceeds certain limits, IRMAA can significantly increase the monthly premiums for both Medicare Part B (medical insurance) and Part D (prescription drug coverage). As a result, large RMDs may unintentionally trigger higher Medicare costs, affecting your overall retirement budget.

To avoid having your Required Minimum Distributions (RMDs) push you into higher Medicare Part B and D premiums, consider the following strategies:

  1. Qualified Charitable Distributions (QCDs): If you’re 70½ or older, you can direct up to $100,000 of your RMD to a qualified charity. This amount won’t be included in your taxable income, helping keep your income below the IRMAA thresholds.
  2. Roth Conversions: Converting traditional IRA or 401(k) assets to a Roth IRA can reduce future RMDs, as Roth IRAs are not subject to RMDs during the owner’s lifetime. Converting in years with lower income can minimize the tax impact.
  3. Strategic Withdrawals Before RMD Age: Consider taking withdrawals before you reach the age for mandatory RMDs (age 73) to reduce the size of your retirement account and thus lower future RMD amounts.
  4. Delay Social Security Benefits: If possible, delay claiming Social Security benefits to reduce your taxable income. This can help you stay under the income thresholds for higher Medicare premiums.
  5. Income Smoothing: Spread out withdrawals over several years to avoid large, lump-sum withdrawals that could push you into a higher income bracket.
  6. Monitor Your Income: Keep track of your Modified Adjusted Gross Income (MAGI) and plan withdrawals accordingly to stay below the IRMAA thresholds for Medicare premiums.
  7. Use Tax-Efficient Investments: Consider investing in tax-efficient accounts or assets that produce less taxable income, helping to control the amount that could push you over the threshold.

By carefully planning your retirement income and utilizing these strategies, you can minimize the impact of RMDs on your Medicare premiums. Consulting with a financial advisor can also help tailor a plan that suits your specific situation.

Working With a Fiduciary Advisor 

When it comes to optimizing RMDs, each strategy has nuances and potential financial implications. Tax laws regarding RMDs, Medicare/income bracket changes, and charitable giving law adjustments mean your retirement income strategy must also adapt. Staying informed is crucial to maximizing the benefits of your RMDs. At Agemy Financial Strategies, we are here to offer in-depth insights into your specific RMD responsibilities and explore tax-efficient strategies for RMD management.

Our trusted fiduciary advisors can help you fulfill your legal obligations and provide personalized guidance to optimize your financial situation within the bounds of IRS regulations. We work with you to help assess your retirement income needs and craft a tailored plan aligned with your unique financial goals. Please refer to our service offerings page for a comprehensive list of our services, and don’t forget you can access our free online RMD Calculator here at any time.

Final Thoughts

Avoiding the simple transfer of RMDs into a checking account opens up opportunities to enhance your financial security and make meaningful contributions to your future and those you care about. And planning for Medicare changes along the way will help you avoid unnecessary financial surprises further down the road.

For personalized guidance and to explore the best strategies for your specific needs, consider consulting with Agemy Financial Strategies. Our team of fiduciary advisors is dedicated to helping you navigate the complexities of retirement planning and ensure your RMDs are managed per your goals.

Contact us today to learn more and set up a complimentary consultation.

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Generational Wealth Tips for High-Net-Worth Investors

Wealth expands life choices, and generational wealth offers greater freedom by eliminating financial worries and offering the next generation a significant financial advantage. Here’s how to protect your assets to transfer your wealth to your family and loved ones efficiently. 

Generational wealth—sometimes referred to as intergenerational wealth, multigenerational wealth, legacy wealth, or family wealth—is financial assets passed down from generation to generation.

Having the privilege of seeing your family’s hard-earned legacy connected down through the years is a humbling experience. But if you have built upon that wealth in your lifetime, you must ensure its strength and longevity to do the same for your loved ones as your ancestors once did for you.

The Great Generational Wealth Transfer

Baby boomers and the silent generation will bequest a total of $84.4 trillion in assets through to 2045, according to an analysis by financial market intelligence firm Cerulli and Associates. With $72.6 trillion going directly to heirs. The transfer of wealth from baby boomers will account for $53 trillion or 63% of all transfers, while the Silent Generation will hand down $15.8 trillion. As millennials and Gen X prepare to take the reins, high-net-worth investors must adopt strategies that cater to multi-generational needs and investment goals.

