Thrive Retirement Planning Podcast

Carl Woolston discusses eight critical steps to help you prepare for the retirement jump. He emphasizes financial security, peace of mind, and ensuring you retire to something, not just from something.

Highlights the importance of giving every asset a specific job in retirement planning, moving beyond the single-minded goal of asset growth. Discusses the seven crucial jobs for retirement assets, emphasizing that a well-thought-out approach can ensure financial security, a fulfilling lifestyle, and peace of mind during retirement.

Explore three common pre-retirement mistakes that can significantly impact your financial future. The transition to retirement can be filled with uncertainty, worry, and complexity. Making mistakes in the process can lead to running out of money, excessive tax payments, and market losses.

What are your Medicare options? When should you sign up? Do you need to sign up? What's the difference between Medicare Part A, B, C, and D? How much does Medicare cost, and how does it work? My guest Andrea Dover, CPA, lends her Medicare expertise to the podcast.

Reverse mortgages can be a financial tool to use during retirement in some situations. Technically, reverse mortgages are called Home Equity Conversion Mortgages or HECM by HUD, and have changed over the years, which has led to misinformation and some skepticism. My guest today is Alan Blood, a mortgage professional in Bountiful Utah, who has extensive experience with reverse mortgages, how today’s products work, and when they might be beneficial. This article summarizes much of the discussion with Alan Blood. See the audio the complete discussion. A LITTLE ABOUT ALAN BLOOD Alan Blood is the owner and Lending Manager at CFG Home Loans. Alan has helped homeowners throughout Utah understand and obtain great mortgage financing. He graduated from the University of Utah College of Law with an emphasis in environmental and real estate law and holds a BA in Economics from Brigham Young University. Alan has been working as a mortgage broker since 1996 and served as the president of the Utah Mortgage Broker’s Association and a national delegate to the National Mortgage Broker’s Association. PEOPLE GET PARALYZED Those who are heading toward or are close to retirement might be feeling additional stress because of all the negative news because that is what is getting attention. The reality is that the market isn't as negative as people think and there is still a lot of opportunity for those who are wanting to make a move or explore different financing options. As human beings, when the boat begins to rock, we often hold and become paralyzed with fear. At times, inaction can be a good thing, but it can be a major mistake. We can mistakenly say that I shouldn't do anything until everything is ok. Opportunity can exist, even in the midst of uncertainty and chaos. Doing nothing can be a good solution, as long as it is part of a plan and not the default. A great solution can be the decision to do nothing but far too often people don't really look at options or take action because they are paralyzed with fear. FIXED INCOME (SOCIAL SECURITY) AND REVERSE MORTGAGES Some people may only have their Social Security and their home, but very few other financial assets. One of the options for a reverse mortgage is to supplement income in a situation where limited fixed income exists. Clearly inflation and the cost of living is increasing faster than most fixed income sources. Those who rely on fixed income from Social Security may be getting squeezed tighter and the budget that worked two years ago isn't working today. For someone in retirement and on a fixed income, a reverse option may be a financial tool to consider. You can use a reverse mortgage to create a supplemental income source and make it so that you have non-taxable income each month, depending on your situation. You can also use the reverse mortgage as more of emergency fund, if the water heater breaks or other repairs are needed. Also, if the mortgage is not yet paid off and you're in a fixed income situation, refinancing into a reverse mortgage can free up the need to make a monthly mortgage payment. WHAT IS A REVERSE MORTGAGE? To begin, all reverse mortgage loans are not HECM (Home Equity Conversion Mortgage) loans, which go through HUD. Some reverse mortgages that are not HECM, could have negative components that are undesirable. Because it is a complex financial instrument, you need to be well informed. Today, we're talking about a HUD reverse mortgage. It's a program where you can use the equity in your home to service debt or create monthly income. With the mortgages we are most familiar with you get a loan from the bank and then make monthly payments to the bank to service the mortgage. You then use your income or your assets to pay the loan. With a reverse mortgage, instead of using your income or assets to pay the debt, you're using the equity in the home. So instead of the loan balance going down over time, the loan balance will increase,

The stock market in 2022 has been volatile due to rampant inflation, Russia’s invasion of Ukraine, and the Federal Reserve’s first interest rate increase since 2018. Knowing how to structure a retirement plan that works in volatile markets is key to your success. Creating a strategic plan that works in up and down markets can be life-changing. Timing the market or even overhauling investments every time the market and economy change isn’t a long-term solution. Taking all your money out of the stock market and creating a massive taxable event can be financially devastating. In this episode, I’ll share my market outlook for 2022, how a strategic plan can reduce financial risk, and my favorite method to create a retirement plan, whether the stock market is bullish or bearish. THE VOLATILITY OF 2022 The market is attempting to catch its breath as the first quarter of 2022 ends. There was no shortage of events for the market to navigate, including the Federal Reserve’s first interest rate increase since December 2018, Russia’s invasion of Ukraine, and stubbornly high inflation pressures. The outlook calls for current market themes to last throughout most of 2022. The Federal Reserve expects inflation pressures to ease as the year progresses, but there is a risk inflation will remain elevated longer than forecasted due to rising energy prices. There are many moving parts to pay attention to in the coming months. Investors will be monitoring economic data releases, corporate earnings, and geopolitical issues in eastern Europe for clues about the market’s next move. This year’s U.S. midterm elections will add another dimension as campaign season swings into gear over the coming months. PASSING THE PILLOW TEST In your primary earning years, you’re in the accumulation phase. The goal in the accumulation phase is to put away money in 401(k), IRAs, or other retirement accounts and let them grow. As you approach retirement, you’ll be moving into the distribution (spending) phase. In the distribution phase, the goal is not to exclusively increase your money but to limit significant and catastrophic losses. If you lay down at night to sleep during retirement and the stock market is keeping you up at night, you haven’t passed the pillow test. The pillow test is to be able to be comfortable with the impact outside forces are having on your money. While I believe in the economy and markets, growing your investments is just one of eight parts of a comprehensive plan. Often those who are within a few years of retirement become increasingly uncomfortable with stock market volatility the closer retirement becomes. THE POWER OF A PLAN A typical instrument I use with clients to help them pass the pillow test is a three-bucket approach to planning. The first bucket is where guaranteed sources of income are allocated, such as Social Security and pensions. The second bucket is where the money used for income in the next 5-10 years, on top of Social Security and pensions, will be drawn from. Bucket two money is money that is invested or positioned with much less risk than growth-minded investments. One of the purposes of bucket two money is to reduce the sequence of return risk. Another purpose the bucket two is to reduce overall risk in a portfolio and utilize investments and products that are more conservative. There are numerous investment and insurance-based solutions for bucket two, and clients can weigh the pros and cons of each before making decisions. Bucket three is used for money that a client wants to grow and most likely won’t be needed for ten years or more. Bucket three can be used later in life for health care expenses such as assisted living and nursing care. Money in bucket three can also be used to pass on to children or refill bucket two money later in retirement if necessary. Money in bucket three can also be converted to Roth IRAs strategically before Required Minimum Distributions are taken; often,

