Factoring Inflation into Your Retirement Plan

Right now, inflation is top of mind for everyone, perhaps especially retirees.

Inflation is important. But it is only one of the risks that retirees have to plan for and manage. And like the other risks you have to manage, you can build an income plan so that rising costs (both actual and feared) do not ruin your retirement.

Inflation and Your Budget

Remember that in retirement your budget is different than when you were working, so you will be impacted in different ways. And, of course, when you were working your salary and bonuses might have gone up with inflation, which helped offset long-term cost increases.

Much of your pre-retirement budget was spent on housing — an average of 30% to 40%. Retirees with smaller or paid-off mortgages will have lower housing costs even as their children are busy taking out loans to buy houses, and even home equity loans to pay for home improvements.

On the other hand, while health care looms as a big cost for everyone, for retirees these expenses can increase faster than income. John Wasik recently wrote an article for The New York Times that cited a recent study showing increases in Medicare Part B premiums alone will eat up a large part of the recent 5.9% cost of living increase in Social Security benefits. As Wasik wrote, “It’s difficult to keep up with the real cost of health care in retirement unless you plan ahead.”

Inflation and Your Sources of Income

To protect yourself in retirement means (A) creating an income plan that anticipates inflation over many years and (B) allowing yourself to adjust for inflation spikes that may affect your short-term budget.

First, when creating your income plan, it’s important to look at your sources of income to see how they respond directly or indirectly to inflation.

  1. Some income sources weather inflation quite well. Social Security benefits, once elected, increase with the CPI. And some retirees are fortunate enough to have a pension that provides some inflation protection.
  2. Dividends from stocks in high-dividend portfolios have grown over time at rates that compare favorably with long-term inflation.
  3. Interest payments from fixed-income securities, when invested long-term, have a fixed rate of return. But there are also TIPS bonds issued by the government that come with inflation protection.
  4. Annuity payments from lifetime income annuities are generally fixed, which makes them vulnerable to inflation. Although there are annuities available that allow for increasing payments to combat inflation.
  5. Withdrawals from a rollover IRA account are variable and must meet RMD requirements, which do not track inflation.   The key in a plan for retirement income, however, is that withdrawals can make up any inflation deficit. In Go2Income planning, the IRA is invested in a balanced portfolio of growth stocks and fixed income securities. While the returns will fluctuate, the long-term objective is to have a return that exceeds inflation.
  6. Drawdowns from the equity in your house, which can be generated through various types of equity extraction vehicles, can be set by you either as level or increasing amounts. Use of these resources should be limited as a percentage of equity in the residence.

The challenge is that with these multiple sources of income, how do you create a plan that protects you against the inflation risk — as well as other retirement risks?

Key Risks That a Retirement Income Plan Should Address

A good plan for income in retirement considers the many risks we face as we age. Those include:

  1. Longevity risk. To help reduce the risk of outliving your savings, Social Security, pension income and annuity payments provide guaranteed income for life and become the foundation of your plan. As one example, you should be smart about your decision on when and how to claim your Social Security benefit in order to maximize it.
  2. Market risk. While occasional “corrections” in financial markets grab headlines and are cause for concern, you can manage your income plan by reducing your income’s dependence on these returns.  By having a large percentage of your income safe and less dependent on current market returns, and by replanning periodically, you are pushing a significant part of the market risk (and reward) to your legacy. In other words, the kids may receive a legacy that reflects in part a down market, which can recover during their lifetimes.
  3. Inflation risk. While a portion of every retiree’s income should be for their lifetime and less dependent on market returns, you need to build in an explicit margin for inflation risk on your total income. The easiest way to do that is to accept lower income at the start.  For example, under a Go2Income plan, our typical investor (a female, age 70 with $2 million of savings, of which 50% is in a rollover IRA) can plan on starting income of $114,000 per year under a 1% inflation assumption. It would be reduced to $103,000 under a 2% assumption.

So, what factors should you consider in making that critical assumption about how much inflation you need to account for in your plan?

Picking a Long-Term Assumed Inflation Rate  

Financial writers often talk about the magic of compound interest; in real numbers, it translates to $1,000 growing at 3% a year for 30 years to reach $2,428. Sounds good when you’re saving or investing. But what about when you’re spending? The purchase that today costs $1,000 could cost $2,428 in 30 years if inflation were 3% a year.

When you design your plan, what rate of inflation do you assume? Here are some possible options (Hint: One option is better than the others):

  • Assume the current inflation of 5.9% is going to continue forever.
  • Assume your investments will grow faster than inflation, whatever the level.
  • Assume a reasonable long-term rate for inflation, just like you do for your other assumptions.

We like the third choice, particularly when you consider the chart below. Despite the dramatically high rate of today’s inflation that affects every result in the chart, the long-term inflation rate over the past 30 years was 2.4%. For the past 10 years, it was even lower at 2.1%.

A Long-Term View Smooths Inflation Spikes

A table shows what a $1,000 item would cost today if purchased in years ranging from 2020 to 1991, showing inflation rates of 6.9% currently, down to 2.4% for 30 years.A table shows what a $1,000 item would cost today if purchased in years ranging from 2020 to 1991, showing inflation rates of 6.9% currently, down to 2.4% for 30 years.

Managing Inflation in Real Time

Whether you build your plan around 2.0%, 2.5% or even 3.0%, it is helpful to realize that any short-term inflation rate will not match your plan assumption. My view is that you can adjust to this short-term inflation in multiple ways.

  • Where possible, defer purchases that are affected by temporary price hikes.
  • Where you can’t defer purchases, use your liquid savings accounts to purchase the items, and avoid drawing down from your retirement savings.
  • If you believe price hikes will continue, revise your inflation assumption and create a new plan. Of course, monitor your plan on a regular basis.

