Author: Gene Gard

Safe Spending

Post author By Gene Gard
Post date February 12, 2025

Make your budgeting habits fun. (Photo: Sasun Bughdaryan | Unsplash)

Do you sometimes feel like your spending is out of control? Trust me when I say you’re not alone if you answered yes to that question. It can be overwhelming to try to gain more control over your spending, and it doesn’t help that inflation is making the cost of everything more expensive.

Fortunately, there are ways to manage your spending that are relatively painless (and perhaps even fun!). The key is to implement strategies rooted in behavioral research that trigger positive and repeatable budgeting habits. The following tips can help.

1. Set small goals you can achieve in the near term.

Oftentimes, people try to start by focusing on a few long-term goals, but this can sometimes lead to feeling overwhelmed and like you seemingly can’t make any tangible progress. One of the best ways to stay motivated is by setting small, achievable goals and knocking them out one after another. For example, set a goal of adding $20 to $50 per week to your emergency savings account. Each week, congratulate yourself for making this contribution. This small goal can help you feel good about your efforts and motivate you to do more. Once this weekly savings goal has become a habit, add another small goal to the mix, such as increasing your 401(k) contribution by 1 to 2 percent. Over time, you’ll be excited to witness the impact these small efforts have on your overall savings and financial outlook.

2. Don’t lose sight of the long term.

While small, short-term goals are important, you don’t want to lose sight of your long-term goals. One of the best ways to avoid doing so is to establish a financial plan. Having a financial plan is essential to setting, understanding and achieving your long-term goals. A financial plan can help increase your level of confidence and comfort, identify gaps in your current savings and investments, encourage more constructive financial behavior, and protect your wealth and loved ones. Routinely revisiting your financial plan at least once per year also provides an opportunity for you to take a step back, look at the big picture, and see the cumulative positive impact that all those small goals you’ve achieved have had. Ultimately, a good financial plan puts you in control of your future.

3. Provide yourself with peace of mind.

One of the best motivators to continue your smart spending and saving habits is the peace of mind that comes with financial stability. Perhaps that peace of mind is paying off your credit card debt. Maybe it’s successfully saving six months’ worth of expenses in an emergency fund or having a plan in place to pay for your child’s college education.

Whatever your goals may be, when you finally achieve them, relish the peace of mind that comes with that accomplishment and use it as motivation to continue pursuing your other financial goals.

4. Stop obsessing.

As the old saying goes, “Rome wasn’t built in a day.” And unless you happen to win the lottery, it’s quite likely your financial plan won’t be miraculously “built” in one day either. There’s no reason to check in on your accounts every day (or even every week). Witnessing short-term fluctuations in your account balance can be unsettling at best and downright anxiety-causing at worst. These uneasy feelings may lead you to make a rash decision that could quickly derail your financial plan, such as selling an investment at a loss or holding too much cash.

As long as you have a diversified investment portfolio that’s in line with your risk tolerance, time horizon, and future goals, you don’t have to obsess over every market dip. Plus, if you’re working with a qualified wealth manager, he or she is keeping an eye on your investments and looking for strategic opportunities like these to help improve your long-term outlook. Try to relax and let your investments work for you, not against you.

Gene Gard, CFA, CFP, CFT-I, is a Partner and Private Wealth Manager with Creative Planning. Creative Planning is one of the nation’s largest Registered Investment Advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags 401k, budget, Finance, safe spending

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How to Start Investing in 2025

Post author By Gene Gard
Post date January 29, 2025
No Comments on How to Start Investing in 2025

A new year brings new goals and a fresh start. If your resolutions include investing for the future, congratulations! You’re taking the first step toward building wealth and achieving financial independence. Here are six tips to help you begin in 2025.

1. Start simple.

One of the easiest ways to start investing is through a retirement plan. If you have access to a workplace plan, such as a 401(k) or 403(b), make sure you’re contributing enough to take full advantage of any company matching contributions. If you don’t have access to a workplace plan, consider opening a traditional or Roth IRA.