Retirement can be an opportunity for a new phase of life. In retirement, you’ll most likely have more freedom than you’ve ever experienced. You get to live life on your terms with no boss and no limit to vacation time. In addition, as you transition into retirement, you’ll literally get to redefine what retirement means to you. This can be both overwhelming and incredibly fun. Below you’ll find 25 ways to thrive during your retirement years (by no means is this list exhaustive). Don’t procrastinate - Today is the day. The past is history and the future is mystery. I like to categorize retirement into 3 parts: family, fulfillment, and finances. Obviously you don’t have to start with all 3. Just pick something, take action, and experiment with the new you. Reach out to old friends - Over the years, we’ve all been touched by good people who have made a meaningful difference in our lives. Reach out and say thanks and connect. You might just be the answer to someone’s prayer. Try a new hobby - What have you wanted to do that you’ve never got around to doing? What have you wanted to try but never found the time? Now’s the time to try painting, golfing, pottery, the guitar, pickleball, yoga or even hula dancing. You might even like it enough that it becomes a regular part of your life. Focus on your family - What does family mean to you? Who do you consider family? What’s the next step in making these relationships even more powerful? Do you need to do something as a group or something one-on-one? You got this! You’ll be glad you did. Protect your hard-earned resources - You’ve worked hard and saved hard. Now is not the time to be taking on new risk with all your investment assets. Make sure a portion of your assets are protected from downturns in the market and economy. You’ll sleep better at night when your financial plan works in both up and down markets. If your plan only works in up markets, I’d suggest making adjustments. Visit a friend or family member who is sick - Research indicates that the more connected you feel to others, the less anxiety and depression you’ll experience. This may help them and you. Take on a project - Projects are bigger than to do lists and will almost always take longer than a day. You could build something, paint some rooms of your house, do a food drive for the food bank, or collect coats for those less fortunate. Take a child or grandchild to lunch - Do you have several children or grandchildren? What would happen if you took various family members out monthly or even weekly. There is nothing like sharing a meal to have those close to you open up and share. Be proactive about your taxes - Most of us like the good kind of surprises but rarely do we like a tax surprise around April. Often people hire tax professionals to look back at the previous year to file taxes. Instead, work with your tax professional and financial planner to create a plan that looks forward. Donate to causes you care about instead of Uncle Sam. Volunteer - How can you get involved in your community? Many organizations are more than happy to have volunteers who are willing to roll up their shirt sleeves. Find a cause that you want to support and make a difference. You’ll be glad you did. Take an unplanned getaway - Where could you go to explore, get a change of scenery, or even visit someone you care about? It doesn’t have to be a long trip but a weekend away can keep the cobwebs away. Take a class - Is there a skill, hobby, or language you’ve always wanted to learn more about? Find local community classes offered through the high school, community college, or community center. A class can sharpen your mind and awaken your creativity, no matter your age. Make amends - Is there a relationship that needs healing in your life? Is there someone you know you need to talk to but have avoided. While it can be extremely uncomfortable to take on awkward conversations, forgiveness can bring balm to the soul.

For most Americans, Social Security will be a foundational piece of their retirement income. How does it work and when should you take it? When is the earliest you can start Social Security and why would you want to delay? In this episode, I’ll answer some of the top questions about Social Security. WHAT ARE THE THREE MAIN TYPES OF SOCIAL SECURITY BENEFITS FOR RETIREMENT? Retired Worker Benefit - This benefit is taken off your own working history.Spousal Benefit - This benefit provides the worker’s spouse with a benefit once the worker has claimed his (or her) own benefit.Widow(er) or Survivor Benefit - This benefit provides a surviving spouse with a benefit after a worker’s death. WHAT IS YOUR PRIMARY INSURANCE AMOUNT? This is the amount of Social Security benefit you’ll receive at full retirement age (between 66-67) based on your own work history. This is based on your highest 35 years of working history, indexed for inflation.Get your statement from ssa.gov. SHOULD YOU TAKE SOCIAL SECURITY AT 62? I did a full show on this. Here is the link. https://thriverp.com/should-you-take-social-security-at-62/If you’re weighing the options of retiring early and taking your Social Security benefits, it’s important to know that you’ll receive a reduced benefit, depending on how early you decide to start your benefit.This reduced benefit is permanent.I’d highly encourage you to consider your spouse’s situation as it pertains to the survivor benefit.If you’re going to continue to work, make sure you’re aware of the earnings test. In summary, $1 in benefits will be withheld for every $2 of earning about an annual limit (in 2021 this is $18,960).The spousal benefit is also reduced if you take it before full retirement age. WHAT IS THE LATEST YOU SHOULD TAKE SOCIAL SECURITY? The latest you would want to take your own benefit is 70.Be aware of DRCs of 8% per year after full retirement age.The latest you would want to take the spousal benefit would be at full retirement age. HOW DOES THE SOCIAL SECURITY SPOUSAL BENEFIT WORK? I did an earlier show on Social Security spousal benefits. You can access it here. https://thriverp.com/navigating-social-security-spousal-benefits/You must be married for at least 1 year and the primary worker must have filed in most cases.To qualify your own benefit based on your own working history can’t be greater than half of the primary worker’s PIA. The spousal benefit can be up to 50% of the higher earning spouse’s PIA. As long as the higher earning spouse has started their benefit, when they took it does not impact the spousal benefit amount. This amount is based solely on PIA and when you claim the spousal benefit.In reality, you get your own benefit and then a spousal boost up to 50% of the higher earner’s PIA. WHEN SHOULD YOU START SOCIAL SECURITY? Starting Social Security is not just about the basics of 62, FRA, and 70.Consider the assets you have saved in 401(k)s, IRAs, and retirement accounts.In some cases it may make sense to delay Social Security and let the benefit get larger, while still being able to retire early from assets.Don’t make your Social Security decisions in a bubble.If you’re a widow there may be additional flexibility on when to start your Social Security.These Social Security decisions can have an impact of more than $100,000 during retirement in some cases.This is all part of the income planning process. ACTION STEPS Watch my free Social Security MasterclassSit down for a free Social Security analysis. We’ll take a look at when you want to retire, the assets you have available, the plans you have to replace your retirement income, and help you decide when to take Social Security.If you would like to sit down and discuss your Social Security benefits, your assets, and create a plan on when to retire, call us at 801-810-8434 or go to thriverp.com and click on get started to learn more.