Inflation as Part of the Planning Process

Go2Income planning attempts to simplify the planning for inflation and all retirement risks:

  1. Set a long-term assumption as to the inflation level that you’re comfortable with.
  2. Create a plan that lasts a lifetime by integrating annuity payments.
  3. Generate dividend and interest yields from your personal savings, and avoid capital withdrawals.
  4. Use rollover IRA withdrawals from a balanced portfolio to meet your inflation-protected income goal.
  5. Manage your plan in real time and make adjustments to your plan when necessary.

Inflation is a worry for everyone, whether you are retired or about to retire. Put together a plan at Go2Income  and then adjust it based on your expectations and investments. We will help you create the best approach to inflation and all retirement risks you may face.

President, Golden Retirement Advisors Inc.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com, where consumers can explore all types of income annuity options, anonymously and at no cost.

Source: kiplinger.com

A 2022 Guide to Key Dates for Retirees

Deadlines are relentless, whether for tax filings, health plan open enrollments or required distributions from retirement savings. The clock is always ticking, even in retirement, and the consequences for missing a financial deadline can be painful.

This guide to key dates in 2022 serves as both a reminder and a checklist of what you need to do and when. Post it on your refrigerator or thumbtack it to a bulletin board and use it to manage your finances better and on time.

JAN. 1. A new year is a clean slate, a chance to pare down your spending and beef up your savings. In 2022, you have a bigger incentive to do both because the maximum amount that can be contributed to an employer’s retirement savings plan jumps to $20,500, up from $19,500 for the past two years. People age 50 and older can sock away an additional $6,500.

The contribution limits for IRAs remain unchanged at $6,000, with an additional $1,000 allowed for someone 50 or older. Although there is no age limit for contributing to an IRA, you will need enough earned income to cover the contributed amount. Note that IRA contributions phase out for high earners (see IRS Publication 590-A).

The start of the new year also marks the beginning of traditional Medicare’s general enrollment period, which lasts until March 31. During this window, individuals who missed signing up for Medicare when they turned 65 or during a special enrollment period get another chance, with coverage beginning July 1. The same window also serves as Medicare Advantage’s open enrollment period, when those already enrolled in an Advantage plan can elect a different one or switch to traditional Medicare.

JAN. 18. The calendar and the Martin Luther King holiday give you three extra days to pay fourth-quarter 2021 estimated taxes. You can skip this deadline, however, if you file your taxes for the year and pay any remaining balance by Jan. 31.

MARCH 31. General enrollment for traditional Medicare and open enrollment for Medicare Advantage end.

APRIL 1. This deadline only matters to those who turned 72 in 2021 and didn’t take a required minimum distribution last year. Age 72 is when you must begin taking distributions from tax-deferred retirement savings accounts, but first-timers can delay taking an initial RMD until April 1 of the year following their 72nd birthday. Thereafter, the deadline for taking RMDs is every Dec. 31. If you delay taking your first RMD, you will need to take a second distribution in the same year, which will jack up your overall taxable income and possibly tip you into a higher tax bracket.

Although Roth IRAs have no required minimum distributions, Roth 401(k)s do. You can skip taking an RMD from your current employer’s plan if you continue working there and don’t own 5% or more of the company. But you must take RMDs from traditional IRAs and the 401(k)s of previous employers.

To calculate your RMD, take the value of the account balance on Dec. 31, 2021, and divide it by the corresponding life expectancy factor for your age based on your birthday in 2021. Use the tables in IRS Publication 590-B to determine your life expectancy factor.

APRIL 18. A regional holiday is responsible for the extra three days you have to file your 2021 taxes this year. In 2022, the District of Columbia celebrates Emancipation Day on April 15, pushing the filing deadline to Monday April 18. On this day, your 2021 taxes are due, along with any money owed, even if you file for a six-month extension. Today is also your last chance to make your 2021 contribution to an IRA. If you file quarterly, this is also the deadline for the first estimated tax payment for 2022.

JUNE 15. Your second-quarter estimated tax payment is due.

JULY 1. Use this midyear point to assess your 2022 tax tab. Are your estimated tax payments on track to avoid underpayment penalties? You can dodge them if you pay at least 90% of the current year tax bill or 100% of last year’s payment (110% if your income is high). You should also consider other tax-saving moves for the year.

SEPT. 15. Third-quarter estimated taxes are due.

SEPT. 30. By now, you should have Medicare’s annual notice of changes to formularies, benefits and premiums for either a Medicare Advantage or Part D prescription drug plan. Changes take effect in 2023. Review these changes carefully.

OCT. 15. Time’s up for all you extension filers. Today is the deadline for turning in your 2021 tax return. Also, Medicare open enrollment begins today. You have from now until Dec. 7 to switch between traditional Medicare and Medicare Advantage or choose new Advantage or Part D prescription drug plans, with coverage beginning next year.

NOV. 1. In most states, early retirees can begin shopping today for a 2023 health plan on the Affordable Care Act exchanges. You have until Dec. 15 to select coverage.

DEC. 1. Act by today if you plan to make a qualified charitable distribution from your IRA so that the charity receives the money by the end of the year. Traditional IRA owners who are at least age 70½ can transfer up to $100,000 directly to charity in 2022. A QCD still counts as an RMD but is excluded from your taxable income.

DEC. 7. Medicare’s open enrollment ends today.

DEC. 15. The ACA’s open enrollment ends. Ideally, your RMD should be taken by this date too. Brokerages get busy at the end of the year, and any delay on their part could result in you missing the Dec. 31 deadline for taking an RMD, an expensive error that comes with a 50% penalty on the missed amount.