Once you have an account in place, commit to making regular contributions. Automatic payroll deferrals are a great way to effortlessly build an account balance. Each year, have a goal of increasing your contributions by 1 percent to 2 percent. Even a small increase can have a big impact on your retirement savings over time, and you’re unlikely to even notice the impact on your take-home pay.

2. Find a fiduciary advisor.

A great way to start investing is by working with a qualified fiduciary advisor to establish an investment strategy that makes sense for you, given your current financial situation and goals for the future. Fiduciary advisors are held to fiduciary duty standards, which means they’re legally obligated to act in clients’ best interests at all times.

In contrast, some advisors are incentivized by investment managers and/or insurance companies to sell clients certain products that may or may not be in the client’s best interest. This practice can lead to high fees and the long-term erosion of your assets.

Look for an advisor who provides 100 percent of their services as a fiduciary advisor; offers low-cost, tax-efficient strategies; and uses an approach based on rational, science-driven, academic research. There’s a lot of misleading financial data out there. Your advisor should have the knowledge, background, and experience to get to the facts and develop well-researched solutions to the challenges you face.

3. Establish clear investing goals.

Everyone has different goals for the future, so there is no one-size-fits-all strategy. A great way to begin your investing journey is by establishing an overall financial plan. A solid financial plan can serve as a blueprint to guide all aspects of your financial life and can help ensure your investment decisions make sense, given your overall financial situation.

Consider working with an advisory team with experience navigating a range of financial challenges, including debt management, insurance planning, retirement planning, budgeting, estate planning, tax planning, and preparation, etc.

4. Diversify.

Regardless of where you are in your investing journey, it’s important to maintain a diversified portfolio. Investing in different types of assets can help spread out your risk because when one sector or investment type is performing poorly, another investment type that’s performing better can help smooth out overall portfolio volatility. While diversification won’t prevent losses, it can reduce your risk of being too heavily invested in the worst performing part of the market.

5. Don’t neglect your emergency savings.

While investing in a diversified mix of stocks and bonds is a great way to build your wealth over time, it’s also important to have access to a liquid emergency fund to help cover unexpected expenses. Consider saving three to six months of living expenses in a short-term account separate from your invested assets.

6. Protect your nest egg.

As you build your investment portfolio, be sure to implement a variety of risk-management strategies. These include things like life insurance, umbrella liability insurance, long-term-care insurance, disability/income replacement insurance, and more. Work with your wealth manager to determine which strategies make sense for your particular situation.

Gene Gard, CFA, CFP, CFT-I, is a Private Wealth Manager and Partner with Creative Planning. Creative Planning is one of the nation’s largest registered investment advisory firms providing comprehensive wealth management services to ensure all elements of a client’s financial life are working together, including investments, taxes, estate planning, and risk management. For more information or to request a free, no-obligation consultation, visit CreativePlanning.com.

Tags 401k, 403b, Finance, Roth IRA

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New Year, New Goals?

Post author By Gene Gard
Post date January 15, 2025

Are you starting the year off with fresh financial goals? Great! Recommitting to your finances by focusing on your goals is a great way to enter the new year. One of the best ways to ensure progress toward your goals is by considering how they impact each part of your financial plan and making updates to accommodate them, including the following.

Account for life events.
One of the most important reasons to continually update your financial plan is to ensure it continues to meet your needs as your life evolves over time. Anytime you experience a major life change, such as a marriage, divorce, new baby, death of a loved one, new job, etc., work with your wealth manager to make sure that change is accounted for across all aspects of your financial plan.

Update your goals.
Your goals may not be the same today as they were a year ago. Maybe you successfully saved for a down payment on a home and made a purchase. Perhaps your son graduated college and you no longer need to plan for that expense. Maybe you injured yourself skiing and decided that purchasing a ski condo is no longer something you wish to pursue. Whatever changes may have occurred in your goals over the last year, be sure to incorporate them into your financial plan.

