Investment Management

How to Recover from A Bad Sequence of Returns Early in Retirement

How to Recover from A Bad Sequence of Returns Early in Retirement

by | Jun 7, 2023 | Financial Advice, Financial Planning, Investment Management

Retirement is supposed to be a time of relaxation and enjoyment, but sometimes things don’t go as planned. One of the biggest challenges retirees face is the unpredictability of the stock market. A bad sequence of returns early in retirement can be devastating and leave retirees with no options.

 

But it’s important to remember the effort you’ve put into building your financial foundation. You’ve put in years of hard work, and now it’s time to enjoy the rewards of your dedication! Like every other obstacle you’ve navigated, you will get through this. Focus on your long-term goals and adapt your financial strategy while maintaining a positive outlook because retirement—even in a market downturn—still offers numerous opportunities to explore new interests, spend quality time with loved ones, and pursue lifelong passions.

 

Let’s explore ways to recover from a bad sequence of returns early in retirement.

 

Keep Your Cool: Tackling Challenges with Poise and Positivity

 

 We’ve said it before, but it bears repeating; keep calm and remain positive. Take a deep breath and remind yourself that the market has ups and downs. Keep a cool head and avoid making impulsive decisions. And remember, staying positive in the face of market fluctuations is a choice. Embrace your inner optimist, and you’ll survive the storm, becoming stronger and more resilient.

 

With a few simple tips, you can transform your everyday routine into a serene sanctuary and remain focused on the positive.

 

  • Get Outside and Practice Mindfulness: Enjoy a leisurely walk in a park or forest, letting nature help you relax. Inhale the fresh air and appreciate the sights, sounds, and smells of the outdoors. Allow your thoughts to come and go.
  • Digital Detox: Allocate screen-free time daily, allowing your mind to rest. Read a book, engage in a hobby or daydream. Experience the joy of being present in the moment.
  • Get Moving: Exercise is a natural stress reliever. Find an activity you enjoy, such as yoga, dancing, or swimming. Stay active, release endorphins, and enjoy a more relaxed state.
  • Remember the Cycles and Focus on the Long Term: Keep in mind that downturns are a normal part of the ride, and eventually, things will improve. Think of your investments as a flourishing garden that needs time to grow. It might have a few weeds now and then, but with patience and care, it will blossom into something beautiful.
  • Stay Informed: Knowledge is power. Keep yourself updated on market trends and seek professional advice to make informed decisions. Understanding the bigger picture can help you stay calm and optimistic.

 

Budget Reset: Confront Financial Changes with Confidence

 

A bad sequence of returns can mean that you’ll need to adjust your budget. Look at your expenses and see where you can cut back. It’s essential to be realistic about your spending and to prioritize your needs. If your retirement savings have taken a hit, consider working part-time, supplementing your income, and building up your savings again.

 

Expenses to Trim:

  • That gym membership you’re not using? Swap it for free yoga videos or join a walking group.
  • Cut back on dining out – become a kitchen connoisseur and host dinner parties instead. Bye-bye, overpriced takeout. Hello, gourmet goddess!
  • Reevaluate your subscriptions – do you really need Netflix, Hulu, and HBO Max? Enjoy one at a time instead.
  • Save on travel costs by exploring local hidden gems. Who knew there was so much to discover right in your backyard? Check out your local tourism websites and plan a staycation this year!

 

Part-time Work Opportunities:

  • Share your wisdom by becoming a consultant in your field. You’ve got the experience. Why not spread the wealth (knowledge)?
  • Flex your creative muscles and try your hand at writing, photography, or even pottery. Etsy, here we come!
  • Teach a class or workshop at your local community center. Empower the next generation while making a little extra cash.

 

Expert Insight: Diversify for Success and Consult an Advisor

 

Diversifying an investment portfolio is crucial for managing risk and ensuring long-term financial stability. By spreading investments across various asset classes (like stocks, bonds, and alternative investments), you reduce the impact of any single underperforming asset on your overall portfolio. Diversification helps mitigate risks associated with market fluctuations and increases the potential for higher returns.