DEC. 31. Here’s your last chance to trim your 2022 tax bill. Charitable gifts, 401(k) contributions, Roth conversions and the sale of a losing investment to offset market gains elsewhere must all be completed by today to count for 2022.

Source: kiplinger.com

4 Top Retirement Planning Tips from Warren Buffett

Warren Buffett
Krista Kennell / Shutterstock.com

Editor’s Note: This story originally appeared on NewRetirement.

Warren Buffett earned his nickname honestly. The Oracle of Omaha’s success at investing is legendary, and he has ranked among the world’s wealthiest people time and again. But Buffett isn’t your typical wealthy business magnate. His retirement planning advice isn’t just for the rich and famous — it works for everyone.

He’s known to be frugal, still living in the same home in Nebraska that he’s owned for decades, and surprisingly down to earth, especially considering his net worth. If anyone knows how to build wealth, it’s him. And here are some of his best tips for creating a comfortable retirement.

Think long-term investments

Michael Wick / Shutterstock.com

Investing isn’t for the faint of heart. But because most everyone should be investing, that leaves a large portion of society at odds with a bad case of nerves every time the market wobbles. Jeff Rose, a certified financial planner, writes for U.S. News & World Report that Buffett’s strategy is long-haul investing. The people who weather the storms usually come out on the other side in a better position.

If the daily ups and downs get to you, you’re selling yourself short. Buffett believes that investors should stay the course, even when you’d really rather cash in your chips and go home. Pay more attention to stocks using index funds and less attention to short-term gains, and you’re more likely to come out ahead.

Watch out for bonds

Bad investment
vchal / Shutterstock.com

Bonds and other cash-based investments might seem safe, but Buffett believes that they’re anything but. In the book, “Tap Dancing to Work: Warren Buffett on Practically Everything, 1966-2012: A FORTUNE Magazine Book,” he warns that currency-based investments, even money-market funds, can be downright dangerous.

Currency-based investments are dependent on the value of the dollar, which means that even mortgages as investments are risky. He says “the dollar has fallen 86 percent in value since 1965.”

Don’t forget to plan your next phase

Cheerful retirees
sirtravelalot / Shutterstock.com

Retirement isn’t the end. If it was, you wouldn’t need to spend so much time and exert so much effort planning the financial side of it. So while you should devote a healthy amount of attention to retirement income, don’t forget to plan what you’ll do after retirement.

According to U.S. News & World Report, Buffett says retired folks need a purpose. Without one, you risk losing your health. Plan for retirement as if it’s the next phase of your life (which it is) instead of the slow wind down (which it otherwise could become).

Be cautious about financing the family

sirtravelalot / Shutterstock.com

You shouldn’t devote too much time to planning what you’ll one day leave to your family. Retirement is about your life, not how you can finance everyone else’s. That doesn’t mean that you should only think about yourself, but you shouldn’t risk your own security and happiness for the sake of people who should also be working toward their own.

In “Tap Dancing to Work,” Buffett suggests that “the perfect amount is enough money so they would feel they could do anything, but not so much that they could do nothing.” He intends to leave more (by far) to charity than to his family.

It’s sometimes difficult to think about following the advice of people who might as well be considered professional billionaires. Sure, they can invest a certain way because they can afford to. But Warren Buffett uses plain common sense when it comes to investments, and you can, too.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

11 Super-Simple Ways to Build Wealth in 2022

A wealthy couple
Jacob Lund / Shutterstock.com

To paraphrase William Shakespeare, some people are born wealthy and others achieve wealth. If you weren’t lucky enough to be in the first group, then it’s time to get going on your self-made fortune.

Think that can’t happen? You’re wrong. Pathways to wealth are everywhere. Why shouldn’t you take them?

Some of these smart choices will save you money upfront. Next, use that money to make more money through strategies like fractional investing and online wealth management.

Want to put yourself on the road to riches? These tactics can help.

1. Used Chevy or new Mercedes?

Save $100 a month, earn 1% on it and after 20 years you’ll have $26,545. Enough for a used Chevy.

Boost that percentage to 15%, and you’ll end up with $124,569 after 20 years. That’s nearly $100,000 more: enough for a new Mercedes.

Of course, earning 15% isn’t easy (the stock market’s average return is about 10%) and never guaranteed, but here’s something that is guaranteed: You won’t be earning big returns at the bank.

If you want to super-charge your savings, you’ve got to invest.

Plenty of people grow up thinking that “investing” is something only rich people do. Not so! You can start your investing journey with as little as $1, without paying a dime in fees, thanks to an investing app called Public.

With the Public app, you take part in “fractional investing,” which means buying little slivers of companies, funds or crypto assets. Take your choice from among thousands of exchange-traded funds (ETFs) and stocks.

Start by signing up and telling the app what investing experience (if any) you have and what your investing goals are. According to Public, 90% of users are in it for the long haul.

There’s no charge to join, although you’re allowed to leave tips on transactions. And again: You can start with as little as $1. What else can you get for a buck these days? Even dollar stores are raising their prices!

Download the app now, and take the first step toward getting rich instead of just getting by.

2. Chop your car insurance bill by $700 a year

Auto insurance is a must. You know what isn’t a must? Paying too much for coverage.

People who switch to Progressive for their auto insurance can save up to $700 – not just initially, but every year. Imagine what you could do with an extra $700 in your budget.

Emergency fund? Extra payment against your mortgage? Retirement planning? It’s your call. Point is, those are dollars that are now working for you instead of for someone else.

Incidentally, a cheaper premium doesn’t mean you’re cheaping out on protection. Progressive is known for its strong coverage. Request your free quote now and see how much you can save this year, and every year.