Minimize your taxes.
Proactive tax planning can lead to significant savings over time, which is why it’s important to regularly check in on your tax planning strategies. A fiduciary financial advisor should regularly review your portfolio’s tax efficiency and make changes as necessary to help minimize your tax liabilities. However, it’s still important to check in and ensure you’re taking advantage of all tax planning strategies available to you.

Check in on your investments.
When you and your wealth manager first established your portfolio’s asset allocation, you carefully chose a mix of investments you believed would give you the best possible chance of achieving your financial goals. You should review your investments and target allocation with your wealth manager in your annual reviews, discussing whether any changes should be made (as life events take place and risk tolerances vary).

If you regularly review your investments, your allocation can begin to drift away from your targets (as some sectors outperform others over time). It’s important to periodically rebalance your portfolio back to your original (or an updated) asset allocation. Rebalancing is the process of selling off outperforming investments and reinvesting in lower-performing assets in order to get back to your target allocation. While this may seem counterintuitive, it prevents your allocation from drifting too far from your target investment ranges. This is an important risk management strategy because it prevents one asset type from dominating your portfolio and exposing you to too much risk.

Plan for retirement.
Planning for retirement is an important goal to focus on at any age. In fact, the younger you start, the better off you’ll be when you’re ready to retire. As you review your financial plan, don’t forget to review progress toward your retirement goals. If your financial situation allows, talk with your wealth manager about possibly increasing or even maximizing your 401(k) and/or IRA contributions.

Prepare for emergencies.
If you don’t already have an emergency fund, consider starting one as soon as possible. Generally, you should have at least three to six months’ worth of expenses set aside in a liquid account for emergency use. If you have an emergency fund in place but have recently dipped into it, be sure to focus on building it back up to your ideal level.

Tags Finance, financial goals, financial plan

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Giving Season

Post author By Gene Gard
Post date December 25, 2024

Americans are notoriously generous when it comes to charitable giving. According to Giving USA, Americans gave $484.85 billion to charity in 2021, a 4 percent increase from 2020. The end of the year is the most popular time to give to charity, with 30 percent of annual giving occurring in the month of December, and a full 10 percent of donations made during the last three days of the year.

If you’re planning on making a charitable donation before the end of the year, it’s important to be aware of the following.

Cash isn’t always the most efficient option.

If you’re used to writing a check each year to your favorite charity, you may want to reconsider. Contributing appreciated securities, such as stocks, bonds, or mutual funds, can be a great way to both maximize your donation and lower your tax liabilities for the year. Selling stock to make a donation could trigger capital gains taxes, assuming the value of the stock has grown since you acquired it. On the other hand, if you transfer the appreciated stock in kind to the organization, you’d avoid triggering a taxable event, and the charity would receive the entire value of the stock. Because charitable organizations are tax-exempt, the charity could then sell the stock without triggering a taxable event. That’s a win-win for both you and your charity.

You may not want to give every year.

Following tax law changes that went into effect as part of the 2017 Tax Cuts and Jobs Act (TCJA), fewer taxpayers now have an incentive to itemize. And, because you must itemize in order to claim a charitable deduction, fewer individuals are eligible to receive end-of-year tax benefits for donating to charity.

So, how can you reap the benefits of donating to charity if you don’t currently itemize? One option is to use a bunching strategy. Instead of making a charitable donation every year, it may make sense to save up several years’ worth of donations and contribute them all at once.

For example, if you typically donate $4,000 per year to charities, it may make sense to instead “bunch up” those contributions and donate $20,000 every five years. The key is to make sure you donate an amount high enough that itemizing your taxes makes sense.

Your RMD can actually lower your tax liability for the year.

Many retirees dread taking required minimum distributions (RMDs) from their tax-deferred retirement accounts each year because RMDs are taxed as ordinary income. This increase in taxable income can cause you to fall into a higher tax bracket, increase your Medicare premiums, and even increase the taxable amount of your Social Security income benefits.

However, if you’re a charitably minded individual over age 70.5, you may be eligible to contribute up to $100,000 from your retirement account directly to a charity without increasing your taxable income. This type of distribution is called a qualified charitable distribution (QCD). As with many gifting strategies, there are specific requirements you must follow to ensure your RMD donation qualifies as a QCD, so consult your wealth manager for assistance.

