Retirement | Confident. Returns.

Important Changes to Social Security

By Michael Lecours, CFP November 10, 2015 In Retirement, Taxes, Uncategorized

Big changes to Social Security usually take years to plan, develop and roll out. But not this time. Congress has suddenly shut down two popular claiming strategies that have been growing in popularity over the last few years. File & suspend and restricted application claiming strategies will disappear in the next 6 months.

I’m not surprised that these strategies have been cancelled. They exploited a loophole in Social Security and in some cases allowed retirees to collect more than the social security system could handle. What’s most surprising is how quickly these changes will occur. See the chart below to see how it affects you.

Interested in learning more?

Social Security Discussion

By Michael Lecours, CFP August 26, 2015 In Economy, Investment Strategies, Retirement, Uncategorized

CNBC posted an article online yesterday about how to collect social security. It’s over simplified and generalizes the issues and concepts. The interesting part was the number of comments the article received. Close to 600 comments over the last 36 hours! It was scary to browse through these comments to see all the misinformation that was being spread among the commenters.

If you’re thinking about Social Security, or have questions, talk to us. We can help to think through the issues with you and help you avoid some of the common mistakes folks make.

How to Save for Retirement When You Can’t Work Longer

By Michael Lecours, CFP August 12, 2015 In Investment Strategies, Retirement, Uncategorized

When working longer is no longer an option, it is time to develop strategies to maximize your remaining resources. A combination of planning, adapting and downsizing may be the best course.

Evaluate the Situation

At age 60 or so, life has usually simplified. Children are gone by now and expenses have become more predictable. Since Social Security is still on the horizon, you must find ways to create income from what remains. A realistic draw-down strategy and a workable budget are critical to a comfortable retirement.

Reduce Expenses

If your budget prohibits maintaining your prior lifestyle, expenses must be reduced. Many retirees enjoy creating economical solutions to everyday activities. Senior discounts abound while shopping for auto insurance and other products designed for seniors will lower expenses. Perhaps you could even cut the cord to cable TV.

Housing Options: Downsize, Reverse Mortgage or Line of Credit

Downsizing to a smaller, less expensive home is an option. You’ll save on mortgage, taxes, insurance and utility costs. You may also withdraw equity from the sale of your original home.

A reverse mortgage can be an option if you prefer to stay where you are and have substantial equity. You can remain in your home while the bank pays you a monthly payment to own your home after you are gone.

Tax Consideration for Retirement Accounts

Before Social Security starts and you have little or no taxable income, the early period is a great time to convert 401ks and Traditional IRAs into Roth IRAs. In doing so, you convert all your retirement assets into accounts from which future withdrawals are tax free. This minimizes the tax burden from the conversion.

Delaying Social Security

If your resources allow, delay Social Security as long as possible. Each year you delay beyond 62 increases your benefits substantially. And if you can wait until 70, the benefits increase by 8% each year past the defined retirement. If Social Security benefits are due for both individuals, it may be practical to draw from the lesser account at retirement age and allow the other to grow to the maximum at 70 years of age.

Annuities

In the current low interest environment, payback on annuities is historically low. However, when interest rates rise, these insurance company-backed policies that you purchase can guarantee a fixed payout for the rest of your lives.

If you’re approaching retirement and concerned that you haven’t saved enough but know that working longer is out of the question, there are a lot of options to consider. Start with looking for ways to reduce your expenses. That will have the greatest affect. Hopefully, a combination of these strategies can make up for the difference.

The Myth of Putting All Your Eggs in One Basket

By Michael Lecours, CFP July 16, 2015 In Asset Allocation, Finding Confidence, Investment Strategies, Retirement, Uncategorized

We’ve all heard not to put all our eggs in one basket when it comes to investing. Most of us would agree that sure, it’s good to have diversification but it seems like this concept of diversification has become misunderstood.

When someone says to me “I don’t want all my eggs in one basket,” they are saying they want to spread their risks out. An investor that invests only in the US stock market is putting all of his eggs in one basket. An investor who invests only in bonds is putting all of her eggs in one basket. They aren’t diversifying their portfolio and as a result are taking on risk.