3. Let mortgage savings put your kids through college

If you’re currently paying about 4% on your mortgage, refinancing could lower your rate to as low as 2.376%.

Not much of a difference, right?

Well, if your mortgage is $300,000, that lower rate would mean paying about $94,000 less in interest over the life of the loan. That’s enough to put your kids through college, start your own business or retire earlier.

Maybe you know the savings would be significant, but haven’t refinanced yet because it seems so complicated. It isn’t. A direct lender called Better will make it child’s play.

The simplifying starts with a near-instant rate quote, and continues through the refinancing process. Better doesn’t charge origination fees or lender fees, and you can get a mortgage interest rate lock if you like.

Millions of homeowners around the country are saving every month because they refinanced. But the experts are saying these low rates won’t last. It’s do-it-or-lose-it time.

Get your new, personalized rate today, and make strides toward a better tomorrow.

4. Stop worrying about expensive household breakdowns

For most of us, our home is our most valuable asset. We put a lot of money down to buy it and pay a lot of money each month to keep it. Sometimes we’re stretched pretty thin financially, so when things break down it can be tough to cover the fixes.

The heating/cooling system grinds to a halt. A major appliance gives up the ghost. And why are the lights flickering — could it be the electrical panel?

What you need is a full-time maintenance person.

The next best thing? A home warranty from America’s 1st Choice Home Club. You can choose from among several coverage plans that cover issues with appliances, plumbing, heating, electrical systems and more. You can use your own technician or let America’s 1st Choice send someone over.

A breakdown happens in the middle of the night? Doesn’t matter. The in-house service team is available 24/7.

All this starting for as little as $390 a year.

Homeownership is great. But when things go wrong — and they will! — we can no longer call the landlord. We are the landlord, and we might go into debt just to keep things running smoothly.

Stop worrying about household breakdowns, and the high costs that come with them. Get a free quote in 30 seconds.

5. Get paid to watch videos and take surveys

Think of all the time you spend waiting somewhere. Waiting for the spin cycle in the laundromat. Waiting at the auto shop until the mechanic can give you an estimate. Waiting for your kid’s sports practice to be over. Waiting in an exam room for the doctor, who’s running 20 minutes late.

You could spend that time watching funny cat videos — or you could use that time to make some money. Our friends at InboxDollars can help you with the latter.

InboxDollars is a rewards site that pays you actual cash to watch videos and take surveys. Seriously: Why not use your downtime to make money?

Those aren’t the only ways to earn money with InboxDollars, however. You can also do some online shopping, click on daily emails, scan your grocery receipts into the “Magic Receipts” function, complete special offers (especially those for things you’d planned to buy anyway), play games and even help others by making donations to various causes.

From now on, get paid for waiting. It takes seconds to sign up, and you’ll get a $5 welcome bonus just for joining.

6. Find cheaper homeowners insurance in 60 seconds

Again, our homes are usually our most valuable asset. It’s essential to make sure they’re protected in the event of an emergency. But how do you know whether you’re overpaying for homeowners insurance?

Simple: You ask Lemonade for an estimate. It takes only a few seconds to find out whether you could be keeping more of your hard-earned money each month. Lemonade’s coverage starts from just $25 a month.

Homeowners insurance isn’t just about fixing things up after a fire, though. The dog bit the mailman? Lemonade can help with legal and medical payments.

A thief steals your stuff? Lemonade has your back, even if the theft happened away from home.

Your home rendered unlivable due to that fire? A homeowners insurance policy through Lemonade will cover expenses until you can get back into your home sweet home.

Why overpay with your current carrier? Find cheaper home insurance in seconds.

7. Add $1.7 million extra to your retirement

A recent Vanguard study indicated that a self-managed $500,000 investment would grow into $1.69 million in 25 years, on average. Sounds pretty good, huh?

However, with professional help, that same $500,000 would have turned into $3.4 million. In other words, a quality financial adviser could double your retirement nest egg!

At least talk to a pro, especially when finding one is free and easy. SmartAsset is a free service that will match you with a qualified money manager who can help you put your money where it will do you the most good.

Bank interest rates don’t beat inflation, so the value of your savings erodes over time. Stocks and other investments have historically beaten inflation, but a lack of knowledge and experience leaves you vulnerable to dodgy advice or financial scams.

SmartAsset will put you in touch with up to three local, experienced professionals, all of whom are fiduciaries, meaning they’re required to put your best interests over their own. They can give you a clear picture of where you are now, and help you develop the right plan for the long term.

Since the first appointment is often free, what have you got to lose? If you’re ready to at least consider a local adviser, check it out.

8. Protect your wealth with a gold IRA

Not everyone is comfortable with traditional retirement investments. Some people are opting for a “gold IRA,” which is just what it sounds like: gold, gold and more gold. This can be bullion (coins or bars) only, or also include gold stocks, ETFs and mutual funds. Gold is one of the few commodities that the Internal Revenue Service approves as an IRA investment. It’s a finite resource, rather than one that can be controlled by governments or banks.

Sound intriguing? Time to educate yourself, with help from American Hartford Gold.

This family-owned company can help you set up a gold IRA that meets all IRS standards. Chief among them: The gold must be kept at an approved depository. (No, you can’t bury it in your backyard.)

There may be less than 20 years’ worth of mineable gold remaining in the ground. As the saying goes about real estate, they ain’t making any more of it. Demand for gold is rising all over the world, especially in the electronics industry, so your IRA has a great chance to increase its value until you’re ready to retire.

American Hartford Gold has an A+ rating with the Better Business Bureau, and a 5-star rating with TrustPilot. Get your free investors kit now.