You can make a charitable gift without designating an organization right away.

Ready to make a charitable donation but unsure what organization(s) you’d like to support? No problem. A donor-advised fund (DAF) is a great option for individuals seeking both tax benefits and control over future donations. A DAF is a 501(c)(3) charitable fund that can receive irrevocable charitable gifts from you (as the donor), and you retain control over both the timing of distributions and the organizations to which donations are made.

As with most financial planning strategies, the charitable giving strategy that’s right for you depends on multiple factors, including your age, your current financial situation, your taxable income, your goals for the future, and more.

Tags charitable donation, donor-advised fund, Finance, giving season, required minimum distributions, Tax Cuts and Jobs Act

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Gifting a Roth IRA?

When it comes to giving thoughtful gifts, financial security may not be the first thing on your mind. However, giving a Roth IRA can be a meaningful way to start your loved ones on a path toward financial security.

A Roth IRA is a type of individual retirement account that offers tax-exempt growth and tax-exempt withdrawals in retirement, which make it a powerful tool for building long-term wealth. Contributions to Roth IRAs are made with after-tax dollars, and qualified withdrawals of assets are tax-exempt and don’t increase your taxable income. In contrast to traditional IRAs, they aren’t subject to required minimum distributions (RMDs) during the owner’s lifetime, which means assets in the account can continue growing tax-exempt throughout the account holder’s life.

There are several benefits to giving a Roth IRA.

1. Tax-Exempt Growth

One of the primary benefits of Roth IRAs is that they allow contributions to grow on a tax-exempt basis. This means any earnings, such as interest, dividends, and capital gains, aren’t subject to federal income taxes while held within the account. Over time, this can add up to significant savings, especially for younger investors who are able to let their assets grow over many years before withdrawing them in retirement.

2. Retirement Savings

Establishing a Roth IRA for a loved one can be a great way to help them save for retirement. Many young people struggle to find extra money to set aside for retirement planning. Funding a Roth IRA can help remove some of that financial burden and allow your family member to focus on other financial priorities, such as saving for a home, paying down student loan debt, starting a business, etc.

3. Financial Literacy

Giving a Roth IRA can be a great opportunity to educate loved ones on multiple financial topics, such as saving early and often, the power of compound interest, the basics of investing, and the importance of planning for retirement. With a Roth IRA, not only are you helping your loved ones financially, you’re also teaching important financial strategies.

4. Estate Planning

Not only are Roth IRAs not subject to RMDs during the account holder’s lifetime, but they can also be passed on to heirs tax-free following the account holder’s death. Roth IRAs are a tax-efficient way to transfer wealth to future generations because they allow heirs to receive assets without having to pay income taxes on the distributions (unless the Roth IRA is less than 5 years old).

In addition, Roth IRAs don’t count toward the taxable estate of the account holder, which means they can help reduce the size of an estate for tax purposes. By giving a Roth IRA as part of an estate planning strategy, the account holder has the potential to reduce their heirs’ estate tax liability, which helps preserve more assets for future generations.

5. Compound Interest

By giving a Roth IRA to a younger family member, you offer the opportunity to take advantage of compounding interest over the individual’s lifetime. The impact of this cannot be overstated.

Suppose you contribute $1,000 to a Roth IRA on behalf of your granddaughter every year, beginning at age 20. By the time she reaches 40, you would have invested $20,000 on her behalf ($1,000 x 20 years). Assuming an average annual return of 10 percent, the investment would be worth $63,773.40 after 20 years.

On the other hand, if your granddaughter began contributing $2,000 per year to a Roth IRA from age 30 to 40 ($20,000 total), her investment would only be worth $36,934.83 after 10 years (again assuming an annual average return of 10 percent) because she has less time to take advantage of the power of compounding.

Contributing to Roth IRAs should not exceed the amount actually earned in a year by the account owner — or the maximum contribution limit, if the owner earns more than that amount.