Eventually, almost every person asks the question, “Is it time to retire?” The real question is, “Are you prepared?” It’s quite common for people to save for retirement but as it gets closer they begin to wonder if they are ready. They also realize it’s a lot more complicated than they originally thought. In this episode we’ll discuss 5 steps to prepare yourself your retirement day and my methodology to determine if you’re ready. STEP #1: UNDERSTAND YOUR SOCIAL SECURITY BENEFIT Get your statement and know your three numbersUnderstand the spousal benefitUnderstand what happens if you take early or delaySee other shows for more info: Should you take Social Security at 62?Social Security Spousal BenefitsWatch my free Social Security MasterclassDon’t make your Social Security decisions in a bubble! STEP #2: GET A TOTAL OF ALL YOUR RETIREMENT INCOME Determine any other sources of regular income during retirement and when they will begin, such as a pension, annuity, rental income, etc. Make sure you make pension and annuity decisions based on both spouses if you are married.Once you know your Social Security and other income sources you can add these up at different ages. For example, you could run a scenario at 62, 65, full retirement age, and 70. Because Social Security increases as you delay, the monthly benefit will increase as you wait.Write down your total income at various ages. STEP #3: KNOW YOUR RETIREMENT INCOME GAP Your next step is to determine how much you need or want during retirement on a monthly basis. Make sure and take into account health care expenses if you’re going to retire early or a house being paid off early in retirement, for example.The difference between what you want and how much income you’ll have is your income gap. In most cases this isn’t a linear projection meaning you may want a vacation in 5 years, a new car in 2, etc. Making a plan for this is important as well. After all, retirement is supposed to be fun! STEP #4: DETERMINE OTHER ASSETS FOR RETIREMENT Make a list of your 401(k)s, IRAs, or other retirement accounts and total them up.Determine which accounts to pull from first.Analyze the tax consequences of each of these accounts. For example, taking money out of a bank account vs an IRA, or a Roth IRA vs a 401(k).Model different withdrawal rates to decrease your risk of running out of money.Be aware of the sequence of return risk! STEP #5: DEVELOP A STRATEGY Do you have a strategy? Do you understand it? How confident are you about your strategy?Up until now you’ve been accumulating assets. As you approach retirement you’ll most likely need to start spending those assets. You’ll also need to invest differently as retirement approaches and you’re in retirement.Often people forget to preserve their assets (The 10-year rule)Coordinate your Social Security with your other assetsThe 3 bucketsDetermine investment strategies that align with your income plan. Not everything is a hammer! IT DOESN’T HAVE TO BE ALL OR NOTHING We often think of retirement as a thing we do once rather than it being a process.For example, if you’re done with work at 62 but want to delay a little later to take Social Security, you don’t always have to work full-time in the job you dislike until you retire. It’s possible to retire and still work.For example, if you know your Social Security benefit at 66 is going to be $2,500 per month and you’re going to also pull $2,500 from your investments to give you $5,000 per month at 66, you don’t necessarily have to work full-time until 66. With the right income plan, you could potentially retire at 62 and find part-time work that brings in $2,500 per month until 66, which is the same as Social Security. If your assets are sufficient enough, you could also start withdrawing $2,500 per month from your investments. IS IT TIME TO RETIRE? This can be complicatedThat’s why people like myself do thisMany advisors don’t know S...

If you don’t know your current tax bracket and the basics of how tax brackets work, you could make major tax mistakes during retirement. Tax brackets can impact which retirement accounts to withdraw from for income. Strategies that can potentially reduce taxes during retirement like a Roth IRA conversion also utilize knowledge of your current tax bracket. TAX BRACKET BASICS The fundamentals of tax brackets Brackets use a progressive tax How your 401(k) and IRAs will be taxed during retirement TAX RETURN BASICS Gross income Adjusted gross income, above the line deductions, and below the line deductions Itemizing vs the standard deduction Taxable income APPLYING THE TAX BRACKET BASICS Maxing out a tax bracket The next dollar earned Roth Conversion - An example of a married couple maxing out a 12% bracket RMDS AND TAXES RMD basics at 72 Opportunities to do Roth conversions ACTION STEPS If you’re within 10 years of retirement and looking to create strategies around replacing your paycheck, deciding when to take Social Security, and invest during retirement, I’d invite you to set up an appointment with us at Thrive Retirement Planning, either in person or virtually, where we can get to know each other. Simply call 801-810-8434 or go to thriverp.com and click on get started to learn more. Do you have questions about when to take Social Security and how to maximize your benefit? Take our free online Social Security Masterclass by going to thriverp.com/ss.