9. Diversify your portfolio with art collected by billionaires

Billionaires didn’t become billionaires by making bad investment choices. And billionaires have been collecting art for generations; for example, the Rockefellers amassed a collection that sold for an eye-popping $835 million in 2017.

But it isn’t just the ultra-rich who can invest in art by Banksy, Warhol and Picasso. With a new investing app called Masterworks, you can invest in iconic artworks as well – right alongside deep-pocketed folks like Bill Gates, Oprah Winfrey and Jeff Bezos.

Blue-chip art outpaced the S&P 500 from 1995-2021, which is impressive considering that historic bull run we’re now witnessing. The Wall Street Journal recently reported that art is “among the hottest markets on Earth.”

Art also has one of the lowest correlations to stocks that you can find. In other words, art’s value doesn’t have anything to do with the stock market’s wild swings, which makes it a good hedge.

Masterworks is an invitation-only art investment platform. So if you want to invest like a billionaire, request your invitation to join here.

10. Borrow $50,000 to erase your debt

Ever feel like you’ll never get out from under your credit card debt? Consumer debt is way too easy to get into, yet sometimes feels impossible to escape. You pay as much as you can each month, but the high interest rate just keeps piling on the dollars.

AmOne is a free service that matches people like you with loan providers. When you fill out one simple form online, AmOne finds lenders who want to fund your loan of up to $50,000.

Once you’ve been approved and agree on the terms, it can take as little as 24 hours to get the cash. Use the money to erase all your debt at once, then pay back the personal loan at a lower interest rate than those credit cards were charging you.

The service does only a “soft” credit pull, rather than have you going directly to lenders and getting “hard” credit pulls that affect your credit score. And speaking of your credit score: You don’t need an “excellent” rating to be considered, since AmOne’s lending partners are willing to work with people of varying credit ratings.

AmOne has a 4.7-star rating (out of 5) on TrustPilot. It’s free to check your rate online, and it literally takes just one minute.

11. Pay no interest until 2023 with a better card

Another way to deal with high credit card balances? Get another credit card. Specifically, get a 0% APR card, transfer those balances and get charged no interest while you’re paying down the debt.

There’s another good reason to get a 0% APR card: to get free financing on a big-ticket item.

Suppose your HVAC system goes out or your car needs a few thousand bucks’ worth of repairs. Rather than deplete your emergency fund, pay with that new 0% APR card to give yourself some breathing room while you pay it off.

How much breathing room? Anywhere from 15 to 21 months, depending on the card you choose.

You’ll need a plan to go along with that new card: no more using the other cards with unnecessary splurges while you pay off the 0% APR card. It doesn’t make sense to run up more debt while you’re paying off old debt.

But with a 0% card, you’ll pay no interest. Think of all the interest you’d been paying, and what those dollars could have done for your long-term financial security. With a 0% APR card, you won’t have to waste any more of your hard-earned dollars on interest.

Compare these top cards and discover the best one for you.

Disclosure: The information you read here is always objective. However, we sometimes receive compensation when you click links within our stories.

Source: moneytalksnews.com

How the Latest Biden/House Tax Proposal Affects Millionaire Retirees

Back in November 2017, I did a deep dive into the House version of the Tax Cuts and Jobs Act (TCJA). It’s hard to identify anything I’ve done that was a bigger waste of time. The final version of the bill signed into law by former President Trump had almost no resemblance to its initial form. Today the Build Back Better proposal has also gone through multiple twists and turns — and probably will continue to do so. This time, however, the House version is more likely to be close to its final form. As I write, it is also possible that this will play out in the Senate in January. Happy New Year!

Here’s the good news for the wealthy: If you have $1 million to $5 million, this bill is not going to have a significant impact on your finances unless you are about to sell a business or hit the lottery. But here are three items still in the bill that you should be aware of: 

1. Increase of the SALT deduction

Unlike the many tax hikes in the bill for the wealthy, this provision is likely to reduce your taxes. The TCJA put a cap of $10K on the amount of state income taxes and personal property taxes you can deduct. In high-tax, high-property-value areas, this cap significantly reduced the amount of itemized deductions you could claim. This bill raises that cap to $80K. That’s great news for retirees who live in valuable homes or have significant retirement income subject to state income taxes.

Example: If your itemized deductions increase by $10K due to the SALT cap expansion, your taxable income will drop by the same amount. Your tax bill will decrease by your [marginal rate * $10K]. So if you were in the 32% marginal tax bracket, you would owe $3,200 less in taxes.

2. Wash sale rules would apply to cryptocurrencies

My mom, who is in her 70s and largely hands-off with her investments, inquired about Bitcoin earlier in the year. That was my sign that cryptocurrencies are here to stay, and we know that many of our clients are investing in them. What I think many retirees don’t realize is that there is a way to take advantage of a current loophole until (if) this bill is passed.

Cryptos are extremely volatile. If you have a bad Bitcoin day, you can sell your position, claim the loss on your tax return, and reinvest the same or next day. With stocks, bonds, mutual funds, etc., you must be out of that position for more than 30 days to be able to claim that loss.

Many experts think that this contributes to the volatility of the asset class as there is actually a tax advantage to selling when everyone else does, leading to self-perpetuating volatility. Should the Build Back Better plan as currently written pass, cryptos will follow the same wash sale rules as other publicly traded securities.

3. Reduced estate exemption (but not until 2026)

Full disclosure: This reduction actually stems from the expiration of the TCJA, not as part of the Build Back Better act. I imagine this all seems like Greek, but, as a refresher, the exemption is the amount you can pass to beneficiaries without owing federal estate tax. The TCJA doubled this amount from roughly $5.5 million to $11 million per person, meaning that very few people have to worry about it. Many of the earlier versions of Build Back Better accelerated the reduction. However, the latest version does not.