And now worrying figures from Gobankingrates show smart investments and money management skills are not always passed down with wealth. A staggering 70% of wealthy families lose their wealth by the next generation, with 90% losing it the generation after that.

Some millionaires were born into wealth and privilege, but many others found their fortune through good ideas and the hard work needed to bring those ideas to life. Whichever way you have built your wealth, the importance of multigenerational wealth transfer has never been more paramount.

Impact of Generational Wealth Transfer on the Economy

Generational wealth transfer has become a significant focal point for investors due to its profound implications for financial markets, investment strategies, and economic trends.

Interest rates are at a 22-year high as the Federal Reserve continues to battle inflation, and recession fears remain — but the US economy is holding in there. But is there a connection between the economy’s resilience and the ‘Great Wealth Transfer’? Billionaire investor Ray Dalio says a resounding “yes.”

“There was a big government-engineered shift in wealth from 1) the public sector (the central government and central bank) and 2) holders of government bonds to 3) the private sector (i.e., households and businesses),” he wrote.

“This made the private sector relatively insensitive to the Fed’s very rapid tightening to a more normal monetary policy. As a result of this coordinated government maneuver, the household sector’s balance sheets and income statements are in good shape, while the government’s are in bad shape.”

In other words, the federal government took on a lot more debt, and the central bank printed far more money. This causes the US balance sheet to deteriorate and contribute to inflation while benefiting the private sector.

Dalio says it’s highly likely that as the cost of interest payments keeps rising, the government will need to sell more debt, leading to a “self-imposed debt spiral.” “In my opinion, we are at the beginning of a very classic late, big cycle debt crisis, when the supply-demand gap, when you are producing too much debt and have a shortage of buyers,” he told a Bloomberg conference in June.

But while the transfer can be terrible for the Feds, it is still great news for American households. As this generation begins to pass on their assets, the total estimated wealth transfer amounts to nearly $85 trillion—eclipsing any from the past. Boomers’ millennial children stand to gain the most—$73 trillion is projected to be passed down through 2045—and an additional $12 trillion will be donated to charities.

Protecting and Passing on Your Wealth

The Great Wealth Transfer of $73 trillion being passed to the next generation can shift consumer behaviors, preferences, and spending patterns. So, investors must pay attention as it can influence the demand for things like real estate or stocks – and potentially the amount of wealth you have for the next generation. For example, giving Gen-X and Millennials’ buying power can change what is popular, affecting assets like real estate, stocks, and sustainable investments.

Adapting investment approaches to align with the preferences and priorities of inheriting generations is crucial for capitalizing on new opportunities and staying ahead in an evolving economic landscape. And it starts with protecting the legacy you have built. Let’s look at some tips to help prepare your family for this historic change.

Tip #1: Having a Comprehensive Estate Plan

Your first step to navigating this complex wealth management and transfer realm is having an estate plan. This initial step provides a roadmap for the distribution of your assets and guarantees that your wishes will carried out in the event of incapacitation or passing. Estate plans are for everyone with assets, including high-net-worth individuals. Here are some key points to consider:

  • Asset Distribution: An estate plan allows you to specify how you want your assets, including property, investments, and personal belongings, to be distributed among your beneficiaries. Without a clear plan, your assets might be subject to intestate laws, which can lead to unintended outcomes.
  • Beneficiary Designations: Through an estate plan, you can designate beneficiaries for various assets, such as life insurance policies, retirement accounts, and investment accounts. This transfers assets directly to the intended recipients, avoiding delays and potential disputes.
  • Business Succession Planning: If you own a business, an estate plan can outline how it will be managed or transferred to successors, ensuring its continuity and providing for your family’s financial future.

Life is constantly changing, and so should your estate plan. Changes in your family structure, financial situation, or legal regulations might necessitate updates to your plan to guarantee it remains aligned with your goals. A Fiduciary Advisor can help you with any changes that life may bring and help adapt your plan accordingly.

Tip #2: Beating The Tax Deadline For Wealth Transfers

The wealth transfer comes with its fair share of tax implications. Current estate tax laws allow individuals to transfer up to $12.92 million in assets with no gift tax implications. However, by the end of 2025, these amounts will drop in half. To reap the benefits of current estate gift taxes, strategically planning and executing these transfers well before tax deadlines is crucial.