Probate can be expensive, time consuming, public, and frustrating for your heirs. Should you create a will? A trust? What is the difference? Is it worth the effort to avoid probate? In this episode I’m going to discuss 5 specific strategies to avoid probate. This is part of my ongoing commitment to assist you in getting educated about retirement and helping you making better decisions in all 8 areas of retirement planning. I am not here as an attorney but rather am here to educate you on high level aspects of estate planning. I recommend working with competent legal professionals that can assist you in making estate planning decisions for your specific needs. My goal is to put these strategies on your radar so you can plan your retirement and estate effectively. WHAT IS PROBATE Probate is the legal way a person’s estate is handled after they pass away. It’s purpose is to make sure that assets and possessions are given to the correct people. It also ensures that any debts and taxes are paid. A will does not help you avoid probate, but rather gives specific instructions upon your passing. The probate process then reviews a will and validates it. Then an executor is appointed to distribute your estate to the beneficiaries of your choosing. If no will exists, your estate will be handled through the default intestate laws. Be aware that your assets may not be distributed as you would have designated. As a side note, there may be small estate guidelines in your state that minimize the probate process. In Utah, this is for estates with less than $100,000 and no real property. 3 REASONS TO AVOID PROBATE? Time - The probate process can last anywhere from approximately 4 months to 2 years, depending on the complexity of your estate. Many factors can influence the timeline of settling your estate. Is there a will? The number of beneficiaries Is the will being disputed? Do the beneficiaries agree? Does the estate have debt? Is the estate taxable? How complicated are the assets? Expense - Probate can cost 3-7% of a person’s total assets. On a million dollar estate that could be $30,000 if at 3%, $70,000 at 7%. With proactive planning, these costs can often be reduced. Lack of Privacy - The probate process is a public process, meaning that estate matters can be discovered by your neighbors or others. If someone showed up at the courthouse, they could view the entire record. The probate process can be different across the United States, so researching your local laws and working with a competent attorney can help you make wise estate planning decisions. 5 STRATEGIES TO AVOID PROBATE While every situation is unique, many retirees who have accumulated assets can benefit from minimizing the impact of probate. When you avoid probate, it can often be less expensive, less time-consuming, and private. Your neighbor won’t know the amount of your assets or to whom you gave them. #1 - TOD DESIGNATION A TOD designation stands for Transfer on Death. TODs are generally used for non-qualified bank and brokerage accounts. This designation transfers the ownership of an asset to a beneficiary. For example, in the last year I worked with a new client who was single and had a large amount of money in her bank account. If she were to pass away without a TOD designation, that money would be included in the probate process. On the other hand, if she were to go to her bank and add a TOD designation, that money would go directly to the beneficiaries she selects. This same principle applies to a taxable brokerage account. #2 - BENEFICIARY DESIGNATIONS When you set up your 401(k), 403(b), or IRA, you’ll select beneficiaries. These accounts are a form of TOD and will simply pass to the beneficiaries you selected without going through probate. One common mistake is not updating your beneficiaries as life events occur. It’s important to understand that the beneficiary designation is a contract that supersedes a will. For example,

Many married couples find navigating Social Security daunting, especially as it relates to understanding Social Security spousal benefits. Not only can you make Social Security claiming mistakes, but your decisions can potentially cost you large amounts of retirement income. Today, we’ll tackle how the spousal benefit works, how to maximize your benefit, and even discuss end of life survivor scenarios. We’ll even touch on benefits for a divorced spouse. THE BASICS OF SOCIAL SECURITY - 3 SPECIFIC TYPES OF BENEFITS There are three distinct Social Security benefits: Retired Worker Benefit - This is your benefit that can be claimed off of your own work record. I covered this topic in the podcast, Should You Take Social Security at 62. Spousal Benefit - This is the topic we’re going to cover today. This is the benefit that becomes active once the primary worker’s benefit is activated. Not everyone will be eligible to receive this benefit (i.e. if your own working record is too high). Widow(er) or Survivor Benefit - This the benefit that provides a surviving spouse with a benefit after the worker’s death. While today’s podcast will cover this topic at a high level, I’d suggest watching our online on-demand Social Security class that we teach in person or you can even schedule a time to discuss your various options one-on-one with our office. SO HOW DOES SOCIAL SECURITY WORK FOR SPOUSES? A spousal benefit can add additional Social Security income to a household during retirement. It was created in a time when many women stayed home to raise children. It can be accessed even if a spouse never worked outside the home. To qualify, there are a few basic rules to understand. You must be married for at least a year to claim the spousal benefit. The primary worker must have filed for Social Security. This is much like a dam that lets water out of a reservoir. If the dam doesn’t let out water, there isn’t water in the river below the dam. It’s the same with Social Security spousal benefit. When the primary worker files his/her benefit the dam then releases water and the lower earning spouse can then access spousal benefits once they meet other criteria. In most cases, to qualify for the spousal benefit, your own benefit that’s based on your own working record, can’t be greater than half of the primary worker’s PIA. PIA (primary insurance amount) is the amount that the primary worker will get when they claim Social Security at full/normal retirement age. Another way of saying this is the spousal benefit can be up to 50% of your spouse's PIA (not benefit amount). Knowing that the spousal benefit is based on your spouse’s PIA and not the benefit amount is an important distinction. For example, if the primary spouse starts Social Security at 62 and has a permanent reduction in their monthly benefit, that doesn’t impact the spousal benefit as it is based on the PIA of the primary worker, not when the primary worker filed for their benefits (while the spousal benefit isn’t impacted by when the primary worker files for their benefit, it does impact the survivor benefit when the primary worker passes away). To illustrate, let’s say John and Jane have been married for 15 years. if John was the primary worker and his PIA benefit was $2,000, Jane would be eligible for up to $1,000 at full retirement age. She would not be able to claim a spousal benefit if John had not yet filed. When Jane files, she would first get her benefit based on her own working record and then the spousal benefit would provide a boost up to 50% of John’s PIA. Say, for example, that Jane’s Social Security benefit on her own working record was $600 per month at full retirement age. When she takes her spousal benefit at full retirement age it could add another $400. If she doesn’t have a Social Security benefit based on her own work record she could still get $1,000. In the opposite direction, if Jane’s benefit based on her own work record was $1,200,