Assuming that the estate tax exemption in the final bill is exactly what the House passed, the reduction of the exemption amount would come in 2026. While the vast majority of Americans would still be just fine, many of you may not be. When you add your home, your investments, etc., that number can climb quickly. Add compounding interest for the next 20 years and you may need a different level of estate planning.

Bottom line: This bill has been defanged for almost all but the uberwealthy. If you’re wondering why Elon Musk is selling Tesla stock, it’s not because of a Twitter war with Bernie Sanders; it’s because he’s betting his tax bill will be lower today than in the future. For those like Elon, it’s a safe bet. The rest of us need to wait and see.

Wealth Manager, Campbell Wealth Management

Evan Beach is a Certified Financial Planner™ professional and an Accredited Wealth Management Adviser. His knowledge is concentrated on the issues that arise in retirement and how to plan for them. Beach teaches retirement planning courses at several local universities and continuing education courses to CPAs. He has been quoted in and published by Yahoo Finance, CNBC, Credit.com, Fox Business, Bloomberg, and U.S. News and World Report, among others.

Source: kiplinger.com

The Big Financial Stories of 2021 and What to Expect in 2022

From high inflation rates and meme stocks like Game Stop to the economy trying to recover from the first year of the pandemic, a lot happened in 2021 that impacted our finances. As we get ready to celebrate the holidays and ring in the new year, it’s a good time to look back on what happened in 2021 and how we can prepare for the future. 

Inflation Reaches an Almost 40-Year High

High prices for gas, lumber, homes and groceries started making headlines as early as May of 2021. The U.S. consumer price index rose 6.2% over the previous year in October, marking the biggest jump in inflation since December of 1990. It was even worse in November, with prices rising 6.8%, the fastest pace since 1982. Despite more workers in the U.S. bringing home more in each paycheck, people can’t tell due to the higher prices of consumer goods they’re seeing. 

As much as we hope these increased costs will be left behind in 2021, economists aren’t optimistic about 2022. But there are some things you can do now to prepare for these unexpected price increases. Prioritizing your debt will give you the wiggle room in your budget to react to inflated prices at the pump or grocery store. Concentrate on paying off one debt at a time while still making minimum payments on your other debts. 

Another way to combat inflation is by contributing to your emergency fund to cushion the blow of rising costs. Your emergency fund should have enough money to cover three to six months of expenses. You may also want to reach out to an expert. Financial professionals have a lot of experience fitting the cost of inflation into a budget. They can be a good resource to make sure you’re on the right path when it comes to your finances.

RMDs Return

Required minimum distributions, or RMDs, are a mandatory withdrawal that retirees must take from qualified accounts, such as 401(k)s, traditional IRAs or 403(b)s, starting at age 72 for anyone born on July 1, 1949, or later –  or 70-½ if you were born before then.

In 2020, minimum withdrawals were suspended for retirees under the CARES Act. The idea was to give retired taxpayers some relief after the stock market dropped more than 30% in March 2020. The 2020 provision let the money retirees would have withdrawn stay in the market and hopefully recover and grow. But that change was only temporary, and in 2021 retirees were required to start making withdrawals again.

What Do We Need to Watch Out for in 2022?

Changes to the IRS Tax Brackets

The IRS makes changes to the tax bracket thresholds each year based on inflation rates. In 2022, the changes will be significant, going from 1% to 3%. For example, if a married couple was in the upper end of the 35% tax bracket in 2021, in 2022 they can make almost $20,000 more before being bumped up into the top tax bracket of 37%.

We can prepare for changes like these by planning all year-round. Utilizing various tax-planning strategies during your working years can help keep your tax burden management during retirement. If you have concerns about how tax changes could impact your financial future, speak with a financial professional. 

401(k) Contribution Changes

The IRS is also changing the maximum amount taxpayers can contribute to their 401(k)s. In 2022, the amount people can contribute to their 401(k) will increase by $1,000 to $20,500 (plus $6,500 more as a catch-up contribution if you are 50 or older, for a grand total of $27,000).

For traditional and Roth IRA contributions,  the amount people can contribute is the same as in 2021 ($6,000 per year, or $7,000 if you’re 50 or older). However, more high-income individuals will be able to contribute to Roth IRAs next year. The IRS increased the income phase-out range for taxpayers making these contributions. It will range from $129,000 to $144,000 for single taxpayers, and from $204,000 to $214,000 for those who are married filing jointly.

Understanding what changes are coming in the new year can make a big difference in your financial future. Sit down with a financial adviser to create a plan to help you meet your retirement goals.

Founder & CEO, Drake and Associates

Tony Drake is a CERTIFIED FINANCIAL PLANNER™and the founder and CEO of Drake & Associates in Waukesha, Wis. Tony is an Investment Adviser Representative and has helped clients prepare for retirement for more than a decade. He hosts The Retirement Ready Radio Show on WTMJ Radio each week and is featured regularly on TV stations in Milwaukee. Tony is passionate about building strong relationships with his clients so he can help them build a strong plan for their retirement.

Source: kiplinger.com

My 5-Minute Retirement Plan

The most common mistake people make when planning their retirement is assuming that the way wealth was created is the same way they should hold wealth in retirement, with the added twist of being more conservative.

Popular belief suggests that as you age, the level of risk an investor takes should decline in an effort to preserve their assets and protect them from market loss.  The general idea here is the younger you are, the more aggressive you should be. The older you are, the more conservative you should be.

The theory is that too much risk can lead to losses if markets fall with less time to recover, and by dialing down the risk it can help minimize losses.

But here is the problem – when you dial down risk, you may solve for volatility and overall exposure to market losses, but at the same time you are reducing your earnings potential — which of course is the oxygen of a retirement plan.