The gift of a Roth IRA to young family members has the potential to significantly improve their long-term financial outlook and be a cornerstone of their nest egg now and in the future. Roth IRAs can truly be the gift that keeps on giving.

Tags Finance, retirement, Roth IRA, tax

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8 Open Enrollment Mistakes

Post author By Gene Gard
Post date December 4, 2024

Welcome to fall, the season of changing leaves, falling temperatures, and, of course, open enrollment for employer benefits. Open enrollment is the period of time when eligible employees can enroll or make changes to their employer-sponsored benefits.

Unless you experience a qualifying life event, such as getting married or having a baby, open enrollment is the only time of year to make changes to your insurance coverage and spending account contributions. That’s why it’s important to carefully review all options and select benefits that make sense for your particular situation.

Following are eight common open enrollment mistakes to avoid.

1. Failing to review all options

Many employers offer multiple types and levels of health, life, and disability insurance coverage. Be sure to review all options available to you and select coverage levels that make sense for your personal life and financial situation. Your wealth manager can help you evaluate your options and select appropriate levels of coverage.

2. Overlooking plan changes

Don’t assume this year’s coverage is the same as last year’s. Both employers and insurers can change plan details, such as coverage levels, premiums, in-network providers, and out-of-pocket costs. That’s why it’s important to carefully review all plan documents for updates.

3. Forgetting to consider how your life has changed

It’s important to reevaluate your benefits in light of any major life events that occurred over the past year, such as marriage, divorce, the birth of a child, etc. Failing to account for these important changes may leave you underinsured or lead to higher-than-necessary costs.

4. Selecting the wrong type of health insurance coverage

Many health insurance plans offer different levels of coverage. Selecting the wrong level may result in insufficient coverage or require you to pay higher premiums than necessary.

5. Missing out on employer matching contributions

If your employer offers a 401(k) match, make sure you’re contributing enough to take full advantage of this money.

6. Overlooking the benefits of flexible spending accounts (FSAs) and health savings accounts (HSAs)

FSAs and HSAs offer a tax-advantaged way to save for qualified medical expenses. Take time to understand how these plans work, the differences between the two plan types, and how you can maximize your contributions.

7. Failing to update beneficiaries

If you have employer-sponsored life insurance or retirement accounts, it’s important to regularly review your beneficiary designations to ensure they continue to reflect your wishes as your life evolves over time.

8. Procrastinating

Waiting until the last minute to enroll in benefits can lead to rushed decisions and missed opportunities. Begin the open enrollment process as soon as possible, and work with your wealth manager to ensure your benefit elections are in line with your overall financial plan and long-term goals.

Tags employer-sponsored benefits, flexible spending accounts, health insurance, health savings accounts, Open Enrollment

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Handing Down Your Home to an Heir

Post author By Gene Gard
Post date November 27, 2024

A home is one of the most valuable and complex assets to hand down. It can be an incredibly emotional experience and may be difficult to find common ground. Thoughtful planning can ensure your home is passed along according to your wishes. A well-constructed plan can minimize the risk of legal, financial, and tax complexities. If you’re proactive, your heirs can have clarity and a clear course of action for when the time comes.

1. Start planning early.

Start early and discuss your intentions with family members and heirs. Understand their wishes and ensure your decisions align with their hopes for the future.

2. Understand the potential tax consequences.

Transferring property to an heir can trigger various tax consequences, including estate taxes, gift taxes, and/or capital gains taxes. Work with an estate planning attorney or tax professional to implement a tax-efficient transfer strategy.

3. Explore different transfer options:

Joint ownership — If you plan on living in the home until you pass away, you may wish to add your heir’s name to the property’s title as a joint owner. This ensures that the joint owner receives full ownership rights to the home without restrictions after one’s passing.

If a spouse is listed as the co-owner of the home, the value transferred to the spouse is exempt from estate and gift taxes as they benefit from the unlimited marital deduction. The surviving spouse would inherit your ownership interest of the home and become the sole owner.

When a non-spouse co-owner is listed:

• The value transferred is considered a gift and must be reported for gift tax purposes, meaning it counts toward your lifetime exemption amount.

