Estate Debt: How to Protect Your Heirs

As you approach retirement and the later stages of your life, you may be considering your legacy and how you will pass your assets on to your loved ones. Perhaps you want to fund your grandchildren’s education or help your grown children get started on their retirement nest egg. Maybe you have assets that hold sentimental value that you would like to distribute to specific relatives.

To achieve these goals, it’s helpful to have an estate plan in place. Your estate plan should prioritize your objectives and offer a strategy. It should also identify risks and challenges, such as taxes, end-of-life costs and even probate expenses.

One risk you may want to consider is debt. Many retirees try to minimize debt before they end their career. However, that’s not always possible. Unexpected costs always arise, even in retirement. You could have credit card debt, mortgages, medical bills and more.

It’s possible that your debt could impact the amount of assets that are distributed to your heirs. When you pass away, many of your assets will likely pass through a process called probate. That’s the legal process for settling an estate, and it often includes notifying heirs, liquidating assets, distributing inheritances and other tasks.

One step in probate is paying final debts. Your creditors could actually file liens and judgments against your estate, tying up your assets and restricting the distribution of your funds

Fortunately, there are steps you can take to minimize the burden of your debt and protect your legacy. Below are three steps to consider. If you have debt and are worried about its impact on your estate, consider implementing these action items in your estate plan.

Eliminate debt while you’re alive.

 

Perhaps the most effective way to limit the impact of debt on your estate is to take steps to reduce your debt while you’re alive. For example, if you have credit card debt, consider developing a strategy to pay it off. If you owe back taxes and penalties to the IRS, contact the agency to negotiate a payoff plan.

Also, think about loans on which you may be a co-signer. For example, did you co-sign your children’s student loans? If so, the lender could demand that the balance be paid after your death. You may want to work with your child and the lender to see if you can be removed as a co-signer so the balance doesn’t hold up your estate distribution.

Make sure your estate will have liquidity.

 

Sometimes it’s not the debt that causes estate problems, but rather the illiquidity in the estate. An individual may pass away with medical debt, credit card debt or other loans. The person’s assets may be liquid property, like real estate or collectibles. There may be few liquid assets available, such as cash or investments.
In these cases, the estate executor may be forced to sell assets to generate cash to pay the debt. That can be especially difficult for heirs if the assets have sentimental value. You can minimize this risk by creating liquidity for your estate. Consider using life insurance as a tool to leave cash for your heirs. If you can’t qualify for life insurance, work to create a reserve of cash.

Protect your estate from creditors.

 

You also may want to utilize tools that offer some protection against creditor action. Many of these tools are beneficiary-designated products such as life insurance, annuities, IRAs and trusts. These types of assets flow directly to the named beneficiaries without going through probate. You may want to maximize the assets in these accounts so your heirs can receive their distributions quickly, without waiting for your executor to settle outstanding debts.

Ready to protect your loved ones? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and create a strategy. Let’s connect soon and start the conversation.

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

18086 – 2018/10/1

When Is the Right Time to Review Your Life Insurance?

Life insurance is one of the most effective tools at your disposal to protect against a significant financial risk. While your death may not be likely or probable, it is possible. People pass away unexpectedly because of accidents or are diagnosed with a terminal illness all the time, even at relatively young ages. Your death may create financial challenges for your loved ones. Life insurance minimizes the threat by providing a tax-free lump sum to your beneficiaries.

You may already own life insurance. Many people purchase it when their life changes. For example, you may have purchased coverage when you got married or had kids. Or perhaps you bought life insurance when you purchased your first home.

At first glance, you may not think your life insurance needs regular review. Life changes quickly, though, and it’s possible that your needs and goals have changed. If you’ve experienced change in your life, this may be a good time to review your coverage. Below are three common life changes and how they could impact your life insurance needs:

Family

If you’re the breadwinner in your family and you pass away, your spouse and kids could struggle with debt and a lack of income. Many people buy life insurance to address this specific risk. The life insurance benefit can help your dependents maintain their lifestyle after your death.

As the number of people in your family changes, so too should your coverage. Having more people in the house means a greater potential financial need after your death. If you’ve had more children, your current level of protection may not be sufficient.

It’s also possible that you have fewer dependents in your home. Perhaps your children are grown and financially independent. Or maybe you recently got divorced. In that case, you may not need as much protection. You also may consider keeping your policy but simply changing your beneficiary.