Many investors and retirees can be surprised and shocked by taxes in retirement. One of the foundational pieces for minimizing taxes during retirement is knowing the 3 different ways retirement assets and investments are taxed. When you understand how your retirement assets are taxed it can help you make vital decisions about retirement income, pay less to Uncle Sam, and reduce retirement anxiety. UNDERSTADING TAX BRACKETS Depending on how you file your taxes (i.e. single, married filing jointly, etc.) and the amount of income you have, you’ll find yourself paying a percentage of that income in taxes. In the United States, we have a progressive tax system, meaning that every dollar you earn isn’t taxed at the same rate. If you're filing jointly, for 2021, for example, you’ll pay 10% in tax up to $19,750. Then from $19,751 to $80,250 you’ll pay 12%. Then from $80,251 to $171,050 you’ll pay 22% and $171,051 to $326,600 is 24%. The bottom line is that when you find yourself in a tax bracket, not all your income is taxed in that bracket. Make sense? This is important because there are a number of strategies that can be employed during retirement to proactively address taxes. Not to make this too complex, but your taxable income (the amount that determines your tax bracket) is figured by taking your adjusted gross income and then subtracting deductions, including your itemized deductions or the standard deduction, whichever is greater. By understanding the basics of taxable income, you’ll be empowered to strategize about how your retirement income will be impacted by taxes. 3 WAYS RETIREMENT ASSETS ARE TAXED #1 - Taxable Accounts and Investments Examples: Bank, Taxable Brokerage Tax Treatment: These are after-tax and tax-as-earned As you earn interest in a bank account or CD, it will be taxed as interest income, which flows down to your taxable income and will impact your tax brackets. Taxable brokerage accounts are more complex and have several ways they are taxed. If you earn interest, you’ll pay taxes. If your investments produce dividends, they will be characterized as either qualified or non-qualified. Qualified dividends, which are most common, are taxed at lower long-term capital gains rates and nonqualified dividends will be taxed as ordinary income. If you own a single stock and it grows, you won’t pay tax until you sell that stock. When you sell the stock, if you own the stock for one year or less it will be taxed as ordinary income but if you hold it more than a year it will be taxed at long-term capital gains rates, which are generally much lower. Mutual funds may report gains or losses that you’ll pay as well as dividend income. #2 - Tax Deferred Investments Examples: 401(k)s and IRAs Tax Treatment: Money is put in these accounts before tax, grows tax-deferred, and is taxed on withdrawal Tax-deferred accounts don’t make you report gains, dividends, or interest inside an account each year, as long as the money stays inside the account. As you start withdrawing money out of your accounts to create retirement income, this money will be taxed as ordinary income. Even if you don’t need the money for retirement income, at the age of 72 you’ll be required to take RMDs (Required Minimum Distributions). If you don’t take at the least the required amounts each year, you’ll owe a 50% tax on the amount you should have withdrawn. Also, if you have several tax-deferred accounts, you can determine the RMD on each account and you may be able to take it all out of one account in some instances. #3 - Tax-Free Assets Examples: Roth 401(k), Roth IRA, Cash Value Insurance Tax Treatment: Money is put into these accounts after tax, grows tax-deferred, and can often be taken out tax-free In retirement planning, tax-free investments and financial vehicles are powerful tools. They can allow families to have income, yet pay no tax on the money. This in turn can reduce Social Security taxes, keep you in your current tax bracket,

As you draw closer to retirement, one of the greatest retirement dangers is sequence of return risk. Sequence of return risk is the hazard of withdrawing money from your investments when the balance is down due to market volatility. Sequence risk can increase the likelihood that you can run out of money and also reduce your investment performance. WHEN IS SEQUENCE OF RETURN RISK MOST IMPACTFUL? Sequence of return risk rears its head in three common situations: Income Needs - Drawing income from your retirement investments for living expenses Emergency or Unanticipated Needs - Life happens, as we all know. RMDs - Required Minimum Distributions will need to be taken starting at 72 from your tax-deferred investments such as a 401(k) or IRA. Your overall portfolio can suffer, because you need your money and can’t wait. INVESTMENT AND INCOME PLANS THAT ARE DESIGNED FOR UP AND DOWN MARKETS Before we dive into an example, it’s important to understand that the stock market is very difficult to predict. If you’re trying to time the market with a majority of your assets, especially as you are close to or in retirement, you’re setting yourself up for failure.You need an investment and income plan that works in both up and down markets. EXPLORING SEQUENCE OF RETURN RISK IN TWO INVESTMENT SITUATIONS There are three primary phases of investment planning. The first is accumulation, the second is preservation, and the third is distribution. Here is an example of a sequence of returns when you’re in the accumulation stage of planning. Example 1: Accumulation with No Withdrawals (See pg. 19 in the Bucket Plan by Jason Smith) From a mathematical perspective both started with $100,000 and averaged 6% over 10 years. Neither are taking any distributions and ended up with $154,764. Once again, they aren’t taking distributions and are in the accumulation stage. In other words, the sequence of return risk does not impact the accumulation balance if no money is being added or taken out. The rate of return and market loss will impact the balance but whether the variations are at the beginning or the end does not. Example 2: Accumulation with Withdrawals (See pg. 21 in the Bucket Plan by Jason Smith) In this example both started with $100,000 and average 6% over 10 years but this time both are withdrawing $6,000 per year out for retirement income. Remember in these examples that they are the same average returns but one has the down years first and the other has the down years later. Ms. Lucky, who had up years first, finished with $105,544, while Mr. Unlucky had only $38,898! RATE OF RETURN CAN BE MISLEADING IN THE DISTRIBUTION PHASE When in the accumulation phase, you often measured investment success by rate of return. I’d suggest that while rate of return is important during the preservation and distribution phase, it isn’t how you measure success. What is more important is avoiding the sequence of return risk. A question Jason shares in his book is, “When does -30 + 43 = 0?” While you may simply think this is bad math, it is completely correct with investing. When you lose 30%, you need to have a 43% rate of return to make your money back. If your investments are down 50%, you need 100% return! When in the distribution phase, your account balance is more important than rate of return. It may not seem realistic but lower rates of return mixed with downside protection can beat greater rates of return during the distribution phase. A POWERFUL STRATEGY TO FIGHT SEQUENCE OF RETURN RISK When you approach retirement (within ten years), in my opinion, it’s time to start shifting from the accumulation phase and begin to transition into the preservation phase, which works alongside the distribution phase during your retirement years. When my team and I work with clients, we use a three-bucket income planning approach. We separate money needed now (in the next year), from money needed soon (in the next 10 years),