 

Here’s how to build a well-balanced, diversified investment portfolio:

  • Combine Different Assets: Consider stocks, bonds, and cash as the essential components of your financial portfolio. Mixing them creates a diversified structure that can handle market fluctuations.
  • Add Alternative Investments: Real estate, commodities, and private equity can add diversity to your portfolio and help reduce overall risk.
  • Explore Various Investment Types: Be open to different styles of investments, like growth and value stocks or short- and long-term bonds.
  • Regularly Review and Rebalance: Periodically assess and rebalance your portfolio. As markets change, your investments should adapt accordingly. Stay informed on trends and adjust when needed to maintain a balanced portfolio.
  • Consult a Financial Planner: A financial planner can assist you in creating a diversified portfolio tailored to your specific needs and risk tolerance, ensuring that your investments remain aligned with your goals.

 

Key Takeaways

 

Recovering from a bad sequence of returns early in retirement can be a challenge, but you can overcome it with the right mindset and strategies. Remember to stay positive, keep calm, and focus on your long-term goals. Consider adjusting your budget and exploring part-time work opportunities. Also, be sure to diversify your investment portfolio and seek the advice of a trusted financial advisor. If you don’t have one, Platt Wealth Management can help.  Schedule an introductory call to learn more.

 

By taking these steps, you can get back on track and enjoy the retirement you’ve always envisioned. Take charge of your financial future, adapt to the market’s ebbs and flows, and embrace the next exciting chapter of your life with confidence and resilience.

 

Remember, all new experiences in life require an adjustment period. Sure, it might be a little uncomfortable initially, but with a few strategic tweaks, you’ll be strutting your stuff in no time. Cheers to living your best (retired) life!

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Get Started

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Historic Fed Rate Hikes (Again): Where Do We Go from Here?

Historic Fed Rate Hikes (Again): Where Do We Go from Here?

by | May 31, 2023 | Economic News, Financial Advice, Financial Planning, Investment Management

At its March 2nd Federal Open Market Committee (FOMC), the Federal Reserve board voted to raise short-term rates another 25 basis points—the second such increase this year. It was the ninth rate hike since March 22, 2022, in an all-out effort to tame rising inflation, which had surged to its highest levels in 40 years.

 

The number of rate hikes is not unprecedented—the Fed increased rates 17 times between 2004 and 2006 to cool a bubbling housing market. What is unprecedented is the velocity of the rate hikes, taking the short-term rate from near zero to nearly 5.0% in a relatively short period of time. That period included four increases of 75 basis points and two 50-point hikes. Such steep increases have been unheard of in the last three decades.

 

By some measures, inflation appears to be cooling somewhat though prices of many essential items remain at record high levels. Where the Fed goes from here is not entirely clear. Since its initial burst of rate hikes last year, the Fed has been walking a tightrope in trying to curb rising inflation without tipping the economy into a deep recession.

 

Recent Events Increasing Fed Challenges

 

In an ideal world, the Fed would be able to gradually moderate inflation by closely calibrating its rate hikes until demand and supply are balanced while allowing the economy to grow. But the events of the first quarter of 2023 have reaffirmed that this isn’t an ideal world, which complicates the Fed’s job and notches up the tension on the tightrope.

 

Though the stock market rebounded nicely in the first quarter, it wasn’t without significant economic and geopolitical drama, creating a wall of worry for the market to climb. In just three months, we’ve experienced several remarkable and potentially cataclysmic events, including:

 

  • Rising tensions between the U.S. and China punctuated by the downing of a Chinese spy balloon that was allowed to traverse most of the U.S.
  • The U.S. inching closer to a “hot war” with Russia as it escalates its military aid to Ukraine.
  • The second largest bank failure in U.S. history with fears of more to come.
  • Brazil and Saudi Arabia joining China, Russia, and a dozen other countries in replacing the U.S. dollar as their primary trading currency.
  • An unexpected reduction in oil production by OPEC+, driving up oil prices sharply with an increase in gas prices to follow.
  • Lingering concerns over an imminent recession.

 

And that was just one quarter. In most years, any one of these events would weigh heavily on the U.S. economy. The Fed must contend with all of them at once as they consider their next move.

 

How Did We Get Here? 

 

With interest rates already near zero at the beginning of the pandemic, the Federal Reserve put quantitative easing on steroids as the economy plunged into a recession, ballooning the federal balance sheet to nearly $9 trillion. This was done to increase the money supply and stimulate economic growth during the damaging COVID pandemic. As the growth of production of goods and services slowed, the raging money supply growth eventually overtook it, causing the price of goods and services to be bid up. When too many dollars are facing too few goods, you get inflation. 