High-net-worth investors can explore opportunities like the annual gift tax exclusion, which allows individuals to gift a certain amount per recipient each year without incurring gift tax. This strategy can minimize the taxable estate while fostering a culture of giving within the family. Collaborating with financial professionals with extensive tax planning experience and wealth transfer knowledge can provide invaluable insights into navigating complex tax laws and optimizing wealth preservation to pass on to your loved ones.

Tip #3: Spousal Lifetime Access Trusts

Trusts are a great tool to protect your wealth. Specifically, Spousal Lifetime Access Trusts (SLATs) offer a creative solution for high-net-worth investors aiming to support their spouse while still gifting assets to heirs.

When assets are transferred into an irrevocable SLAT, they are effectively removed from the grantor’s estate, reducing estate tax liability upon their passing. This strategy allows high-net-worth individuals to leverage their gift tax exemption and protect a significant portion of their wealth from potential estate taxes.

In determining whether a SLAT is right for you, the first step is to work with your financial advisory team to build a personal balance sheet. This creates an accurate inventory of all of your assets and liabilities, a record of how they’re titled, and details about the liquidity features of each item. Next, you’ll build a financial plan based on your projected lifestyle.

Tip #4: Dynasty Trusts

Dynasty trusts are another irrevocable trust that extends protection across multiple generations, allowing wealth to flourish through changing times. One of the main benefits of a dynasty trust is that it allows you to transfer assets to future generations while minimizing tax liabilities.

By keeping assets within the trust, the trust can continue to grow and provide for future generations without being subject to estate taxes at each generation’s passing. As regulations and laws around trusts vary, consulting a Fiduciary Advisor is crucial to tailoring these structures to specific family objectives.

Tip #5: Working With a Fiduciary Advisor

The Great Generational Wealth Transfer should be a wake-up call for many Americans who have not yet begun their Estate planning. This can be especially challenging for those with a high-net-worth estate. You want to protect your family assets and gain the peace of mind knowing you’re prepared and in control, whatever the future may bring.

Working alongside a Fiduciary Advisor is one of the best ways to prepare you and your family for the intergenerational wealth transfer. A Fiduciary advisor can help create your estate plan to meet your specific needs.

At Agemy Financial Strategies, our trusted team can help you create a trust for your beneficiaries that clearly outlines how your wealth should be distributed and invested and who will be entrusted with your assets.

Contact us today to schedule your complimentary consultation.

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Retirement On The Horizon? How To Make Sure You’re Financially Ready

Agemy Financial Strategies

September 13, 2024

61% of Americans 50 and older are worried they won’t have enough money for retirement. Only 21% of people have a retirement plan. Which is why a pressing question remains for many: ‘Have I saved enough for retirement?’

This question is especially critical for those approaching retirement who want to maintain a lifestyle they’ve worked hard to achieve. For wealthier individuals nearing retirement age, this question isn’t just about surviving—it’s about thriving. In this blog, we will explore the importance of retirement savings, the challenges that lie ahead, and actionable steps you can take to secure your financial future. Here’s what you need to know.

Understanding the Retirement Landscape

Retirement is a deeply personal journey shaped by your unique lifestyle, health, and financial commitments. While each person’s retirement dream will look different, one factor remains constant: your golden years could be at risk without sufficient savings.

According to this 2024 Planning and Progress study, Americans will need around $1.46 million to retire comfortably. This figure can be even greater for rising-cost areas like Connecticut and Colorado. For instance, as of July 2024, Zillow estimates the average home value in Connecticut to be around $411,971, up 9.7% over the past year, while in Colorado, the typical home value is about $550,511, up 1.4% over the past year.

Moreover, inflation gradually diminishes the value of your savings over time. According to recent Consumer Price Index (CPI) data, despite the smallest 12-month increase since March 2021, inflation has gradually been on the rise, with the U.S. annual rate reaching 3.2% in July 2024. If your retirement plan doesn’t account for inflation, you may find that your savings don’t go as far as you’d hoped.