Do you have retirement anxiety? If you worry about retirement you aren’t alone. It’s quite common to have anxiety about running out of money, what to do about health care expenses, when to take Social Security and retire, and even taxes. In this podcast episode we’ll address 8 reasons people worry about retirement and 5 strategies to reduce your anxiety. ARE YOU MISSING UNKNOWN PIECES OF YOUR RETIREMENT PLAN? Many have retirement anxiety because they are missing key pieces of a retirement plan. There are generally three questions I like to ask about retirement planning. Do you have a plan? Do you understand it? How confident are you in that plan? See, many investors have plans to grow their investments. After all, that’s how they’ve saved and prepared for retirement. But as you prepare to transition into retirement, growing your investments is only one part of the process. There are 8 critical areas of retirement planning and when you don’t have a plan for each of these areas, anxiety naturally occurs. Here are the 8 areas of retirement planning: Income Planning Protection and Safe Money Planning Asset Growth Planning Tax Reduction Planning Health Care Planning Estate Planning Legacy and Family Planning Fulfillment and Mission Planning UNANSWERED QUESTIONS CAN CAUSE RETIREMENT ANXIETY Preparing to retire can be a lot more daunting than most people think, as investors often have questions but don’t know where to start or how to get them all answered. The sheer number of questions and the magnitude of the consequences can paralyze families, causing them to do nothing and avoid the conversation completely, which is definitely a mistake. Here are unanswered questions that can lead to retirement anxiety: When should I retire? When should I take Social Security? How do I get the most Social Security possible? How do I not run out of money? How do I pay for medical expenses? Can I afford to take that dream vacation? Should I keep or sell my real estate? How do I protect myself from market loss? Should I stay with my 401(k) or move to an IRA? How do I reduce retirement taxes? How much do I need monthly during retirement? Like anything successful in life, preparing for retirement will take work and being willing to ask the questions and then find answers can give you confidence and clarity, the opposite of fear and anxiety. Surrounding yourself with a competent professional team can also help you coordinate these decisions and how they will impact your retirement goals. NOT MAKING IMPORTANT DECISIONS CAN LEAD TO RETIREMENT ANXIETY The root of the word decide is “cide,” which means to cut off or kill off. So when you decide something you kill off other choices. If you’re asking a lot of questions but not making decisions you can easily experience an increase in retirement anxiety. If you feel stuck, it’s most likely that you don’t have the right information so you can’t be confident in your decisions. No matter your net worth and financial success, retirement anxiety can erode your retirement happiness and confidence. As I’ve sat across from accomplished individuals with more than a million dollars, they still experience worry and fear due to unanswered questions and indecision. 5 STRATEGIES THAT CAN REDUCE RETIREMENT ANXIETY #1 - Create an Income Plan As you retire, you’ll need to replace your paycheck with money from Social Security, pensions, and investments. Determining your monthly income needs during retirement and then creating a practical withdrawal strategy from your retirement assets is critical to reducing anxiety. You’ll need to determine when and how much Social Security will be coming in monthly, then calculate the amount of your income gap, based on a realistic monthly budget. Then you will need to decide how much to withdraw from your investments to fill that gap, while at the same time taking taxes into account. While there are many ways to create an income p...

When you leave an employer or transition into retirement, an important financial decision is whether to leave your money in your 401(k) or roll it over into an IRA. What is the difference between these types of accounts? Is an IRA a better option? The purpose of this podcast and article is to list 5 specific reasons you might consider moving from a 401(k) to an IRA. I’ll also mention some instances when it might not make sense. THE RISE OF THE 401(K) The percentage of Americans who have been covered by a defined benefit pension plan that is paid out as an annuity has been steadily declining the last 25 years. These plans were often characterized by a company paying a certain amount per month through retirement for a specific number of years worked, commonly based on a percentage of salary. On the flip side, defined contribution plans (often a 401(k)) have been on the rise as employers transfer the risk of paying for retirement from their pocket to their employees. Many employers offer 401(k)s to their employees, often matching a percentage of the employees contribution up to a certain amount. An added benefit is that these plans are tax-deferred or tax-advantaged, meaning that money put in a 401(k) is pre-tax money and will be taxed later when it is withdrawn. You’ll pay ordinary income tax, just like your salary, on your withdrawal. In most cases, accessing your 401(k) money prior to 59 ½ will add a 10% penalty. For many reasons, there is a lot of wisdom in taking full advantage of your 401(k), especially up to the match. The employer's contribution can be viewed as “free money” or additional salary. That being said, if you’re near retirement and have been a saver, you’ve probably accumulated a significant portion of your retirement nest egg in your 401(k). It’s not uncommon to work with clients that have between several hundred thousand to more than a million in their 401(k)s and tax-deferred accounts. 5 REASONS TO CONSIDER ROLLING OVER YOUR 401(K) TO AN IRA While a 401(k) can be a great tax-deferred financial vehicle, especially for those getting an employer match, it’s my belief that a 401(k) simply doesn’t give my clients the necessary tools they should have access to during their retirement years. An IRA is also a tax-deferred vehicle just like a 401(k) but with additional options during retirement. While this isn’t a comprehensive article or podcast on the difference between a 401(k) and IRA, I’m going to touch on 5 reasons to consider an IRA. #1 - GREATER INVESTMENT CHOICE AND FLEXIBILITY The investment options in your 401(k) are selected by the plan administrator and aren’t up for negotiation. If you aren’t ecstatic about the investments available, there really isn’t anything you can do about it. Also, the investment choices are built for the masses and aren’t generally customizable, meaning vanilla is all you’re going to get. There are a limited number of choices available. An IRA, on the other hand, has thousands of investment options, depending on who you work with. The flexibility of an IRA gives experienced wealth managers and investors choice and control. An example of this flexibility can occur when an investor reaches the age of 70 ½. If you want to give to charity (i.e. tithing to your church), you can donate directly to your charity from your IRA in the form of a QCD (Qualified Charitable Distribution). A QCD excludes the amount you donate from taxable income and counts for your RMD (Required Minimum Distributions) at 72 and beyond. A QCD is available in an IRA but not in a 401(k). #2 - ACCESS TO COMPREHENSIVE PLANNING In the earning years, most investors are primarily interested in growing their assets. As they approach retirement, a whole new set of challenges and opportunities present themselves. Decisions around Social Security, medical planning, estate planning, protecting assets from market volatility, and creating an income plan to replace your paycheck during retirement need to be made....