 

Then add in supply chain issues and increasing wages occurring at the time, causing employers to have to pay more to get people to come to work. That contributed heavily to inflationary pressures on the market. Despite the record low unemployment numbers at the time, there were still four to five million people not working, not contributing to production, which also contributed to the supply chain issues and rising prices.  

 

Often ignored in the inflation equation is the velocity of money—the rate at which money is exchanged in the economy. Following the financial crisis in 2008 and the COVID pandemic in 2020, consumers were more inclined to save their additional dollars out of caution. During COVID, it was also because many services were no longer available for purchase, such as travel and restaurants. 

 

Then, as COVID restrictions lifted, consumer activity reached pre-pandemic levels, increasing the velocity of money and setting the stage for more prolonged inflation.

 

As the inflation rate began to tick up in 2021, the Federal Reserve viewed it as transitory, caused by temporary supply and demand imbalances that would self-correct. That didn’t happen and inflation worsened, catching the Fed and everyone else off guard. That’s the reason the Fed took such drastic actions in 2022, increasing fears it could lead to a deeper recession.

 

Where We Go from Here

 

 Consumers have been spoiled by low interest rates for a while. However, to put higher rates in perspective, mortgage rates, which are currently hovering around 6%, were as high as 18.5% in the 1980s. A normal business cycle lasts about six years, which usually encompasses an economic slump and an economic recovery.

 

Coming off a deep, albeit short-lived, recession in 2020, interest rates were kept low for an extended time and must now rise to combat inflation. The good news for consumers is an increase in rates is inevitably followed by a decrease in rates. The bad news is that it typically happens when the economy is slowing down. 

 

At Platt Wealth Management, we remain committed to helping you navigate these challenging times. We also encourage you to stay informed and engaged with the economy and markets. As we’ve seen throughout history, the markets are resilient, and they recover to new highs over time.

 

Of course, we are always here to answer your most pressing questions and address your concerns. Simply reach out to the office to schedule a time to speak with your advisor.

 

Sincerely,

Your Platt Wealth Management Team

 

 

Resources:

 

Federal Reserve Board’s press release on the latest rate hike: https://www.federalreserve.gov/newsevents/pressreleases/monetary20230302a.htm

 

FOMC meeting calendar and information: https://www.federalreserve.gov/monetarypolicy/fomccalendars.htm

 

A history of Fed rate hikes: https://www.stlouisfed.org/on-the-economy/2015/september/short-history-federal-reserve-interest-rate-changes

 

Bureau of Labor Statistics on inflation: https://www.bls.gov/cpi/

 

Supply chain disruptions and their impact on inflation: https://www.brookings.edu/blog/up-front/2021/10/12/how-global-supply-chain-disruptions-are-fueling-inflation/

 

The velocity of money and its impact on inflation: https://www.investopedia.com/terms/v/velocity.asp

 

Federal Reserve’s perspective on transitory inflation: https://www.federalreserve.gov/newsevents/speech/brainard20210601a.htm

 

Historical mortgage rates in the U.S.: https://fred.stlouisfed.org/series/MORTGAGE30US

 

Business cycle basics: https://www.investopedia.com/terms/b/businesscycle.asp

 

 

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Get Started

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Why You Should Rethink Using Your Retirement Savings for Anything OTHER Than Retirement OR Should You Use Your Retirement Savings to Pay for College, Fund a Down Payment, Start a Business, or…Anything Else???

Why You Should Rethink Using Your Retirement Savings for Anything OTHER Than Retirement OR Should You Use Your Retirement Savings to Pay for College, Fund a Down Payment, Start a Business, or…Anything Else???

by | Apr 18, 2023 | Financial Advice, Financial Planning, Investment Management

As the years go by and your paychecks keep coming in, you diligently save for retirement, even benefiting from your employer’s match. Every now and then, you check your account statement, and that growing nest egg sure looks impressive!

 

So, when it’s time to fund your child’s college education, make a down payment on your dream home, or launch the small business you’ve been pondering for years, you might wonder: “Should I dip into my retirement savings?”

 

Our expert advice? A resounding “no!”

 

We understand the temptation, and as financial advisors, we often encounter this question. Let’s explore why using your retirement savings for other purposes isn’t a wise decision.