• Lifetime gifts to non-spouse heirs are subject to the carryover of cost basis, which may be equal to the original cost of the home (excluding improvements). This means they may be subject to higher taxes due on the future sale of the property because they’ll likely not be eligible for a step-up in cost basis at the time of your death.

• As a co-owner, your heir assumes ownership of a portion of the home’s value. Should they experience financial difficulties, initiate divorce proceedings, or incur debt issues, this could put your home at risk of a lien or other legal action. Further, you would need the permission of your co-owner to take out a new mortgage, refinance the existing mortgage or sell the home in the future.

Will — A traditional will allows you to name an heir as the beneficiary of your home. A testamentary trust setup can provide more control over how your home is managed and used. Having a will alone doesn’t prevent your assets from going through probate. And a will is a public document, so anyone can see who inherited assets.

Revocable trust — A revocable trust allows you, as “grantor” or “trustee,” to maintain control over your home while specifying how and when it will pass to your heirs. Following your death, the trust enables your home to be quickly and privately transferred to your heir while bypassing the probate process. This approach allows you to retain full control and use of your home during your lifetime and a seamless transition after you pass away.

Qualified personal residence trust (QPRT) — A QPRT can help you transfer your home’s ownership at a reduced gift tax rate. Here, the home is transferred to a trust, but as the owner, you maintain the right to live there for the QPRT’s duration. At the end of the trust, the house is transferred to the designated beneficiary, and you no longer have an official right to live there (however, it’s common to negotiate a lease with the beneficiary).

For this strategy to be most effective, the original owner must outlive the terms of the trust. If you die before the trust ends, the value of your home will be included in your taxable estate.

4. Evaluate financial readiness.

Make sure your heir is financially prepared for homeownership and the commitments associated with the property. Passing down a home can mean additional financial responsibilities, including property taxes, home insurance, maintenance costs, and mortgage payments.

Tags Financial readiness, Inheritance planning, Wills and revocable trusts

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Happily Ever After

Post author By Gene Gard
Post date November 13, 2024

As a newly married couple, you have many exciting life milestones to look forward to. You may buy a home, start a family, or travel the world — the possibilities are endless. However, in order to achieve your goals, it’s important to make sure your financial house is in order. Here are six financial planning tips for newly married couples.

1. Understand each other’s approach to finances. Have an open and honest conversation about your approach to money. Most people’s views on spending and saving are formed early in life, and it can be difficult to alter your mindset. Consider your earliest memories about money, any financial fears you have, what your savings priorities are, and how much debt you’re willing to take on. Find common ground and establish a strong foundation on which to build your financial lives.

2. Share financial histories. Gain an understanding of your starting point. This means sharing details about your past and current finances. Important topics to cover include:

• Income — What’s your gross and net income monthly? Do you receive bonuses? Do you have any contract income to consider for tax planning?

• Spending habits — Discuss monthly expenses and understand where discretionary income is spent. That can help plan for how you’d like to adjust your expectations and work toward a compromise early on.

• Savings amount — Identify how much is kept in savings on average and how much each partner saves regularly.

• Investments — Does your partner have a 401(k), IRA, Roth IRA, or investment account? Which are you saving toward regularly? The amounts you can save for each may change once you’re married.

• Debts — Understand debts your partner may have: credit cards, student loans, personal loans, mortgages, or even back taxes.

3. Establish shared financial goals. Work together to establish shared goals in the short term and the long term.

What do you envision for your financial future? What savings goals do you have? New home? Future children’s college expenses? Retire early? Travel the world? Start a business?

How do your goals differ from your spouse’s? It’s okay to have differing goals. The key is to communicate and come up with a financial strategy that allows you to pursue both your shared priorities as well as your individual objectives.

4. Create a budget. A budget provides insight into exactly where your money is going each month and can help identify spending issues.

Start by determining how much money you anticipate spending each month. Then divide your expenditures into nondiscretionary and discretionary expenses. Once you have a handle on your expenses, compare that amount to your income. Are you spending less than you earn? Are you saving enough to hit your targets? If not, find ways to reduce discretionary spending.