Do you feel stuck? Have you set goals and failed repeatedly? Do you feel like goal setting doesn’t work? It doesn’t have to be this way. You can break free and make 2021 one of the greatest years of your life! The key to your breakthrough is learning how to create lasting habits. Yes, habits can be the fuel for your rocket. Speaking more broadly of retirement, habits will be an integral part of succeeding in all four phases of retirement: the prepare-to-go, go-go, slow-go, and no-go years. It’s going to be a great year! HABITS VS GOALS As you step into 2021, should you work on goals or habits? In my opinion, it isn’t choosing one or the other, but rather how they work together. For me, habits have allowed me to achieve my goals. For example, I used to weigh about 225 pounds. I used habits to reduce my weight to below 190 pounds, my high school weight, and have kept it off for almost a decade. When I cheat and gain some weight I know exactly the habits to implement to get me back into the weight range range I’m comfortable with. For me, habits have helped me achieve goals with my family, my spiritual life, and my career. Before I mastered many of the principles of habits, I would have aspirations for change in my life; I would even write them down but would often fail. I struggled with how to keep them in front of me and maintain momentum. It’s completely different now. It can be the same for you. The ability to have a brighter vision for your life and then make SMART (specific, measurable, attainable, relevant, and time-bound) goals from that vision is only the first step in the process. The next is to develop the habits and system to achieve the goal. That being said, habits don’t have to be tied to a specific SMART goal. You could simply want to be healthier or lose weight so you put a new habit in place. No matter the future-self you envision, learning how to create lasting habits can be the key. One of the key reasons is that it gets you off the willpower treadmill. WILLPOWER VS HABITS According to research, willpower is like a muscle, that can become depleted and wear down the more you use it. It’s like a muscle that has been lifting weights. Eventually, performance declines and recovery is needed to rebuild the muscle. Ironically, as we exhibit self-control, our ability to make choices becomes fatigued. Our willpower decreases over the course of a day, which means that we can often undermine our best intentions because we default to the level of the current programming of our mind and body. The reason we set our vision or goal in the first place was because we didn’t like the results we were getting in our life and the reason we are often stuck getting the results we are is the current software of our mind and body. It can really be a vicious cycle. The way we break free from relying on willpower is to form habits that become automatic. Take for example, brushing your teeth. You probably don’t have to put that in your schedule. It just happens. Once you start brushing your teeth, you don’t have to think about how to brush your teeth either. Your mind can even wander off but you still brush your teeth. THE MIND AND BODY WANT TO BE EFFICIENT AND CONSERVE ENERGY The brain and body are built to optimize energy and run efficiently. You don’t have to think about your heart beating, digesting your food, or what to do when you’re sleeping. The body has systems and programming that automatically do these things. Your mind works similarly but is also more complex, as you’ve probably noticed. Our subconscious mind, or what I like to call the running mind, are those thoughts that occur automatically, for example daydreaming. Another example is driving to work on a familiar route. Often you can just arrive, while your running mind took over and very little mental exertion was needed. What makes thinking different from the body is willpower or the conscious mind, or what I like to call the intentional mind.

Should you take Social Security at 62? Or, should you wait until your Full Retirement Age or later? Taking Social Security early can be a mistake that costs some retirees $100,000 or more in retirement benefits. However, in some cases taking Social Security at 62 is just the right decision. In this episode we’ll dive into the pros and cons of taking Social Security at 62. KNOW YOUR FULL RETIREMENT AGE Before jumping into Social Security, it’s important to understand a couple of key terms. The first term is PIA or Primary Insurance Amount. This is the amount of your benefit when you reach Full Retirement Age (FRA) or Normal Retirement Age. Your primary insurance amount is based on your highest 35 years of working history, indexed for inflation. If you have years where you have zero earnings and only have 15 years of working history, those zero years would be a part of the calculation. Your Social Security benefit will be based on your Primary Insurance Amount. If you were born between 1943-1954 your FRA is 66. Then for every year between 1955 to 1959 they had two months to your FRA. If you were born in 1955 your FRA is 66 and 2 months, in 1956 it would be 66 and 4 months, in 1957 - 66 and 6 months, in 1958 - 66 and 8 months, and 1959 - 66 and 10 months. If you were born in 1960 or later your FRA is 67. You can see your FRA on your Social Security statement and can register for an online account at ssa.gov. REDUCTION IN BENEFITS AT 62 If you’re contemplating taking your benefits at 62, or anytime before your Normal Retirement Age, you’ll receive a reduced benefit. If a person’s FRA is 66 and they decide to take their Social Security benefit at 62, their benefit will be reduced by 25% of their Primary Insurance Amount each month. This 25% reduction is a permanent reduction, meaning it won’t increase later except for cost of living adjustments (COLA). Some people mistakenly believe that their FRA benefit will increase to 100% of PIA but that isn’t correct. This is a permanent reduction based on a reduced portion of your PIA. UNDERSTANDING THE IMPACT OF THE EARNINGS TEST If you decide to claim benefits early, it’s important to be aware that you’ll also become subject to the earnings test, if you continue to have earned income. Note that there’s a difference between earned income and ordinary income. Earned income looks at wages and doesn’t include other income sources such as pension, real estate, investments, and retirement accounts withdrawals. Basically, $1 in benefits will be withheld for every $2 of earnings above the limit of $18,960 (for 2021). This means that your Social Security income can be reduced if you make above the threshold. As an example, say you made $40,000 in earned income. They would reduce your Social Security by $10,520 that year ($40,000 - $18,960/2 = $10,520). These thresholds change in the year you reach FRA. It’s important to understand that though your Social Security benefit is reduced, it isn’t permanently lost. It will be added back to your benefit after FRA. WHAT HAPPENS IF YOU TAKE SOCIAL SECURITY LATER If you reach FRA and still haven’t claimed Social Security, your benefit will increase 8% per year until you reach age 70. It doesn’t ever make sense to wait after age 70 to take your benefit. (As a side note, while we haven’t addressed the spousal benefit in this article, it won’t experience any increase after FRA, so your best option is to take any spousal benefit no later than at your Full Retirement Age.) Another way of looking at delaying Social Security benefits is that you’ll be getting 8% per year on your Social Security money. If you could get a guaranteed 8% per year on your other investments with no risk would that be a good investment? It certainly would! While Social Security isn’t an investment, when you compare it to your other retirement assets, it can make a lot of sense to delay claiming. In a free on-demand class I created I showed one case study where a family delayed...