It is a double-edged sword: If you take on too much risk, you run the risk of losing money.  If you don’t take on enough risk, then you run the risk of running out of money. Most people struggle to find a balance, especially in a low interest rate environment like we are in now.

The Problems with Investing for Income

One approach often used is to simply keep the risk moderately high with the belief that profits can be skimmed from the portfolio in a way that aims to protect the principal while allowing the portfolio to grow over the long term. A variation of this would be to use a dividend portfolio, where you can receive dividends for income.

With either strategy you face uncertainty about how much income you will receive one quarter to the next and are forced to accept the possibility of having no earnings in a given year due to market volatility or poor company earnings.

How this plays out in real-life is income must be taken regardless of market performance because there is a need for income in retirement.  The result of this is the problem being exacerbated, because in the absence of earnings you are depleting principal, which only compounds the problem.

And if you think bonds are the answer, think again.  With interest rates on the rise, there is a high probability of losing principal or having bond yields running below inflation rates. Finding a fixed income alternative is a serious challenge.

What about the 4% Rule?

Another popular idea is what is known as the “4% Rule” for taking distributions.  The theory is that based on past performance, if you withdraw 4% from your accounts then you “should” statistically carry those assets for 30 years. 

This brings up another issue beyond just the potential for market losses and that is the effects of inflation.  Inflation is the silent killer of all retirement plans by gradually reducing the purchasing power of your assets over time. 

To shed some light on this problem, consider the annualized return your portfolio must have to fulfill the need of a 4% distribution, a 3% inflation rate, and fees around 1%. The math concludes that the break-even is 8% year over year without consideration for down years or volatility. 

The risk here is the longevity, which is why the 4% Rule suggests a 30-year period.  It is assumed that you will eventually run out of money.  Couple this with a few bad years in the market and you have a recipe for principal depletion acceleration.

In order for a growth portfolio to flourish, the account needs time to do what its name suggests –grow.  And when you are taking income from a portfolio designed for growth, you are sabotaging the progress.

Here is what is happening with all of these scenarios.  There is an assumption that the way wealth was created – typically using a portfolio of growth stocks and ETFs – is the same way wealth should be held in retirement, but leaning more conservative.

All of the confusion and challenges with generating income … they all originate from this misconception.  The mindset that rate of return and growth is the means for distributing income is the problem and cannot be achieved without a lot of luck on your side, and that is not a retirement plan.

The 5-Minute Retirement Plan Explained

Most clients come to me for help when they get stuck and find themselves transitioning from having to work for a living to worrying about their money for a living, and neither is a picture of freedom. The solution for this is really quite simple when you resolve to the fact that, growing money is done one way and distributing income is done another way. 

The caveat is this, financial freedom is only achieved if the income is sustainable and you’re not waking up every day wondering if that freedom is going to be washed away with the next pandemic, political decision, leadership decisions, and a slew of other things outside of your control

So, once you have your thinking centered around income, to execute the Five-Minute Retirement Plan, you begin by figuring out how much income you need to supplement your Social Security and pension income to live the life you want.  You must know this, otherwise you’re just making numbers up, and that just compounds the problem.

Once you have that figured out, you take that annual income total and divide it by 6%.  (Why 6%? This is the average using my Assets2Income™ method.  And if you would like to learn more about this, click here.) 

The result of this calculation provides you with the approximate amount to be set aside and dedicated for generating the income you need right now to retire while the remaining assets are separated and invested long term as an inflation hedge.

The advantage to this method is the ability to concentrate on the purpose of each pool of money.  Here is an example of how this works:

Under the 4% Rule using a typical “conservative” allocation, a $1 million retirement account would generate $40,000 of income without consideration for inflation as described before.

Using the Assets2Income™ Method, the same $40,000 of income could be generated from using $667,000 of the $1 million, leaving  the remaining $333,000 available to invest long term as an inflation hedge.

The key takeaway here is that assets must be separated and allocated based on the purpose you have for the money. That is the Five-Minute Retirement Plan framework, and coupled with The Assets2Income™ Method, retirees are able to strategically separate their assets and solve for the two biggest variables within their retirement:  Income now and income later.  You can learn more about Assets2Income here: https://brianskrobonja.com/training-video

Securities offered through Kalos Capital, Inc., Member FINRA/SIPC/MSRB and investment advisory services offered through Kalos Management, Inc., an SEC registered Investment Advisor, both located at11525 Park Wood Circle, Alpharetta, GA 30005. Kalos Capital, Inc. and Kalos Management, Inc. do not provide tax or legal advice. Skrobonja Financial Group, LLC and Skrobonja Insurance Services, LLC are not an affiliate or subsidiary of Kalos Capital, Inc. or Kalos Management, Inc. 

Founder & President, Skrobonja Financial Group LLC

Brian Skrobonja is an author, blogger, podcaster and speaker. He is the founder of St. Louis Mo.-based wealth management firm Skrobonja Financial Group LLC. His goal is to help his audience discover the root of their beliefs about money and challenge them to think differently. Brian is the author of three books, and his Common Sense podcast was named one of the Top 10 by Forbes. In 2017, 2019 and 2020 Brian was awarded Best Wealth Manager and the Future 50 in 2018 from St. Louis Small Business.

Source: kiplinger.com

How to Handle an Increase in Your Long-Term Care Premiums

The cost of living rises every year, which makes paying for basic expenses more difficult. Long-term care (LTC) premiums are increasing, too. It’s become a focal point in the last several months as rates have gone up — the increased premiums can harm an individual’s quality of life and continued access to quality care. It’s an issue that hits close to home for me and my family, as my mom has seen her premiums rise by 50% over the past two decades.