You may also want to combine some bills into shared plans. Bundling your auto or homeowners insurance will likely reduce your nondiscretionary expenses.

The key is to establish a budget that allows you to pay for nondiscretionary and certain discretionary expenses while progressing your financial goals. If you and your spouse have different spending habits, you may consider giving each other an agreed-upon monthly “allowance” that can be freely spent or saved without the other’s input. Establish separate accounts so that you both have complete freedom over this limited amount of money.

5. Cover your bases. After the difficult discussions, take time to restructure your income, expenses, insurance, and savings plan. Establish joint checking, savings, and investment accounts; update your income payouts into the appropriate bank account(s) for your overall goals; and review existing insurance policies and purchase/update any relevant policies.

6. Review beneficiaries and create an estate plan. If beneficiary designations are not updated and you’ve listed someone other than your spouse, when you pass they won’t have the ability to contest or receive those funds. Update designations on retirement or savings accounts and establish estate planning documents to ensure your spouse receives assets as you desire.

Tags Finance, newlywed

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Getting Covered for Retirement

Post author By Gene Gard
Post date October 30, 2024

Whether retirement is on the horizon or it’s quite a few years away, planning what your retirement will be like can be very exciting! This stage in life comes with a mix of emotions, but with planning, you can turn your savings into a source of income to cover your living expenses. Here are four important tips to help you plan for income in retirement.

1. Make a plan.

The first step in preparing for retirement income is to have a comprehensive plan. A custom financial plan serves as a blueprint to inform your financial decision-making and helps ensure all aspects of your financial life are working together to achieve your goals.

2. Properly structure your portfolio.

One of the best ways to generate income in retirement is to strike a balance between short- and long-term investment accounts.

It’s recommended to maintain three to five years of living expenses in a short-term, semi-liquid investment account. A mix of bond funds works well, as it provides capital for opportunistic rebalancing as well as a monthly income. Having a short-term allocation to bonds can prevent you from being forced to sell out to equities at a loss when markets are low.

It’s also important to continue growing your assets in order to help offset inflation and ensure you have enough income to last throughout retirement. You should consider investing any assets not necessary to fund your short-term needs in a diversified portfolio that focuses on growth and inflation protection. While this portfolio should be in line with your overall risk tolerance and investment objectives, it can be invested in riskier assets than your short-term account.

3. Implement a tax-efficient withdrawal strategy.

Ideally, you’ve been saving in multiple accounts with different tax treatments, such as traditional IRAs, Roth IRAs, 401(k)s, and taxable accounts. If so, you may have an opportunity to maximize your income by strategically withdrawing from different accounts in different circumstances. This is called tax diversification.

• Taxable (non-retirement) accounts – These offer the benefits of tax-loss harvesting and have fewer restrictions on contribution amounts and fewer distribution penalties.

• Tax-deferred retirement accounts, such as pre-tax IRAs and 401(k)s – Withdrawals from these trigger ordinary income taxes, as they’ve enjoyed tax-deferred growth.

• Tax-exempt accounts, such as Roth IRAs – These allow tax-exempt investments to grow for as long as possible, and qualified withdrawals are tax-free.

There are two main withdrawal strategies to consider based on your specific goals, tax situation, and income needs.

• Traditional approach – Using this, you would withdraw from one account at a time. Typically, the order of withdrawals is from taxable accounts first, followed by tax-deferred accounts and, finally, tax-exempt accounts. This allows the tax-advantaged accounts to continue growing tax-deferred and tax-free for a longer period of time. However, it may result in uneven taxable income.

• Proportional approach – This strategy establishes a target percentage that will be withdrawn from each account each year. The amount is typically based on the proportion of retirement savings in each account type. This can help ensure a more stable tax bill from year to year and can also help you save on taxes over the course of your retirement.

The benefit of following a disciplined approach is that you won’t be tempted to spend more than you can afford in any given year (or less than you’re able to!). This practice can help you maintain adequate assets to last a lifetime, regardless of market volatility. An advisor can assist you with creating a distribution strategy aligned with your financial needs and tax bracket on a year-by-year basis.