The Impact of the Financial Crisis and Economic Uncertainty

Many Gen Xers are in the “sandwich generation,” juggling aging parents’ care while supporting their adult children. This dual responsibility significantly strains their finances, making it increasingly difficult to build adequate retirement savings. Alarmingly, nearly half of Gen Xers have saved less than $50,000 for retirement. This is far below the recommended goal of saving at least ten times your annual income by retirement.

Generation X has also weathered economic challenges from the 2007-2008 U.S. financial crisis and, more recently, the financial uncertainties triggered by the COVID-19 pandemic. These events have taken a toll on their ability to save for retirement. Many have been forced to dip into retirement funds to cover unexpected expenses or prioritize other financial obligations, such as paying off mortgages or funding their children’s education.

Given the complexity of these challenges, saving for retirement can feel overwhelming. However, by exploring some effective strategies, you can navigate these obstacles and work toward securing your financial future.

Are You Ready?

When planning for retirement, a common guideline is to save between 10% and 20% of your annual salary, which is generally considered sufficient to ensure a comfortable retirement. Another general principle suggests that you’ll need approximately 80% of your pre-retirement income to maintain your current lifestyle. However, if you envision a more extravagant retirement, your savings strategy should reflect that goal.

It can be valuable to assess your current savings using our free online retirement calculators and estimate how much you’ll need to live comfortably. This evaluation will help determine if you’re on the right track or if adjustments, such as reducing potential retirement expenses, are necessary.

Further Strategies To Help Boost Retirement Security

The earlier you start saving for retirement, the more peace of mind you’ll have. Knowing you have a solid plan to cover your retirement expenses allows you to enjoy your pre-retirement years without financial stress. Here are some strategies to help you save for retirement:

  1. Maximize Your Retirement Contributions: One of the most effective ways to boost your retirement savings is to maximize your contributions to tax-advantaged retirement accounts, such as 401(k)s and IRAs. For 2024, the IRS allows individuals over 50 to contribute up to $30,000 to a 401(k) and $7,500 to an IRA. If you haven’t been contributing the maximum amount, now is the time to catch up.
  2. Diversify Your Investment Portfolio: Diversification is key to managing risk and ensuring your retirement savings can withstand market volatility. Consider a mix of stocks, bonds, real estate, and other investment vehicles.
  3. Consider Tax-Efficient Strategies: Taxes can significantly impact your retirement savings. Implementing tax-efficient strategies, such as Roth conversions or tax-loss harvesting, can help minimize your tax liability in retirement. It’s important to work with a fiduciary advisor who understands the complexities of tax planning and can guide you in making the best decisions for your situation.
  4. Create a Retirement Spending Plan: A retirement spending plan helps you understand how much money you’ll need to cover your expenses and how long your savings will last. This plan should account for all your expected retirement expenses, including housing, healthcare, travel, and leisure activities. It should also factor in inflation and potential changes in your spending habits as you age.

Common Mistakes to Avoid

When it comes to retirement planning, even small missteps can have significant consequences for your financial future. Being aware of common mistakes that can derail your retirement goals during this important time is crucial. Here are some common pitfalls to avoid:

  1. Procrastination: One of the biggest mistakes you can make is procrastinating on your retirement planning. The longer you wait, the harder it will be to catch up on your savings. Even if retirement feels distant, it’s crucial to start planning now.
  2. Ignoring Inflation: As mentioned earlier, inflation can significantly erode your purchasing power over time. Failing to account for inflation in your retirement planning can result in your savings falling short of what you need to cover your expenses.
  3. Not Seeking Professional Advice: Retirement planning is complex, and it’s easy to make mistakes if you’re unfamiliar with the intricacies of financial management. Working with a professional and experienced registered financial advisor can help you avoid costly errors and help ensure you’re on track to meet your retirement goals.

At Agemy Financial Strategies, our fiduciary advisors are committed to providing advice that is always in your best interest. We take a holistic approach, considering all aspects of your financial situation to help you achieve your envisioned retirement.

Final Thoughts

Having enough saved for retirement isn’t just about hitting a target number; it’s about crafting a financial plan that lets you live the retirement you’ve always envisioned. For wealthy individuals in Connecticut & Colorado, this means taking a comprehensive approach to retirement planning, considering all aspects of your financial situation, and working with professionals who can guide you through the process.