Some investors make a mistake and think they are diversifying their investments, but in reality the opposite is more likely. Here are a few examples to consider:

Common Problems of Improper “Diversification”

Multitude of Accounts: If an investor has a lot of different assets in different accounts it may be hard to track them all. They receive multiple statements in the mail and have to navigate different custodians when they need to make changes. It could cause confusion particularly around tax time. It becomes an administrative issue.
Tax Impact: Having multiple accounts may cloud one’s view of tax consequences. They could be dealing with gains and losses in different accounts. If not coordinated, an investor could be paying more in taxes than needed. We refer to this as a tax loss harvesting strategy, where we sell investments at a loss to offset ones we’ve sold for a gain.
Similar Underlying Investments: A common situation occurs when an investor has multiple mutual funds from different fund companies, thinking they are diversified. But in reality, those funds may own the same or similar underlying investments. The investor may be putting all their eggs in one basket and not even realize it. Similarly, we see investors who own utility stocks and income oriented mutual funds. When we dig into the holdings of the mutual fund, we aren’t surprised to see it comprised of utility stocks, as well. Again, the investor is putting a lot of their eggs in one basket.
IRA RMD: Required Minimum Distribution (RMD) can be a massive headache if you haven’t consolidated your IRAs or 401(k)s. Missing an RMD (or not taking it out) can result in a 50% penalty.

Get Rid of Unintended Risks

As we’ve seen, the myth of diversifying assets can be misleading. It’s important to understand the true implication of diversification. Knowing how to invest properly by getting rid of unintended risks and allocating your retirement portfolio can give investors peace of mind and confidence in this present economy.

How to Avoid the Biggest Mistake When Starting Social Security

By Michael Lecours, CFP June 25, 2015 In Investment Behavior, Investment Strategies, Retirement, Uncategorized

The media is causing millions of Americans to make a serious mistake when it comes to social security collection strategies. We see articles that discuss ways to “maximize” the social security benefit using clever, new methods such as the “file and suspend” approach. But they completely miss the ball on the most critical issue. They do not stop and ask what your GOALS are for Social Security, which should be the discussed first. Only then should specific strategies be evaluated. Here are a few goals to consider:

We want to retire at a specific age and start collecting social security
We want to start claiming benefits as soon as possible
We want to maximize the income over the years we have together
We want to minimize any decline in income for the surviving spouse
We want the surviving spouse to receive the maximum annual benefit
We want to maximize the survivor benefit (and receive income early)

Once you know your goal, then you can move to the next step and decide how should you collect the benefit. Maximizing the cumulative benefit is just one goal and may be a poor choice once you take the time to compare them to other options.

How to Reduce the Pain of a Required Minimum Distribution

By Michael Lecours, CFP June 15, 2015 In Retirement, Rule of Thumb, Taxes, Uncategorized

When the government enacted legislation that allowed individuals to fund a Traditional IRA with tax-deferred income, those legislators also wanted to ensure that the taxes would eventually be paid. The concept was to defer income taxes until the time the money may be needed for retirement.

To ensure that the deferred taxes would eventually be paid back during the saver’s lifetime, a Required Minimum Distribution (RMD) of the balance commences when the individual turns 70 ½. The first year’s RMD is approximately 4% of the total of all tax-deferred IRA balances. Following that, the RMD percentage increases each year during retirement. The penalty for not withdrawing the RMD can result in a substantial penalty of 50% of the shortfall.

Below are a few strategies to consider that could help to reduce the pain of an RMD:

Plan Ahead

Individuals who will continue to accumulate substantial income from pensions and other sources can consider withdrawing portions of their IRA soon after age 59 ½, but only to the extent that the withdrawals do not force a higher tax bracket.

Defer Social Security

In some cases, deferring Social Security until 70 while using your IRA if needed up to that time can yield dual benefits. The RMD reduces while maximizing the Social Security benefits that increase each year that starting payments are deferred.

Conversion to Roth IRA

Converting portions of your existing traditional IRA into Roth IRAs before age 70.5 will allow the balance to continue to grow tax-free. Though taxes must be paid at the time of the conversion, subsequent withdrawals from the Roth IRA will be non-taxable.

Charitable Donations

Donating an amount equal to the RMD to qualified charities will offset the calculation of the taxable income.

Reinvesting into an Investment Account

One of the more popular strategies is to take the RMD, pay the taxes and reinvest the rest into a brokerage account. Investors can keep their money working for them.

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