4. Regularly revisit and readjust.

Given the potential longevity of retirement, periodic reviews of your financial plan and income strategy are essential. Work with a qualified wealth manager who can help you understand how regulatory and market changes may impact you and adapt your plan as needed to align with your evolving goals and needs.

Tags Finance, investment, retirment

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Education Planning for Individuals With Special Needs

Post author By Gene Gard
Post date October 16, 2024

Planning to pay for a loved one’s educational expenses can be daunting, and parents of children with special needs face additional challenges. Fortunately, there are strategies that can help you plan without jeopardizing their eligibility for government benefits.

First, establish an individualized education plan (IEP). This document details the special education instruction, support, and services your child needs to be successful. IEPs are covered under the Individuals with Disabilities Education Act (IDEA), a federal law that requires all special education students to have access to a free and appropriate public education. It also mandates that teachers be appropriately trained and have the skills necessary to serve children with disabilities. IEPs are established in collaboration with a child’s school administration, teacher(s), and parent/guardian. It outlines the specific needs of the student and the services required of the school to meet them.

One way to pay for your loved one’s education is by establishing a special needs trust (SNT). This holds money for a beneficiary who has a disability or chronic illness. SNTs are intended to supplement government benefits, such as Supplemental Security Income (SSI) and Medicaid, while preserving the individual’s eligibility for them.

Another advantage of SNTs is that they can help ensure assets are distributed appropriately, as directed by the trust documents. Family and friends can make gifts to an SNT of up to $18,000 per year, per donor ($36,000 per married couple) without being subject to gift tax.

SNTs also offer flexibility in the types of assets used to fund them, including cash, securities, and life insurance proceeds. A common strategy is for parents to purchase a second-to-die life insurance policy, which pays a death benefit to the SNT after the last surviving policy holder passes away. SNTs can even help protect your loved one from falling victim to financial predators, as assets can’t be accessed without the trustee’s approval.

While there are immense benefits to establishing an SNT, there are also some downsides. First, the person you designate as trustee will have complete discretion over how the assets are distributed. This can cause issues if the trustee doesn’t share your intentions or have the same financial priorities as your loved one, which is why it’s important to carefully consider whom you designate as trustee.

Also, in order to ensure your trust is structured properly, you’ll need to work with an estate planning attorney. This is typically worth the expense, considering the peace of mind it provides. Finally, there are ongoing costs and responsibilities to administer and maintain the trust; another reason it’s important to select a willing and capable trustee.

Named after the Achieving a Better Life Experience Act of 2014, ABLE accounts offer another opportunity to provide benefits to individuals with special needs. Similar to SNTs, the assets don’t interfere with benefits eligibility (so long as they don’t exceed $100,000), and contributions can be made by the account holder as well as friends and family members.

When used to pay for educational expenses, withdrawals from ABLE accounts are exempt from taxes. In contrast to SNTs, which are managed by a trustee, ABLE accounts are owned and managed by the individual with special needs. It’s also much easier to access ABLE account assets than SNT assets.

Another benefit of ABLE accounts is that assets can be used for a variety of purposes, including anything that helps improve health or quality of life. This includes basic living expenses, food, employment, education, transportation, etc.

In order to qualify for an ABLE account, an individual must meet one of the following requirements:

• Qualify for SSI by a disability that occurred before age 26

• Qualify for disability insurance benefits, childhood disability benefits, or disabled widow/widower benefits by a disability that occurred before age 26

• Hold a certificate that proves the disability occurred before age 26

Once an individual qualifies, it’s easy to establish an ABLE account through the state’s website. No attorney is needed. It’s important to be aware that ABLE accounts have contribution limits. In 2024, contributions are limited to $18,000 per year.

Another downside is that any assets left in an ABLE account after the account holder’s death may be used to reimburse the state Medicaid agency for any services paid by Medicaid.

Tags Finance, individualized education plan, special needs, special needs trust, Supplemental Security Income