Health

Health plays a big role in determining your life insurance premiums. If you were unhealthy when you originally bought your policy, you may have been given an unfavorable rating. If your health has improved since then, you may want to apply for a new policy. This is especially true if you’ve made a major change such as losing weight or quitting smoking. Even if you’re older, a new policy that gives you a better health rating could have a significantly lower premium.

You also may want to review your insurance if your health has declined. This is especially true if you have a term policy that’s expiring soon. Your term policy may allow you to convert to a permanent policy without going through underwriting.

Career

Has your income increased in recent years? Did you get a promotion, change employers or maybe even start a business? If so, you may want to review your needs and coverage. In fact, the whole point of your insurance may be to replace your income if you pass away. If your income increases, so too does the amount that needs to be replaced.

Your life insurance coverage amount should be based on your family’s specific needs. How much would your spouse and children need to pay off debts? How much would they need to survive and pay the bills? Do you want to pay for any other goals, such as education or your spouse’s retirement? A financial professional can help you answer these questions and more.

 

Ready to review your life insurance strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and make the necessary adjustments. Let’s connect soon and start the conversation.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17962 – 2018/9/4

Term or Permanent: Which Type of Life Insurance Is Right for Your Needs?

There’s no avoiding risk, especially when it comes to managing your finances. It’s a natural part of life. You face a wide range of risks every day, from the possibility of a decline in investment values to a career interruption to even a costly injury or illness. While you can’t completely avoid risk, you can minimize your exposure to it and take steps to protect yourself.

 

One of the biggest risks your family faces is your unexpected death. That’s especially true if you’re the primary financial provider for your spouse, children or other dependents. If you unexpectedly pass away, they could face significant financial challenges. If you own a business, your employees and business partners could suffer in the wake of your death.

 

While you may feel that your death is an unlikely scenario, it is possible. Life insurance is an effective tool to protect against this risk because it provides a tax-free, lump-sum benefit to your designated beneficiaries. They can then use those funds to overcome financial challenges such as debt or a loss of income.

 

If you’re purchasing life insurance for the first time, you may be overwhelmed by the choices available. Most policies fall into one of two categories: term or permanent. Each type has its own benefits and costs and is designed to meet unique needs. Below is information on both types and how they may be right for you.

Term

Term life insurance provides temporary protection. Your death benefit is in place for a defined period of time, usually from 10 to 30 years. You choose the term when you purchase the policy. Generally, the longer the term, the higher your premium will be.

Premiums in a term policy remain level throughout the duration of the coverage period. At the end of the term, you can let the policy lapse and stop paying premiums. However, that may not be your only option.

You could also choose to extend the term for a new period, though your premium would be recalculated to reflect your current age. Some insurers also offer the opportunity to convert the term policy to a permanent policy. Again, though, you will likely pay higher premiums to reflect your age and the fact that the policy is now permanent.

Term insurance could be appropriate if you’re on a tight budget or have a temporary need for coverage. Generally, term policies are more affordable than permanent insurance. You might consider term if you only want coverage while you have minor children in the home. Or perhaps you’re required to carry an individual policy as a condition of a new mortgage. Term insurance can be a cost-effective tool to meet these needs.

Permanent

Permanent insurance remains in place for life, assuming you meet the premium requirements. While some policies do have end dates, those dates are usually at age 100 or beyond, so few people actually reach them.

Permanent life insurance also differs from term in that permanent policies accumulate cash value. A portion of your premium goes into a cash value account, which can then grow on a tax-deferred basis. The type of growth depends on your type of policy. Some policies pay interest or dividends, but others, such as variable universal life policies, allow you to invest your cash value in the market.

Permanent insurance is a great option when you have an indefinite coverage need. For instance, perhaps you want to leave money for your spouse or children, no matter your age when you pass away. Or maybe you own a business that will need liquidity after your passing.

Ready to develop your life insurance strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and choose the coverage that’s right for you. Let’s connect soon and start the conversation.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17963 – 2018/9/4

Ask These Questions Before You Sign a Retirement Community Contract

Retirement communities are popular options for those who want to spend their golden years in a neighborhood full of peers, activities and even luxurious amenities. In many cases, a retirement community will offer unique services for each phase of your retirement. You may transition over time from independent living to assisted living to skilled nursing care.

Joining a retirement community can be a wise decision for a number of reasons. One is that it lets you lead an enjoyable and independent retirement but also have the security of nearby support and medical providers if needed. You also may enjoy having a nearby network of like-minded retirees. Socialization can be an effective way to minimize the risk of health issues and cognitive disorders.

However, it’s important to do your due diligence and find the right community for your needs and budget. Every community will put its best face forward during the sales process. Not all communities are the same, though. Below are a few questions to ask so you can make the most informed decision:

How is the community’s financial stability?