 

Reason #1: Penalties

 

Cashing out your retirement account early comes with several penalties:

 

  • Early Withdrawal: Withdrawing from your 401(k) before age 59½ incurs a 10% penalty from the IRS.

 

  • Taxes: The IRS mandates a 20% tax withholding on most 401(k) withdrawals.

For example, withdrawing $10,000 for a house down payment would result in a $1,000 penalty and $2,000 in taxes, leaving you with just $7,000.

 

Pro Caveat: If you’re set on using your 401(k) for a down payment with no other options, consider converting it to an IRA. First-time homebuyers can withdraw $10,000 without the 10% penalty.

 

Reason #2: Lost Growth

 

Early withdrawals disrupt the compounding process and may leave you with a smaller nest egg than you anticipated, potentially affecting your quality of life in retirement.

 

Like all investments, your retirement account grows through contributions and the power of compounding. The larger the balance, the greater the compounding effect. What does that mean for you? Essentially, that you have to contribute less to earn more over time.

 

By withdrawing $100,000 for your child’s college tuition or to kickstart your own business, not only are you reducing your account balance, but you’re also sacrificing the compounding benefits that this sum would have provided—which means you’ll have to put more money in to see the same net result.

 

Here’s an example. Imagine you’re 45 years old with $250,000 in your retirement account when you decide to withdraw $100,000 for college or a new business. Your account now has $150,000, and assuming an 8% interest rate and no further contributions for the next 20 years, your balance at age 65 would be around $699,000. However, if you had maintained the original $250,000 balance with the same 8% rate and no additional contributions, you’d retire with approximately $1,165,000. This difference of about $466,000 could significantly alter your retirement lifestyle.

 

Reason #3: A Later Retirement Start Date

 

It should come as no surprise that early withdrawals can push your retirement finish line way back, because your account balance is such a large part of what determines your retirement readiness. When you remove a large portion of your savings, you risk not having enough money to maintain your current lifestyle in retirement. With increased life expectancies and the rising costs of healthcare and living expenses, it’s more important than ever to ensure that your retirement savings remain intact and continue to grow.

 

You don’t want to find yourself struggling to make ends meet in your later years or being forced to work longer than you initially planned. This can be a huge blow to your overall well-being and quality of life.

 

Financial Planning: An Alternative to Withdrawing from Your Retirement Account

 

We understand that considering an early withdrawal from your retirement account is likely driven by financial necessity or concerns about the economy. However, there are alternative options to explore. From initiating college savings plans early to establishing emergency funds, we’re here to help you manage your overall financial well-being and achieve your savings and retirement objectives.

 

If you require guidance in this area, we invite you to schedule a consultation. The support and expertise of a financial advisor can significantly impact your ability to preserve and grow your wealth for the future, as well as help you meet your cash flow needs today.

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Get Started

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

How to Pay Fewer Taxes on Retirement Account Withdrawals

How to Pay Fewer Taxes on Retirement Account Withdrawals

by | Mar 21, 2023 | Financial Advice, Financial Planning, Investment Management, Tax Strategies

Where there is income, there will be tax. So, it’s no surprise that building a successful retirement income plan will have a lot to do with how much tax you will pay on your account withdrawals.

 

In all honesty, planning for the “money-out” phase of retirement is often more complicated than the “money in” phase. That’s why it’s often likened to climbing Mt. Everest—because 80% of injuries occur not on the way up, but on the way down.

 

So how do you limit your tax liability to improve your odds of retirement success? Here are a few considerations to get you started.

 

First, understand how your retirement income will be taxed.

 

It is much easier to shield your money from taxes during your retirement plan’s accumulation phase than in the distribution phase. That’s because, as you start receiving income in retirement, the IRS can come at you in ways you may not have considered.  An income source on the left will affect the tax treatment on the right and could affect your Medicare and Social Security in the background. Like we said, there are a ton of moving parts.

 

What this means is that what you see on the surface, as far as your retirement account balances and your projected cash flow from these accounts, may be different from what you actually get. So many retirees are blindsided with lower-than-expected cash flows because they weren’t prepared for how their income would be taxed.

 

  • Ordinary income taxes on withdrawals.

 

The money accumulated in your 401(k) or IRA is worth less than the amount stated on your account statement. That’s because, after all the years of tax-deferred accumulation in those accounts, the IRS is waiting in the wings to get its share. That happens as soon as you start taking distributions, which are taxed as ordinary income. 