According to the U.S. Department of Health and Human Services, someone turning 65 today has nearly a 70% chance of needing long-term care services and support. Currently, a growing client base who bought LTC insurance in the past is now seeing high premium increases.

While someone in their 60s and early to mid-70s may be able to manage a premium increase, the rate hike is much more difficult for those in their late 70s. The situation may have you thinking you need to reduce coverage or even forgo insurance altogether.

However, there are less drastic ways to tackle the issue and maintain premiums while handling the increased costs.

Why Are LTC Premiums Increasing?

Premiums have risen steeply over the past several years due to many factors. According to research conducted by the American Association for Long-term Care Insurance, the causes of high premiums include lapse rates, rising costs, longer lifespans and low interest rates.

Lapse rates are a big factor. Insurance companies priced policies under the assumption that 4% of policyholders would allow their policies to lapse. Yet, as the policyholders aged, only 1% discontinued their insurance, resulting in more people claiming LTC than projected.

People are living longer, too. Not only are more people submitting claims, but insurance companies are paying out for longer periods of time. Companies must maintain large reserves of cash to make sure they can keep up with the rising cost of medical care while balancing sharp decreases in interest rates that lowered returns.

It’s no surprise insurance companies are feeling the pinch, and they’re passing the pain onto policyholders.

Five Ways to Handle LTC Premium Increases

As a policyholder faced with an increase in LTC premiums, you need to find ways to cushion the blow and maintain the policy while dealing with the higher costs. Here are five ways you can go about handling the higher costs. 

1. Shorten your benefit period

Carriers typically offer different benefit periods that can range from two to five years. Shorter benefit periods mean the insurance company will have to pay out fewer claims, and that can lower your premiums.

Keep in mind that the benefit period isn’t a finite amount of time. You may be able to stretch it out longer than you think.

For example, suppose you buy a two-year policy at $100 per day — that’s 730 days of care. But your benefit period could last much longer than two years if you don’t use the full $100 per day benefit consecutively.

Essentially, the benefit period is the minimum amount of time your policy would cover you. If you have a five-year policy, you may want to consider shortening it to two or three years to lower your costs.

2. Consider a shared care policy

Shared care is a type of long-term care insurance coverage for married couples. It lets spouses take out a plan and add their partners as a “rider.” As a designated rider, you can access the funds of your spouse’s plan if you exhaust funds from your own policy.

A shared care policy can reduce costs by pooling benefits together. Then, when either of you need coverage, you can split the coverage between the two of you. It can also extend your coverage. For example, if you and your spouse each have a three-year plan, you have the potential to tap into six years of benefits.

3. Think about a longer elimination period

The longer you make the waiting period before you start receiving payments, the cheaper your premiums can be. It’s like a deductible on car or home insurance, except it’s measured in time and not dollar amount.

Most policies have elimination period options of 30, 60 or 90 days. The longer the period, the longer it takes for the insurance company to kick in and start paying benefits, and the lower your long-term care premiums can be. The downside is you may end up paying more out of pocket — you’re responsible for paying the cost of any services you receive during the elimination period.

4. Reduce your daily benefits if you must

When buying your policy, you were likely looking for the best protection available. You may want to consider reducing the daily benefit as a last resort now that premium costs are on the rise. Instead of the maximum daily benefit, you can opt to pay for some of the daily benefits yourself. Lowering your benefit amount can automatically lower your premiums.

5. Contact your provider to ask about options

Every carrier offers different policy terms, and you may have other options to make your coverage more affordable. Contact your provider to ask about ways to lower your premiums before you determine your policy is too much for your budget.

It also helps to talk with a financial professional. A financial planner can review your situation, discuss your coverage needs, recommend an affordable plan, and address ways to lower the cost of your premiums.

LTC Premiums Increases: The Bottom Line

The rising LTC rates may be a shock. But remember you’re not alone. If the LTC price increase is making the insurance unaffordable, reach out to your provider or a financial planner to discuss your options. Reducing the benefit period can help in some cases. However, you likely want to avoid reducing the daily benefit amount unless necessary — it can negatively impact your quality of life and long-term care coverage.

The most important thing to keep in mind is that you have options. It may be possible to lower your monthly premiums and maintain your coverage, so you have the help when you need it most.

Every situation is unique. In my own family’s case, in 2000, I recommended that my parents purchase long term care insurance. They selected a $125 daily benefit for four years. At the time of purchase, my mom was 54 and my dad was 68. I advised my mom to select 5% compound inflation protection and my dad 5% simple inflation. The annual premium for Mom’s policy started out at $1,224 (I looked up the exact amount) and my dad’s was closer to $2,242 ( I looked up the exact amount) due to their age differences. In 2004, my dad was diagnosed with Parkinson’s disease. His condition precipitously declined in 2012. He did require assistance with the Activities of Daily Living and started using his benefits. Dad passed away in 2015.

Since my mom purchased her policy, she has experienced three price increases. Her annual premium is now $1,865 (I just helped her pay the bill) but her daily benefit has grown to $343. Her own mom lived to 94. At some point, we may freeze benefits, but for now these premium increases are manageable.

 Many couples may be able to withstand one long term care event, but I think about the impact of the factor we cannot control: inflation, taxes, and market performance.  The bottom line is that I would not want my parents to lose financial dignity in retirement.

CEO, Blue Ocean Global Wealth

Marguerita M. Cheng is the Chief Executive Officer at Blue Ocean Global Wealth. She is a CFP® professional, a Chartered Retirement Planning Counselor℠, Retirement Income Certified Professional and a Certified Divorce Financial Analyst. She helps educate the public, policymakers and media about the benefits of competent, ethical financial planning.

Source: kiplinger.com