Many retirement communities require a hefty upfront deposit and an ongoing commitment for sizable monthly payments. These costs may make sense given the level of support, amenities and activities included with the community.

However, the value of a retirement community depends on it being around for the duration of your retirement. Remember, you could live in the community for several decades. To fully realize the benefits of your contract, you’ll want to stay in the community for the long haul.

Don’t hesitate to ask about the community’s financial stability. What’s its occupancy rate? If there’s a high level of vacancies, will that change in the future? Can you see the community’s balance sheet? What happens to your deposit and monthly payments if the community can’t stay solvent? These questions and others are valid and justified, so ask as many as you need to feel confident about your decision.

Are there any features or amenities that cost extra? Or is everything included in the base cost?

Most retirement communities offer flashy brochures that feature a wide range of fun activities and outings. However, don’t assume that something is included in the normal fee just because it’s featured in marketing materials. Many retirement communities offer a standard level of service and then additional amenities for an extra cost.

For example, it’s possible that some group outings cost extra. The community may have an association with a nearby golf or tennis club that may be available at additional cost. There could be different levels of dining options. Also, it’s possible that your costs may change if you transition to assisted living or skilled nursing care. Ask plenty of questions to see how the costs will add up now and in the future.

Will your long-term care insurer help pay for some of the costs?

If you’re healthy and moving into the independent living section of the community, long-term care may not be top of mind. However, it’s possible that you may need to move to assisted living or skilled nursing in the future. If so, you’ll likely want to take advantage of your long-term care insurance.

Check with your insurer to make sure that this community and its various levels of care are in fact covered by your policy. If they’re not, find out why and whether it’s possible to gain coverage. It would be unfortunate to pay a large deposit for a community and then find out after-the-fact that it’s not covered under your insurance.

Ready to develop your retirement strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

 

17849 – 2018/7/30

Is a SEP IRA Right for Your Retirement Strategy?

Self-employment can be a fulfilling experience, but it can also create numerous challenges. You have to serve your customers and prospect for new business. You have to keep a careful eye on your cash flow and bottom line. You may have employees whom you need to manage.

With so many challenges on your plate, it might be difficult to think about retirement. After all, retirement could be years or decades away. It may not be on your radar at all. Perhaps you think your best retirement plan is to focus on expanding your business. Many business owners have that mindset.

However, retirement is too big a financial challenge to ignore. There’s no guarantee that you’ll be able to work as long as you want or that you’ll be able to sell your business for full value. It’s always helpful to have retirement assets, and you may find that a retirement plan helps you attract and retain good employees.

A 401(k) plan may not be right for your business because of its high costs and administrative burdens. However, you have an alternative. It’s the Simplified Employee Pension plan, also known as a SEP IRA. Below are a few tips on how the SEP IRA can help you and your employees prepare for retirement:

 

SEP IRA Basics

A SEP IRA is a qualified account created for small businesses and self-employed individuals. It’s taxed very similarly to a traditional IRA. You can make tax-deductible contributions, and growth in the account is tax-deferred. Your distributions are taxable, though, and you could face a 10 percent penalty if you take a withdrawal before age 59½.

Most SEP IRA custodians offer a wide range of investment options, so you and your employees can choose the allocation that’s right for your goals and risk tolerance. If you ever leave the business, you can roll your vested balance into a traditional IRA.

 

Contribution Limits

One of the benefits of a SEP IRA is that it has a much higher contribution limit than other types of IRAs. In 2018 you can contribute as much as $5,500 to a traditional or Roth IRA. That limit increases to $6,500 if you’re age 50 or older.1

With a SEP IRA, you can contribute up to 20 percent of your net income to a SEP IRA, with a maximum allowable contribution of $55,000.2 Keep in mind that these contributions are tax-deductible, so they help you save for the future and reduce your tax bill today.

 

Participants

If you have employees, you may want to carefully analyze whether a SEP makes sense for you. You have to offer SEP participation to any employee who is at least 21 years old, earned at least $600 in the past year and has worked for you in three of the last five years.3

Employees don’t make their own contributions to the SEP. Instead, you contribute on their behalf. You have to contribute the same percentage of their income as you contribute for yourself. For example, if you contribute 5 percent of your income to the SEP, you must also contribute 5 percent of each participating employee’s income.

Contributions to the SEP are discretionary, so you can pause them in a given year if cash flow is tight. If you don’t make contributions for employees, however, you also can’t make them for yourself.