Many Americans worry about how to reduce taxes in retirement and rightfully so. Taxes can eat away large amounts of your nest egg. Most Americans save a large portion of their nest egg in tax-deferred accounts such as 401(k)s, only to be surprised that the IRS will get a good portion. By understanding and avoiding the retirement tax gap, many families can save considerable tax during their retirement years. This savings can be applied toward vacations, travel, living expenses, and quality of life. THE RETIREMENT TAX GAP Each April Americans know it’s tax time and it generally isn’t an exciting time of year, especially for higher earning and higher net worth families. Many retirees mistakenly think they are minimizing their retirement taxes, but instead may be missing opportunities for considerable tax savings. I call this the tax gap. The tax gap is the difference between what you are paying versus the smaller amount you could be paying. See, as Americans we don’t mind paying our fair share of tax, but what we do oppose is giving extra money to the government. If we’re going to donate, the last person we want to give to is Uncle Sam. After all, the government is known for good financial management. Let’s be real conservative and say you saved $500 in tax each year for 20 years (ages 65-85). That’s $10,000 additional during retirement. What if this amount was $25,000? What if it was $50,000? What if it was $100,000 or more? What would you do with that money? So who’s responsible to find this gap? Is it your accountant? While there are definitely some CPAs and accountants that are better than others, the reasons for the retirement tax gap is much bigger than how your accountant files your tax return. The problem is that there are two entirely different ways to view taxes: tax returns vs tax planning. To illustrate, I’d suggest watching a video called the Power of Ten by the office of Charles and Ray Eames. It illustrates our relative size in the universe by starting from a man sitting on a blanket in a park. It then travels out via the power of 10, second by second until you see the entire United States, then earth, then sun, then solar system. It then goes from that same hand in the park and travels inside the cells of the hand by the power of 10. One view takes you closer and closer. The other view takes a broader approach. You’ve probably heard the statement that “you can’t see the forest for the trees,” meaning that you are simply too close to the situation. Both views give you a glimpse of reality and can be useful. But what does this have to do with taxes? TAX RETURNS VS TAX PLANNING When you or your tax professional prepare your returns you scrutinize the previous year, looking for all the legal and ethical ways to minimize your tax burden. This is like getting closer and closer looking at the cells in this man’s hand. Tax returns are a vital and important part of tax minimization. If you have a great accountant, hopefully they’ve been doing a great job for you. But there is another way of looking at taxes that is much less common; it’s also one of the main reasons people find themselves in the tax gap and may be missing significant opportunities for tax savings. This perspective is found in tax planning - taking a five, ten, or even twenty year approach to minimizing retirement taxes. Tax planning will look at the big picture of all your retirement assets over your retirement timeline and incorporate strategies to proactively reduce taxes. Tax planning can help you know which assets to spend first during retirement. Planning can help you decide how to pass assets down to your heirs and avoid the costly fees and headaches of the probate process. Put another way, filing a tax return looks back on the previous year while tax planning looks forward. Most people hire accountants to do tax returns for the previous year but few take the opportunity to do tax planning looking forward to future years.

Many squander the chance to lead their families during retirement and lose massive opportunities for fulfillment and happiness. As you embrace your ability to lead your children and grandchildren during retirement, your family can have greater unity and your retirement years can take on much more significance. Relationships with children and grandchildren can be some of the most powerful and important relationships we experience but can also cause some of the deepest wounds. No matter where your relationships currently reside with your loved ones, your retirement years give you a new chapter to level up those relationships that matter most. Leadership in the workplace is often discussed and praised yet society rarely emphasizes leadership in the home. Often media and pop culture downplay the role of strong parents and grandparents, emphasizing dysfunction instead. The truth is that grandparents who retire enter a unique phase of life to influence and lead their families in unprecedented ways. Instead of letting your most important relationships evolve through chance, seize the possibility to unite your family, create incredible memories, and leave an intentional legacy embedded with the values that will help your family thrive for years to come. As you mold and shape retirement, here are five powerful strategies to help you lead your family during retirement: UNITE YOUR FAMILY THROUGH VISION “The greatest danger for most of us is not that our aim is too high, and we miss it, but that it is too low, and we reach it.” -Michelangelo "Leadership is the capacity to translate vision into reality.” -Warren Bennis Most businesses develop vision statements and know the significance of leading with vision. Where do we want to go? What are we trying to achieve? When do we want to get there? The professional business world is ripe with vision statements and goal setting. Somehow, this rarely translates into leadership in the home, especially during retirement. I once heard a story of a single father, who was less than happy about his seventeen year old daughter’s choice in a boyfriend and was letting her know it. Instead of coming closer together, their relationship was being strained and he knew it. So what was he to do? He decided to tackle the issue by finding something new and exciting that he knew his daughter was interested in. She had expressed interest in volunteering in third-world countries so the two of them scheduled a trip. This trip inspired her to see a bigger vision for her life and what she wanted to do after high school. She realized pretty quickly that her boyfriend didn’t match her vision for a greater future and they drifted apart. One way to do this is to clearly articulate your family values and principles. One suggestion is to have a family dinner or barbecue. Get everyone together and take a few minutes to lead a discussion on what your family stands for. Look for consensus and something everyone can buy into. You could even pass out a sheet with twenty different values or statements and have family members circle what’s most important to them (i.e. hard work, integrity, growth, courage, faith, etc). Identify at least five values and formalize them in some way. One way to make this more concrete way is to create a Family Vision Statement. Whether your family vision is an informal discussion or formalized in an actual document, helping your family see a bigger vision can create unity and excitement. DEVELOP AN INTENTIONAL CULTURE “A nation’s culture resides in the hearts and in the soul of its people.” -Mahatma Gandhi Your family culture is what you do, how you do it, and how you treat each other. For example, what do you do during the holidays and Christmas season? What will you do for Thanksgiving? How often will you reach out to your children and grandchildren? What influence will you have on their life?