 

So, if you have accumulated $500,000 in your 401(k) or IRA, here is what it would be worth after taxes:

 

$325,000 if you’re in the 35% tax bracket

$315,000 if you’re in the 37% tax bracket

 

Understanding where you stand on an after-tax basis is crucial in planning your distributions, so they have the most negligible impact on your tax bracket. It also puts you in a position to consider strategies that can help mitigate the impact of taxes. 

 

  • Requirement minimum distributions: If you think you can avoid taxes by not taking distributions, the IRS forces you to take withdrawals starting at age 73 through the required minimum distribution (RMD) rules, whether you need the income or not. This can have the effect of pushing you into a higher tax bracket, increasing your tax liability. However, with that understanding, you can explore strategies to mitigate its impact. 

 

  • Social Security “tax torpedo”: Not only are withdrawals from tax-deferred accounts fully taxable, but they can also trigger the Social Security “tax torpedo,” which exposes as much as 85% of your Social Security benefits to ordinary income taxes. 

 

Then, choose strategies for controlling taxes in retirement.

 

Knowing what they know now in terms of retirement income taxation, many retirees would probably have chosen a different strategy that included allocating more of their retirement contributions among post-tax accounts that generate tax-favored capital gains or a Roth IRA for its tax-free withdrawals (which are is not considered provisional income included in the Social Security tax calculation). 

 

However, retirees knocking on retirement’s door still have an opportunity to develop an income strategy that can effectively minimize their taxes and stretch their assets further into the future. 

 

Tax-Efficient Withdrawal Strategies: An essential strategy for reducing taxes on retirement account withdrawals is implementing a tax-efficient withdrawal strategy. This involves withdrawing funds from taxable accounts before tax-deferred accounts, which can help reduce tax liabilities with a more favorable capital gains tax. It’s essential to work with a financial advisor to determine the best approach for your situation.

 

Consider a Roth IRA conversion: While contributions to a Roth IRA are not tax-deductible as with traditional IRAs, withdrawals are tax-free. A Roth’s tax-free income in retirement can lower your overall taxes in several ways, not only increasing your cash flow but also extending your retirement capital further into the future. 

 

  • The tax-free income will not push you into a higher tax bracket, as would taxable withdrawals from a tax-deferred qualified retirement plan.
  • The tax-free income will not count towards the stealth Social Security tax torpedo on excess earnings.
  • There is no required minimum distribution rule for a Roth IRA, enabling you to keep growing your retirement capital tax-free. 

 

The tax code allows individuals who otherwise don’t qualify for a Roth IRA to fund a traditional IRA or 401(k) plan and then convert it to a Roth. There is no income limit or limit on how much or how many times you convert. 

 

When you do convert, it triggers a tax on the conversion amount because it is treated as a taxable distribution. For example, if you transfer $10,000 from a tax-deferred qualified retirement account to a Roth, that amount is added to your adjusted gross income (AGI) and taxed at your federal tax rate. 

 

 If you have $100,000 in a traditional IRA, it can be converted all at once. However, considering the tax implications, it may be better to convert portions of it over several years. 

 

Qualified Charitable Deduction to Offset RMDs: A Qualified Charitable Deduction is a direct, tax-free transfer of funds from your IRA to a qualified charitable organization. To be eligible, you must be at least 73 and ready to take your first RMD. It’s a direct transfer, so the check must be payable to the charitable organization by December 31 to qualify. If married, you and your spouse can each transfer up to $100,000 tax-free from your IRA each year, even if it exceeds your RMD.

 

The QCD is unavailable for 401(k) plans, SEPs, or SIMPLE IRAs. However, if you roll any of those plans into an IRA, it becomes QCD eligible. 

 

These strategies have tax implications, and everyone’s tax situation is different. You should always consult a qualified professional tax advisor to discuss your specific tax situation and how these tax reduction strategies apply to your situation. 

 

 

Find the Plan That’s Right for You

At Platt Wealth Management, we like to encourage our clients to dream, plan, and do. Don’t let an underdeveloped tax strategy get in the way of “doing” all you’ve dreamed and planned for.

If you’re in need of a financial guide to help you make your way through the “money in” and/or “money out” stages, we would love to see if we’re a good fit. Simply schedule your complimentary phone consultation to discuss your opportunities. 