Ready to develop your SEP IRA strategy? Let’s talk about it. Contact us at Peak Financial. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

 

1https://www.rothira.com/2017-roth-ira-limits-announced

2https://www.kiplinger.com/article/retirement/T047-C000-S003-sep-ira-contribution-limits-for-2018.html

3http://money.cnn.com/retirement/guide/selfemployment_sep_ira.moneymag/index2.htm?iid=EL

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17747 - 2018/6/19

Do You Have a Long-Term Care Funding Strategy?

What will be your biggest financial challenge in retirement? Will it be trying to protect your assets and avoid market risk? Or perhaps you’re worried about managing your spending so your funds last through your lifetime. Maybe you’re concerned about taxes or keeping up with inflation.

For many seniors, the biggest challenge may be long-term care. Long-term care is extended assistance with basic daily activities such as eating, bathing and mobility. It may include a medical component, such as administering drugs, or it could simply consist of help with day-to-day tasks.

Long-term care is often provided either in an assisted living facility or in the home by family members or home health aides. The U.S. Department of Health and Human Services estimates that today’s 65-year-olds have a 70 percent chance of needing long-term care at some point. It’s usually needed for a few years, but nearly 20 percent of those who need care require it for more than five years.1

As you might expect, long-term care can be a significant financial challenge. If you don’t have a plan in place, you may struggle to get the care you need. Below are three strategies you can use to fund your future long-term care needs. A financial professional can help you develop and implement a plan.

 

Pay Out-of-Pocket

You always have the option to pay your long-term care costs out of pocket. However, doing so may be a drain on your retirement assets. It may infeasible altogether if you require care for several years, as many seniors do.

A recent Genworth study found that the average monthly cost for an assisted living facility is $3,750. In-home care isn’t much cheaper. The average monthly cost for an in-home aide is more than $4,000.2

Consider that you may need to pay those costs for years. It’s easy to see how it could be impractical or possibly even impossible to pay for long-term care out of your own assets. It may be wise to develop alternative funding strategies.

 

Rely on Government Programs

There are some government programs that offer assistance with long-term care costs. Medicare doesn’t cover long-term care. However, it may partially cover short-term stays in nursing facilities if the stay is related to a surgery or other medical procedure.

Medicaid will cover long-term care costs. To qualify for Medicare, however, you must have little income and few assets. You often have to spend most of your own assets before you can use Medicaid coverage. Also, you may have to move into a Medicaid-eligible facility.

 

Use Long-Term Care Insurance

Long-term care insurance may offer the most funding flexibility. You pay premiums to an insurance company and, in return, it pays for some or all of your long-term care costs when the need arises. The terms of the coverage depend on your specific policy.

Most policies cover care provided either in the home or in a facility. Some also cover home modifications for things like wheelchairs, lifts or safety equipment. In many ways, long-term care insurance can help you stay in your home rather than move into a facility.

Ready to develop your long-term care funding strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

 

1https://longtermcare.acl.gov/the-basics/how-much-care-will-you-need.html

2https://www.genworth.com/aging-and-you/finances/cost-of-care.html

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17748 - 2018/6/19

Self-Employment and Retirement: Tips to Reach Your Goals

Self-employment is a dream come true for many people. You get to set your own schedule, make your own rules and earn income doing what you love. Self-employment can bring challenges and complications, but for many people the benefits far outweigh the costs.

However, self-employment can present difficulties when it comes to planning for retirement. Traditional employees are able to participate in their employer’s 401(k) plan or pension. They may even receive a matching retirement contribution from their employer. Self-employed individuals don’t have that option.

Many self-employed workers believe they can simply delay retirement as long as they want. If they love what they do, they may think they won’t have to retire at all. However, chances are good that you will have to stop working at some point. You could become physically unable to work, or you may simply decide that you want to pursue other activities.

The good news is you can plan ahead by taking action today. Below are a few tips to help you prepare for retirement:

 

Put your retirement contributions on autopilot.

One of the most complicated parts of self-employment is deciding how best to allocate your resources. You have normal bills and expenses like traditional employees, but you also have the option to invest money into your business. You can also put money away for retirement and future financial goals.

Far too many self-employed individuals choose to fund their business or current expenses over retirement. Given the option, they choose the priorities that feel most urgent. You can avoid this risk by putting your retirement savings on autopilot. Set up automatic transfers to your retirement accounts so you don’t have the option of using the money for other purposes. That could help you accumulate retirement assets quickly.

 

Contribute to a SEP IRA.