At Agemy Financial Strategies, we help clients navigate the complexities of retirement planning. Our team of fiduciary advisors is committed to providing personalized advice in your best interest. Whether you’re just starting to think about retirement or nearing the end of your career, we’re here to help you achieve your financial goals and help ensure a comfortable and fulfilling retirement.

Contact us today to schedule a consultation and discover how we can help you prepare for your golden years.

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Stages of Retirement Income Management

Managing your money effectively during retirement requires a combination of strategic decisions and a solid financial plan. Let’s explore some key strategies to help you maintain financial control throughout your golden years.

Controlling your finances during retirement can directly influence your quality of life and peace of mind during your golden years. Seventy-one percent of nonretired adults are at least moderately worried about being able to fund their retirement. This includes 42% who say they are very worried.

By controlling your finances at every stage on your road to retirement, you can help safeguard against financial stress, protect your hard-earned nest egg, and look forward to the retirement you deserve.

Creating and Managing Your Portfolio

Retirement income management is all about helping to ensure your retirement savings provide enough income for your needs and that you don’t outlive your assets. This starts with setting up and managing a portfolio that’s right for you.

Creating retirement income involves a mix of savings, investments, and sometimes continuing income streams that can sustain you during the years when you’re not working. Here are some common strategies and tips to consider as you transition into your golden years.

Pre-Retirement Planning

As you near retirement, you need to think about how you wish to spend these years. After all, with a nation living longer than ever, your retirement could last decades. Once you decide your desired lifestyle (including where you wish to retire and the standard of day-to-day living you wish to maintain), you need to calculate how you will get sufficient income to last your golden years. Some key strategies as you approach retirement include:

  1. Social Security: Make sure you understand how much Social Security income you’ll receive and how your claiming age impacts your monthly benefits. It’s worth remembering you should not rely on Social Security as your main source of retirement income. The Social Security trust funds that about 67 million Americans rely on for benefits are scheduled to be depleted in 2034, one year earlier than was projected last year, according to the annual trustees’ report released by the Treasury Department. Which amplifies the need to generate multiple streams of income asides from Social Security. 
  2. Pensions: If you have a pension plan through your employer, find out how much you can expect to receive and what the payout options are.
  3. Savings: Make sure to set aside money in a savings account for emergency expenses. You should aim for 6-12 months of expenses stashed away. See how you can build and grow your emergency fund here. 
  4. Tax-Advantaged Retirement Accounts: Contribute to retirement savings accounts like 401(k)s, 403(b)s, or IRAs. Max out contributions if possible.
  5. Investment Portfolio: Diversify your investments across different asset classes (e.g., stocks, bonds, real estate) to reduce risk and potentially increase returns.
  6. Debt Management: Try to minimize or eliminate high-interest debt before you retire.
  7. Healthcare Planning: Consider future healthcare costs and think about options like Health Savings Accounts (HSA) or long-term care insurance. Furthermore, the biggest threat to your retirement nest egg is Long-Term Care costs. Despite an aging population, only 7 percent of adults over 50 have an LTC insurance policy. Without proper insurance, you can expect to pay $9,034 per month for a private room in a nursing home. In contrast, in 2023, you can expect to pay anywhere from $79 to $533 per month for a long-term care insurance policy.

Generating Retirement Income

It’s important that the growth of your investment portfolio outpaces inflation, but you should balance that need for growth against the risk of exposing your savings to excessive market fluctuations. A few strategies to make your money work for you include:

  1. Withdrawal Strategy: Create a strategy for withdrawing from your various accounts. The commonly cited “4% rule” suggests withdrawing 4% of your portfolio in the first year of retirement and adjusting for inflation thereafter. However, if you want to be 100% sure you won’t run out of money, following the 4% rule likely isn’t the best choice. Not only is it an older rule, but it also doesn’t account for changing market conditions. In a recession, it’s probably not wise to step up your withdrawal amounts; you may even want to reduce them slightly. But when the markets are doing well, you might be able to withdraw more than 4% comfortably.
  2. CERTAIN Annuities: Some people opt for annuities, which provide a guaranteed income stream for a certain period or for life. However, not all annuities are built equal, and the wrong annuity type can cost you greatly down the line. For example, income annuities may come with limited or no access to assets and withdrawal penalties that can impact your ability to take the money you may need. Listen to our podcast on Bad Annuities here to learn more.
  3. Real Estate: Owning and renting out property can provide a steady income stream. Real Estate Crowdfunding allows you to invest in large real estate projects with a smaller amount of money. Furthermore, REITs (Real Estate Investment Trusts) can provide income through real estate ownership without requiring you to manage properties.
  4. Income Producing Investments: Income-producing investments such as stocks that pay dividends, bank products like CDs and bonds are important in retirement because once you stop working you typically need this money to live on. Growth investments, such as growth mutual funds and individual stocks that are expected to grow at a faster rate than their peers or overall market. They tend to come with greater price fluctuations than income-producing investments but are often recommended by financial professionals to help your retirement portfolio keep pace with, or ideally outpace, inflation.
  5. Tax Planning: Tax efficiency is an important consideration for high-net-worth investors, as taxes can have a significant impact on investment returns. Be strategic about which accounts to draw down first to minimize tax liability. Check out our recent blog on ‘Taxes You Should Know About in 2023’ here.
  6. Portfolio Rebalancing: Periodically rebalance your investment portfolio to ensure it aligns with your risk tolerance and income needs. This not only keeps you on track to meet your goals, but it may also enhance your portfolio’s returns. Learn more about evaluating your Risk Tolerance here.

Ongoing Management

Retirement income planning isn’t a one-and-done task. With the fast-paced nature of the financial markets and inflation, it’s easy to lose sight of your long-term financial objectives and get caught up in short-term fluctuations. That’s why it’s essential to periodically assess your investment portfolio to ensure it’s well-positioned to achieve your financial goals. Most importantly, it will provide you with a framework to identify potential gaps and blind spots in your investment game plan and adjust as necessary based on your lifestyle needs, market conditions, and any changes in laws or regulations that could impact your retirement income.

If doing an investment portfolio review becomes overwhelming on your own, talk to your financial advisor, who has the experience you need. This will help you make more informed decisions that are tailored to your personal financial situation.

Working with Agemy Financial Strategies

Retirement Income Management requires careful planning, ongoing assessment, and strategic decision-making. With the right approach, you can make the most of your hard-earned retirement and confidently embrace the next chapter of your life.

For over 30 years, Agemy Financial Strategies has helped our clients plan and prepare. This way, when the unforeseen occurs, our clients are uniquely positioned for success. We work hard to deliver a dependable retirement income strategy in any market, so you can enjoy the “best” of your lives during retirement.

As Fiduciary advisors, we follow strict U.S. law and standards of professional conduct to prioritize the interests of our clients over our own.

Contact us here for more information on our investing, retirement, and financial planning services today.

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Five Star Wealth Manager Award Winners

Agemy Financial Strategies

September 03, 2024

Looking for a fiduciary financial advisor and wealth manager? How do you know if your financial advisor has your best interests at heart? We understand it’s a big decision to partner with a financial advisor. Here’s why you should work with the award-winning financial planning team at Agemy Financial Strategies.

Celebrating over 30 years, Agemy Financial Strategies is dedicated to educating retirees through retirement planning, legacy planning, wealth management, and more to help them achieve their personal and financial goals.

There are a hundred reasons to work with Agemy Financial Strategies, but winning the Five Star Wealth Manager award for 12 consecutive years is at least twelve of them. By continuously earning this honor, Daniel Agemy, CPM®, RFC®, and Andrew A. Agemy, MRFC®, have shown an outstanding commitment to their clients. They have repeatedly appeared in Connecticut and FORTUNE Magazines (with more to come in 2025—stay tuned!).

About Five Star Professional

Five Star Professional uses their own research methodology to name outstanding professionals and works with highly-esteemed publications to get the word out. Their research disclosures include the five following criteria in order to qualify for the award

  • Nomination of candidates, either firm nomination, peer nomination or pre-qualification based on industry standards.
  • Regulatory Consumer Complaint Review – all candidates must demonstrate a favorable regulatory history
  • Candidate Submission of practice information – candidates must complete either an online or phone interview
  • Evaluation of Candidate practice – candidates are evaluated on 10 objective eligibility criteria.
  • Firm review of award candidate list – all candidates are reviewed by a representative of their firm before final selection

Each of their award winners has shown a commitment to clients, strong industry credentials and has been evaluated on the quality of his or her practice. Daniel Agemy, CPM®, RFC® and Andrew A. Agemy, MRFC® have met these criteria and have been honored with the Five Star Wealth Manager awards.