 

 

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Get Started

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Beyond the 401K: Where High Earners Should Invest to Save for Retirement

Beyond the 401K: Where High Earners Should Invest to Save for Retirement

by | Feb 15, 2023 | Financial Advice, Financial Planning, Investment Management

 

At the heart of it, saving for retirement isn’t terribly complicated. You know you need to max out your employer-sponsored 401K so you can receive your employer match and allow your investments the opportunity to grow tax-free. This is undoubtedly the best place to start. But if you’re a high earner, your 401K won’t be nearly enough to fund your retirement nest egg. So where do you invest next?

 

401K Limits Aren’t Enough

 

As we head into 2023, the elective deferral limit for anyone participating in a 401k plan will be $22,500 (an increase from $20,500 in 2022). With the catch-up contribution limit, that amount is $30,000 for those aged 50 and over. But for high earners, these annual limits won’t be enough to create the income you need to continue your current lifestyle in retirement.

 

So, to create that comfortable retirement you’ve always dreamed of, it’s time to put more of your money to work.

 

  • IRAs—Traditional and Roth

 

Individual Retirement Accounts (IRAs) are the natural next place to save as they are also tax advantaged. But, there are two types—traditional IRAs and Roth IRAs. The main difference in these two types of accounts is when the tax savings are captured. Traditional IRAs utilize pre-tax money for contributions and are taxed upon withdrawal in retirement, whereas Roth contributions are funded with post-tax dollars, but retirement withdrawals are tax-free.

 

However, Roths have no Required Minimum Distributions (RMDs). This type of account allows you to begin withdrawing money on your timeline and not the one that is determined by the IRS.

 

In 2023, you’ll be able to contribute up to $6,500 to both types of IRAs – $7,500 for those over 50.

 

Keep in mind, though, that Roth IRAs do have income limits:

 

  • For single filers: $138,000 to $153,000
  • For married couples filing jointly: $218,000 to $228,000
  • For married and filing separately: up to $129,000

 

Chances are, you probably earn too much to open a Roth IRA, but don’t worry. You can still take advantage of the Roth account benefits by converting traditional IRA fund into a Roth through an annual Roth Conversion.

 

  • Health Savings Account

 

After you’ve maxed out your 401K contribution, funded a traditional IRA and perhaps performed a Roth IRA conversion, you should turn your sights toward Health Savings Accounts. Their name might be throwing you for a loop, but HSAs can be great retirement saving vehicles. Here’s why.

 

Health Savings Accounts are heralded for their triple-tax advantage: they are funded with pre-tax dollars, experience tax-free growth, and qualifying medical expenses are covered with tax-free withdrawals. Considering the average American couple will spend $315,000 in out-of-pocket medical expenses in retirement, HSAs provide a way to save for them while also generating tax-free retirement income. Or, you can withdraw the funds and use them as you need (for non-medical related expenses) once you have reached age 65 and simply pay regular income tax on those withdrawals.

 

Keep in mind, only folks with a high-deductible health plan are eligible to open an HSA. However, if you lose or change away from your high-deductible plan, your HSA remains in your possession and the money can remain invested.

 

  • Brokerage Accounts, Real Estate, & Business Ventures

 

Once you have maxed out your tax-advantaged options, there are several options to choose from when it comes to investing for the future. If you’re comfortable with a little more risk, the following have proven great ways to supplement retirement income.

 

Brokerage Accounts (Taxable): Taxable brokerage accounts remain the most flexible for high earners with a substantial capacity to save. There are no income limits, annual contribution limits, and the assets can be accessed at any time for any reason. While you won’t benefit from any tax breaks with this account, you are in complete control.

 

Real Estate: There are multiple ways to invest in real estate. You can invest in residential properties to rent out, buy and flip houses, invest in a company that buys and flips houses, purchase commercial property to lease, or even invest in a Real Estate Investment Trust (REIT). This type of investing is typically best for investors with large cash reserves and an understanding of the real estate market.

 

Business Ventures: Since 2015, investors have been able to invest in startups and small businesses through brokers or crowdfunded campaigns. This can be an exciting option, but typically quite risky. You’ll want to make sure you do your due diligence and to familiarize yourself with what your investment entails and what your compensation options look like. Or, if you want to keep things closer to home, you can choose to invest in a friend of family member’s business. But, like with any large transaction, be sure you have the proper legal paperwork in place before handing over your money. This type of investment is attractive to those passionate about entrepreneurship and comfortable with risk.