Qualified accounts such as 401(k) plans and individual retirement accounts (IRAs) are popular savings tools, primarily because of their unique tax treatment. Most of these plans are tax-deferred, which means you don’t pay taxes on your investment growth as long as the funds stay in the account. Some also offer current tax deductions.

As a self-employed individual, you may have another option—the SEP IRA. A SEP IRA operates much like a traditional IRA. You can deduct your contributions, and your funds grow tax-deferred. Your distributions are taxable, however, and you could face a penalty if you take a withdrawal before age 59½.

A key difference between the SEP IRA and traditional IRA is the amount you can contribute. In 2018 you can contribute 20 percent of your net income, up to $55,000, to a SEP IRA.1 This entire amount is tax-deductible. Keep in mind, though, that if you have employees, you are required to make contributions on their behalf, too.

 

Protect your most valuable asset—your income.

Finally, if you’re a self-employed worker, your most valuable asset may be your ability to generate income. Disability is a very real threat, and it’s a dangerous risk to your current standard of living and your retirement. The Council for Disability Awareness estimates that 1 in 4 adults will become disabled at some point in their lifetime.2

You can minimize this risk by purchasing disability insurance. These policies replace your income if you become physically unable to work. If you suffer an injury or illness that prevents you from working, the disability policy pays you some or all of your lost wages. You can use this money to maintain your lifestyle, pay medical bills and even fund your retirement.

Ready to plan your retirement strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

 

1https://www.kiplinger.com/article/retirement/T047-C000-S003-sep-ira-contribution-limits-for-2018.html

2http://disabilitycanhappen.org/overview/

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17700 - 2018/5/30

Social Security: When Should You File for Retirement Benefits?

When should you file for Social Security retirement benefits? It’s a question that every retiree faces. It’s an important decision because it could have a profound impact on your financial stability in retirement. It’s also irreversible. Once you choose to file, you can’t change your decision at a later date.

Your Social Security benefit amount is based on a few factors, primarily your career earnings and your age when you file. Generally, the higher your career earnings, the greater your benefit amount. Similarly, the older you are when you file, the higher your benefit amount is likely to be. That means the timing of your filing is critical.

Many retirees are tempted to file as soon as they become eligible. However, that may not always be the wisest decision. Your filing should be based on your specific needs and goals. A financial professional can help you decide when is the right time for you to file for benefits.

 

Filing Early

You’re eligible to file for Social Security benefits as early as age 62. That’s considered an early filing, however, and doing so could reduce your benefit amount. The amount of the reduction depends on your age when you file and your full retirement age (FRA).

The closer you are to your FRA when you file, the lower the reduction will be. However, it could be as high as 35 percent. This is the reduction amount if you have an FRA of 67 and file when you turn age 62, the earliest possible filing date.1

Keep in mind that this reduction is permanent. Your benefit could increase because of cost-of-living adjustments, but it will always be lower than your payment would have been if you’d waited until your FRA to file. If you have no other options for income, however, filing early may be a wise decision.

 

Filing at Full Retirement Age

You can avoid benefit reductions by filing at your FRA. Most people have an FRA of 66 or 67. If you were born between 1943 and 1954, your FRA is 66. If you were born in 1960 or later, your FRA is 67. If you were born between 1954 and 1960, your FRA is some point between your 66th and 67th birthdays.2

If you file at your FRA, your benefit will be based entirely on your career earnings. There are no reductions or credits based on the timing of your benefit. You can get an estimate of your full retirement benefit from the Social Security Administration.

 

Filing Late

There’s nothing saying you have to file at your FRA. In fact, you could benefit by waiting past your FRA to file. That’s because Social Security offers a benefit amount credit for every year you delay your filing past your FRA.

For each year you wait, Social Security will credit 8 percent to your benefit amount. You can delay your filing up to age 70. That means if your FRA is 66 and you wait until age 70, you get four years of credits, for a cumulative increase of 32 percent. Again, these credits are permanent, so they could have a big impact on your financial stability in retirement. If you can afford to wait, it may be wise to do so.

Ready to plan your Social Security strategy? Let’s talk about it. Contact us today at Peak Financial. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

 

 

1https://www.ssa.gov/planners/retire/agereduction.html

2https://www.ssa.gov/planners/retire/retirechart.html

3https://www.ssa.gov/planners/retire/delayret.html

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

The material is not intended to be legal or tax advice. The insurance agent can provide information, but not advice related to social security benefits. Clients should seek guidance from the Social Security Administration regarding their particular situation. The insurance agent may be able to identify potential retirement income gaps and may introduce insurance products, such as an annuity, as a potential solution. Social Security benefit payout rates can and will change at the sole discretion of the Social Security Administration. For more information, please consult a local Social Security Administration office, or visit www.ssa.gov

17699 - 2018/5/30

What’s Your Early Retirement Plan?

