It's not uncommon for me to meet with prospective clients who have a large concentration of company stock in their retirement account. Even though they've heard of stories of devastation such as WorldCom and Enron, they feel that their company is different. And maybe it is. In this article I won't argue for diversifying a concentrated position of company stock, but I will bring up a provision of the tax law that may allow for a more favorable tax treatment on the sale of this company … [Read more...]
Avoiding market losses, common tools
In our last article, we discussed the importance of having at least one IRA account that is protected from market losses. This is because Required Minimum Distributions happen each year after age 72 and RMD's will require the liquidation of investments, which could be down in value. Since the IRS allows the satisfaction of an RMD from any IRA account, and investor could satisfy the RMD or ALL accounts from the IRA account that did not lose money. In this article, we’ll dig into … [Read more...]
A New Risk with RMDs
You may be familiar with one of the risks that you face in retirement called the "sequence of return risk". This is the risk that you will have an unfavorable series of negative returns (especially early in retirement) AND simultaneously distribute money to cover your regular expenses. This causes these investment accounts to run out of money much sooner than anticipated. Fortunately, there are many ways to avoid the sequence of return risk if a retiree needs regular income from a … [Read more...]
Case Study – Taking the Lump Sum
I had a recent client case which I thought was worth sharing which is illustrative of when it can be advantageous to take a lump sum over a monthly pension. Roger and Ingrid (not their real names) are ages 60 and 67, respectively. Ingrid is retiring this year and Roger plans to continue to work for another six years until his full retirement age. Ingrid, working for Kaiser Permanente, has an option of taking either a monthly pension or a lump sum. When we reviewed the options, the … [Read more...]
Cover the income gap + taxes (formula)
In our previous articles, we introduced the Buckets and Tools Approach to Retirement Planning. In essence, we categorize each dollar available for retirement among the four necessary priorities of liquidity, income, protection from premature death and long-term care, and growth. After providing enough money for emergency reserve and short-term goals (the liquidity bucket), the next most important priority is covering the income gap that exists between predictable income and … [Read more...]
What happens to a couple’s Social Security if one passes?
One financial planning issue that all married couples will need to deal with during retirement is the loss of one Social Security check due to the passing of one of the spouses. I often get questions about how this actually works in real life. In our article, let's discuss how Social Security survivorship works under different circumstances. IF THE SURVIVING SPOUSE IS UNDER FULL RETIREMENT AGE If the surviving spouse is under full retirement age and the survivor elects to begin the … [Read more...]
When you SHOULDN’T use a Reverse Mortgage
As much as I believe in the value of incorporating housing wealth into improving retirement outcomes, there are always caveats when using these tools. I have written extensively on the use of the Home Equity Conversion Mortgage (HECM). You can easily find previously written articles here. One has to balance two issues when determining whether or not to implement the HECM and the timing of pulling the trigger: 1. Delaying the implementation of the HECM mortgage can have the … [Read more...]
Social Security before Full Retirement Age – The different in reductions and taxation
There can be a lot of confusion about the impact of taking Social Security benefits before full retirement age. In this article, we will look at three issues that can impact these benefits and, hopefully, clear up some of the misunderstandings by directing you to articles dedicated to each one. The first issue relates to the amount of your Social Security benefit if it is claimed before full retirement age., The amount of your Social Security benefit will be reduced permanently if you take it … [Read more...]
[Part 3] How does the new Secure Act Law impact you? NO STRETCH IRA FOR NON-SPOUSE BENES
For part three of our series of how the new SECURE ACT may have impact on retirees, we move to the topic of Stretch IRAs. Before the Act, non–spouse beneficiaries could take required minimum distributions over their younger life expectancy, requiring less to be distributed and taxed each year. Now, these same beneficiaries must make IRA distributions by the end of a 10 yearr time period. This new law impacts accounts in which the death of the owner occurs after December 31, 2019. For a … [Read more...]
[Part 2] How does the new Secure Act Law impact you? ABILITY TO MAKE IRA CONTRIBUTIONS
The SECURE legislation — which stands for “Setting Every Community Up for Retirement Enhancement” was signed into law by President Trump earlier this month as part of the government’s spending bill. In this second installment, we will discuss another provision that can have a positive impact in your retirement planning. Before the SECURE ACT, there was no parity between account holders of company retirement plans and account holders of IRAs in regard to making contributions after the … [Read more...]
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