Meet Andrew Agemy

Andrew has won the prestigious Five Star Professional Award in the category of Wealth Management for the last 12 years straight—as seen in Connecticut Magazine, The Wall Street Journal, Fortune, and many others. Additionally, he is in his second decade of receiving an A+ rating with the Better Business Bureau as well as the National Ethics Association.

In order to serve his clients in the most effective way possible, Andrew is dedicated to continually advancing his knowledge of the financial markets and keeping up with emerging trends, so he can communicate his knowledge to pre-retirees and retirees in a manner they can easily understand. He received the CLTC designation in 2003 and then subsequently became an MRFC.

Andrew’s belief is that a financially literate and educated retiree is a happy and stress-free retiree. That’s why, throughout his career, he’s remained committed to educating his clients and members of his community via in-person financial education workshops and online webinars.

Meet Daniel Agemy

As a second-generation wealth manager, Daniel J. Agemy, CPM®, RFC®, has followed in his father’s footsteps, bringing a lifetime of financial expertise to Agemy Financial Strategies.  As a boy, he helped his dad, Andrew Agemy, in the office.  As he got older, he realized he had a special knack for communicating complex financial concepts and a passion for education. He eventually earned his way into partnership at Agemy Financial Strategies, and in 2015 he co-founded Agemy Wealth Advisors, LLC, a discretionary investment advisory firm.

Now COO and CIO, Daniel combines over a decade of experience with a passion for educating clients, specializing in custom retirement plans that help clients achieve their dream retirement.

In 2018, Daniel received the highly esteemed CPM® designation (Certified Portfolio Manager) from Columbia University IEOR and has won the prestigious Five Star Wealth Manager award three years in a row.

Daniel believes the world is getting increasingly more complex and the way to stay ahead is by continuously educating himself, his team, and clients. Daniel has over twelve years’ experience explaining and managing custom-designed retirement plans built to generate dependable income helping retirees achieve their dream retirement and lifestyle.

About Agemy Financial Strategies

Agemy Financial Strategies has helped their clients plan and prepare. This way, when the unforeseen occurs, their clients are uniquely positioned for success. We work hard to deliver a dependable retirement income strategy, in any market, so that clients can enjoy the “best” of their lives during retirement.

We provide our clients with a wide array of financial services. Retirement planning services are designed to educate our clients as to their best options for meeting their current financial needs, achieving their long-term financial goals, avoiding common retirement-planning mistakes, and enjoying a lifetime of financial stability.

Our goal is to give clients confidence in a custom-developed, robust retirement portfolio and provide investment options designed to generate interest and dividends regardless of market conditions. This is income that can be spent or reinvested for dependable “organic” portfolio growth.

  • Educating retirees and pre-retirees to make smart financial decisions
  • Purpose-based investing
  • Implementing generational wealth transfers
  • Generating income (a retirement paycheck), you can depend on in all market conditions

Are your most important decisions being made with the advice and guidance of a Five Star Professional?

  • Andrew A. Agemy, MRFC® has been recognized for the quality service he provides to the clients in his community. He has an unbroken record of receiving twelve consecutive Five Star awards for his outstanding service.
  • Additionally, Andrew is starting his fourth decade of teaching sound biblical financial principles in the Shoreline community.
  • Five Star is an international research group that helps identify top service providers in their field.
  • Andrew co-hosts the wildly popular radio show and podcast, Financial Strategies, which airs every weekend in both Connecticut and Colorado.
  • Agemy Financial Strategies: because your assets are too important for anything less than Five Stars or AAA (Andrew A Agemy)

Work With the Best

There are so many reasons why you should come and work with Agemy. Not only do we have Five Star Wealth Manager advisors, but with Agemy Financial Strategies, we give you the peace of mind that we are here for you every step of the way on your journey to financial freedom and security.

Our financial advisory team at Agemy Financial Strategies have three main goals for their firm. First, they want to educate retirees to make smart financial decisions. Second, they want to help retirees implement legacy and generational wealth transfers. Third, they want to help retirees have enough income in retirement to live stress-free in the “best” of their lives.

Come work with the award-winning financial planning team at agemy.com today.

 

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