Are you one of the millions of Americans who wants to retire early? A recent study from MSN found that two-thirds of millennials want to retire before age 65.1 That’s well before Social Security’s full retirement age of 67. While early retirement may be a desirable goal, it can also be a challenging one.

Early retirees face a number of difficult obstacles. They spend more time in retirement, which means they have to fund more years with distributions from their savings. If they retire before they’re eligible for Social Security or Medicare, they’ll become even more reliant on personal savings and investments.

Even with these challenges, though, you can retire early if you stick to your plan. Below are a few questions to ask yourself as you get started. You may also want to work with a financial professional to help you analyze your needs and goals and develop a more detailed plan.

 

What’s your funding need?

Every good plan has to start with a goal or desired outcome. In your retirement plan, your goal should be your funding need or retirement number. That’s the amount of money you need to save to fund your retirement.

It may be difficult to predict how much money you’ll need in retirement. That’s especially true if retirement is decades away. However, you can use your current expenses as a starting point to estimate your living expenses in retirement. Consider how your life may be different in retirement. Perhaps you’ll downsize to a more affordable home, or maybe you’ll have lower debt payments. Also, be sure to factor inflation into your estimate.

Once you have a spending estimate, think about how many years you may live in retirement. It’s possible that you could live into your 80s or even 90s. If you retire early, that means you could live in retirement for 30 or 40 years. Multiply your spending estimate by your number of years in retirement, and you’ll get a ballpark figure of how much money you may need to fund your lifestyle.

 

How much do you need to save each month to hit your target?

Fortunately, you won’t be entirely dependent on savings in retirement. You will likely have other sources of income, like Social Security or a pension. You may also receive rental income, investment income or other cash flow. Subtract that income from your funding need. The difference is the amount you’ll need to withdraw from savings every year in retirement.

You can then work backward to estimate how much you’ll need to save each year to hit your target. Set up automatic contributions to your retirement accounts so you can stay on track. Also, be sure to implement an investment strategy that minimizes risk but also offers growth potential.

Your financial professional can help you develop these estimates. They can identify risks and possible expenses that you haven’t considered. And they can help you implement an investment strategy that’s aligned with your goals and risk tolerance.

 

Do you need to make changes to your retirement plans?

It’s possible that even if you maximize your savings, you’ll still fall short of your goal. This shortfall is known as a savings gap. If you can’t save enough to overcome this gap, you may need to make changes to your plans. For instance, you could push back your planned retirement date to help you save more money. Or you could consider part-time or seasonal work in retirement.

You could also scale back your planned spending in retirement. You could move to a more affordable location or downsize to a smaller home. You could also travel less and eat at home more often. Go back to your retirement spending estimate and look for areas where you can make cuts.

Ready to develop your early retirement strategy? Let’s talk about. Contact us at Peak Financial. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

1http://www.businessinsider.com/millennials-not-saving-enough-to-retire-early-2017-6

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17596 - 2018/4/19

New Surveys Find Baby Boomers Are Unprepared for Retirement

According to a pair of recent surveys, baby boomers aren’t quite ready for retirement. A Gallup study found that more than half of Americans are worried they won’t have enough money for retirement.1 A separate study from the Insured Retirement Institute showed that 42 percent of baby boomers have no retirement savings, and of those who do, 38 percent have less than $100,000.2

If you’re a baby boomer who’s behind on retirement savings, you’re not alone. Many others are in the same position. Unfortunately, the longer you wait to take action, the fewer options you may have available. Time is your strongest asset, so it pays to take action early. Below are three tips to help you do just that. You may also want to consult with a financial professional to help you develop a customized plan.

 

Maximize qualified account contributions.

Qualified plans such as 401(k) accounts and IRAs are popular savings vehicles, primarily because of their tax treatment. These accounts are tax-deferred, which means you don’t pay taxes on growth as long as the funds stay in the account. Tax deferral may help you accumulate assets faster than you would in a taxable account. Additionally, your 401(k) may offer matching employer contributions, which could provide additional savings.

Look at your budget and find ways to increase your contributions. If possible, try to contribute the maximum amount. In 2018 you can contribute as much as $18,500 to a 401(k) and up to $6,000 to an IRA. If you’re age 50 or older, however, you can make something called catch-up contributions. These are additional contribution amounts above and beyond the normal limits. You can contribute an additional $5,500 to a 401(k) and $1,000 to an IRA.3

 

Consider using an annuity to increase your guaranteed* income.