 

Fill One Bucket, Then the Next

 

If you want to maintain or enhance your quality of life in retirement, it’s important that you put your money to work as efficiently as possible to keep from overpaying in taxes or missing out on potential income. We can help. If you’re ready to put your money to work, let’s chat. We can help you determine which savings vehicles will enable the happy, comfortable, and stress-free retirement you need.

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Get Started

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

The Pros and Cons of Retiring at Different Ages

The Pros and Cons of Retiring at Different Ages

by | Feb 1, 2023 | Financial Advice, Financial Planning, Investment Management, Lifestyle

While retirement sounds like an absolute dream, getting there can often feel a little stressful. Are you saving enough? How much do you really need? Will the market be favorable when you do? And, the big one: When can you actually retire?

 

Narrowing down the best time, or really the best age, for you to retire comes with a lot of considerations, especially what sort of lifestyle you want to have in retirement. So, we’ve put together this list of the pros and cons of retiring at different ages to help guide you to your ideal retirement window.

Retire Before Age 65

 

Retiring before age 65 is traditionally “early” and is what most of us would like to do. However, the Center for Retirement Research data shows that most Americans retire before or at age 65 with men retiring at an average age of 65 and women at an average age of 62. But is an “early retirement” right for you?

Pros

The two biggest advantages are that you are likely to have more energy and better health at a younger age. Plus, shifting from a full workday to either a part-time job, monetizing a hobby, or finding volunteer opportunities can help make the retirement transition easier.

Cons

Your retirement funds will also have to last longer if you retire early. Leaving behind your career and what are probably your highest earning years early will mean you could be leaving however many years of potential retirement savings (and potentially an employee match) behind. Plus, while you are eligible for Social Security at age 62, your monthly amount will be less if you don’t wait until you are old enough for your full benefit. And, finally, you will need to have a plan for health insurance since you won’t be able to get Medicare until age 65.

Retire Between Ages 66 and 70

 

Sixty-five has been viewed at the age of retirement since Social Security was established. However, as of 2022, Social Security views the full retirement age at 66 for those born between 1943 and 1959 and at the age 66 plus a few months depending on your exact birth year if you were born between 1955 and 1959. For anyone born after 1960, the full retirement age is 67.

Pros

Getting a few more years of savings and investing on top of waiting until you are eligible for both Medicare and your full Social Security benefit can make a huge difference in your finances. Private insurance premiums and prescription co-pays are not cheap after all. Plus, you paid into Social Security all of those years. So even if you have a pension and other retirement savings accounts, waiting just a few more years to get your Social Security benefits will ensure you get the full amount you are eligible for.

Cons

Well, you saw the data above. Most Americans aren’t waiting to age 66 to retire and most don’t want to. So waiting those extra years could feel like you’re back in school waiting for that last month of school to get over.

Retire at Age 70 and Older

 

If you’re in the group of folks who have to wait until 67 to get their full Social Security benefits, waiting just another couple years may not seem too bad. But is there anything to gain or lose?

Pros

Some folks just love their work and feel like they would be lost without it. And that’s OK! So continuing to work longer may be better for you mentally and emotionally if you fall into that category. Plus, if you wait until age 70 or older to start taking your Social Security benefits, your payout will be the highest on top of the extra years of retirement savings and investing. You may never have to worry about having enough money in retirement.

Cons

You will not be able to predict what your energy level or overall health will look like as you get older. Your health could start declining before you retire or after. You could be giving up the opportunities to travel or do other things you enjoy that you always planned to do in retirement if you wait. Even if your nest egg is larger, you could end up not having enough time to use it.

 

Finding the Right Answer

 

There is not really a right or wrong answer to when you should retire. Each person and your unique circumstances can change and so can the financial landscape. Many of our clients even benefit from doing a “test run” on their retirement plan before they actually leave work to see if this changes their perception of their need. Either way, we encourage you to lean on an expert to help guide you to a retirement plan that works best for you.

 

At Platt Wealth Management, we empower our clients to lead their best lives by providing them with the financial expertise they need. We help our families think through their goals, and even dreams they never thought possible. Then, we work together to put in place financial options that give them peace of mind. Schedule a call with our team today to discuss your opportunities.

 

 

 

 

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

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Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

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