Longevity is a difficult challenge in retirement. People are living longer, so it’s important to plan for a long retirement. However, it’s impossible to predict just how long you will live. A 65-year-old couple today has a 73 percent chance that one will live to age 90 and a 47 percent chance that one will live to 95.2 That means it’s possible your retirement could span several decades.

You can reduce the longevity risk by creating guaranteed lifetime income. Social Security and pensions are traditional sources of retirement income that’s guaranteed for life. However, annuities can serve as another source. You can use annuities to create lifetime income in a variety of ways. A financial professional can help you determine whether an annuity is right for your needs and goals.

 

Consider changes to your retirement plans.

Finally, if you’re saving as much as possible but still feel you’re off track, it may be time to re-evaluate your retirement plans. Some simple changes could reduce your funding need and eliminate your savings deficit. For example, you may want to consider working a few extra years to give yourself an opportunity to save more money. Or you could downsize to a smaller home to minimize your living expenses.

Also, don’t ignore the idea of working in retirement. Many retirees find that they have too much time on their hands. Even a part-time or seasonal job can help you fill your empty schedule and give you a stream of income so you can reduce withdrawals from your savings.

Ready to get your retirement back on track? Let’s talk about it. Contact us at Peak Financial. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.

 

*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
 

1http://news.gallup.com/poll/210890/americans-financial-anxieties-ease-2017.aspx

2https://www.planadviser.com/baby-boomers-not-enough-prepare-retirement/

3http://time.com/money/4990121/401k-ira-contribution-limits-2018/

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17597 - 2018/4/19

Is the 4-Percent Withdrawal Rule Right for You?

If you’re like most retirees, you’ve spent much of your career accumulating assets to fund your retirement. You’ll likely rely on those assets to generate a portion of your retirement income. While you will probably have Social Security income and possibly even a pension, you may also need income from your savings.

Even if you’ve saved a substantial amount for retirement, it can be difficult to know how much to withdraw each year. If you take too much, you could deplete your savings and put yourself in a challenging financial situation later in life. Take too little, and you may struggle to cover your living expenses.

A popular strategy is to take four percent of your savings balance each year as a retirement distribution. The idea behind this recommendation is that four percent is a modest amount that will allow your savings to continue growing. It’s also a simple approach that makes it easy to plan your distributions.

This approach isn’t right for everyone, though. There are several reasons why the “four percent rule” may not be an effective approach. Below are a few areas in which this method may fall short:

 

Inflation and Market Volatility

In theory, the four percent withdrawal is supposed to change every year. You look at your account value annually or even more often, and then you adjust your withdrawal to reflect the new balance.

In practice, many retirees fail to make this adjustment, which results in a constant withdrawal amount that stays flat over time. This is problematic because it doesn’t account for inflation. As your cost of living increases, so too should your withdrawals. Otherwise, you may not be able to afford your lifestyle over time.

Another issue with a flat withdrawal is what happens during a market downturn. If you don’t adjust your withdrawal to reflect a lower balance, you could end up withdrawing much more than four percent. If that continues over time, you may deplete your account and limit your opportunities for growth.

 

Asset Allocation

Another issue with the four percent approach is that it doesn’t account for your specific asset allocation. A four percent withdrawal may or may not be modest, depending on your investment strategy. If you have a very conservative approach with little upside potential, a four percent annual distribution may deplete your account over time.

It’s impossible to prescribe an optimal withdrawal rate without knowing how the funds are invested. Your withdrawal amount should be based on your specific needs, goals and objectives, and it should be aligned with your allocation and investment strategy.

 

Spending Requirements

Finally, one of the biggest issues with the four percent approach is that it isn’t specific to your spending needs. Your plans for retirement are unique to your goals and objectives. Your income strategy should be unique, too.

You may want to spend money in the early years as you travel and pursue favorite hobbies, then cut back on your spending as you get older. Or maybe you want to be conservative early in retirement so you have assets to cover health care or long-term care later in life. Maybe you want to minimize your spending so you can leave a significant legacy for your loved ones.

There could be any number of factors and criteria that influence your income needs. A better approach may be to build a budget that includes your specific spending goals and your projected retirement income. Then you can determine exactly how much income you should take from your savings each year.

Ready to develop your retirement distribution strategy? Contact us at Peak Financial Corp. We can help you analyze your needs and implement a plan. Let’s connect soon and start the conversation.

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17378 - 2018/2/13

3 Tips to Minimize Your Taxes in Retirement

It’s tax time. Many retirees assume that their tax exposure will go down once they leave the working world. After all, they’ll no longer have income from a job. Even without a job, though, many retirees still face tax exposure. Many common sources of retirement income, such as Social Security, pensions and qualified account distributions, are taxable.

If you are recently retired or approaching retirement and haven’t budgeted for taxes, you could be in for a surprise. Your tax exposure could reduce your discretionary income and limit your ability to live the retirement of your dreams.

The good news is there are steps you can take today to minimize your tax exposure in retirement. Below are three such steps. You also may want to consult with a financial professional to develop action steps that are aligned with your specific needs and goals.

 

Maximize your contributions to a health savings account (HSA).

Health care is often a substantial cost item for retirees. In a recent analysis, Fidelity found that the average retired couple is likely to pay $275,000 for health care expenses in retirement.1 That includes costs such as premiums, deductibles, copays and more. If you take income from your IRA or 401(k) to pay for those costs, you could inflate your taxable income.

Instead, consider using a health savings account (HSA) to pay for those costs. With an HSA, you can make tax-deductible contributions, grow your funds tax-deferred and then take tax-free distributions to pay for qualified health care expenses. That could reduce the amount of taxable withdrawals you have to take from other accounts.

In 2018 you can contribute up to $3,450 to an HSA as an individual or $6,900 as a family. If you’re age 55 or older, you can make an additional $1,000 catch-up contribution.2 Consider maximizing your HSA contributions so you can take advantage of tax-free distributions in retirement.

 

Consider converting your traditional IRA to a Roth.

Qualified accounts like IRAs and 401(k) plans are popular because of their favorable tax treatment. They’re usually funded with pretax dollars. With a traditional IRA you can take a tax deduction for your contributions, assuming you meet income limitations. Your 401(k) contributions are deducted from your check on a pretax basis, thus reducing your taxable income.

These accounts also offer tax-deferred growth. You don’t pay taxes on growth as long as the funds stay inside the account. By the time you reach retirement, it’s possible your entire IRA or 401(k) could be funded with dollars that have never been taxed.

You can’t delay taxes on these funds forever. The IRS treats distributions from traditional IRAs and 401(k) plans as taxable income. That could be problematic in retirement if you’ve used a traditional IRA or 401(k) to accumulate most of your retirement assets.

You could consider a Roth conversion to minimize the tax burden. As the name suggests, you convert a portion of your traditional IRA funds into a Roth account. You pay taxes on the converted amount, but you won’t pay taxes on future growth or distributions, assuming you wait until age 59½ and until the Roth has been open at least five years before you take a withdrawal. A conversion may create a tax liability today, but it could also eliminate tax exposure in the future.

 

Donate your RMDs to charity.

Traditional IRAs and 401(k) plans are popular in part because they allow you to defer your taxes on investment growth. However, you can’t defer those taxes forever. The IRS requires you to take minimum distributions at age 70½. These required minimum distributions (RMDs) are treated as taxable income.

If you’d already planned on giving money to charity, however, you could take advantage of a unique exception to reduce your taxable income. The IRS allows you to donate your RMDs to charity and avoid paying taxes on the distribution. To do so, you’ll have to set up the distribution to transfer directly to the charity without passing through your account first.

Ready to develop your retirement tax strategy? Let’s talk about it. Contact us at Peak Financial Corp. We can help you analyze your needs and develop a plan. Let’s connect soon and start the conversation.

 

1https://www.fidelity.com/viewpoints/retirement/retiree-health-costs-rise

2https://www.shrm.org/resourcesandtools/hr-topics/benefits/pages/irs-sets-2018-hsa-contribution-limits.aspx

 

Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.

17377 - 2018/2/13

What’s Your Plan to Fund Retirement Healthcare Costs?

What’s Your Plan to Fund Retirement Healthcare Costs?

You also may want to use this time to consider your health and how you may pay for medical needs after you stop working. Many retirees assume that Medicare will cover their health care expenses. While Medicare is a helpful program, it doesn’t cover everything.

Required Minimum Distributions: How Do They Differ Between IRAs and 401(k) Plans?

Required Minimum Distributions: How Do They Differ Between IRAs and 401(k) Plans?

Both types of accounts are qualified. That means you don’t pay taxes on growth as long as the funds stay inside the account. Both also offer tax-favored contributions. Your 401(k) contributions are deducted from your paycheck pre-tax, effectively reducing your taxable income.