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Retirement Income Planning

For investors approaching retirement, it is important to begin thinking about retirement income planning. This involves a mindset shift from accumulating an investment portfolio designed

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Inflation and Taxes Could Rise. Are You Ready for Retirement?

Americans are starting to experience the impact of increasing prices at the supermarket and the start of inflation. Also, clothing at retail stores is depleting as manufacturing has halted, creating demand for products ordinarily accessible. Today’s economic conditions are much worse than coming out of the Great Depression. During periods of economic recovery, the U.S. experienced historical debt and tax levels, paid for by the American people when tax rates were above 40% for over 40 years (1940-1981). Many older Americans recall the high-interest rates, high prices, and people displacing from the weak economy. While the CARES Act and American Recovery Act have provided payments to individuals and for business stimulus, it will not solve our country’s future economic problems. Government-funded recovery will likely lead to higher taxes, and the debt will be collected from U.S. taxpayers to decrease the Federal deficit. What has changed since The Great Depression is the debt the U.S. carries, now close to $24.2 Trillion with a 106% Debt/GDP Ratio (Gross Domestic Product). Our debt to GDP ratio indicates that the U.S. owes more than it produces and consumes domestically, or exports. How do economies recover? By producing and selling more than its expenditures or by raising the prices of their products. How do government coffers improve? Through tax collection. Both create problems for everyone, but especially for those nearing or in retirement. In any market, investors must always consider the five risks that can sideline their financial future: Inflation Risk- Investments are not optimally positioned to address the rising costs of goods and services which will deplete a portfolio. Taxes Risk- Increased taxes erode the investment capital; the investment type and timing are critical.

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4 Reasons to Consider a Life Insurance Policy

Buying a life insurance policy is something that many people push off, sometimes until it is too late. For many people, the thought of buying life insurance means thinking about their death, which is something that most people wish to avoid. Life insurance is not about death, but instead about the future and security of your loved ones. If you have not yet made the jump to purchase your life insurance policy, below are four reasons you should consider one.[1] It Assists With Your Income If your family members are dependent on the income that you bring to the household, a sudden loss of it may add intense stress to their grief. Life insurance can typically cover your income at least long enough for your loved ones to gain stability or make up for the loss of monthly funds.[2] It Will Help With Funeral Expenses Funeral arrangements can cost thousands of dollars for even simple services. Your life insurance policy may help your loved ones to cover these expenses without placing any extra financial burden on them.[3] It Will Help With Your Debt There is a common misconception that all your debt will be erased in the event of your death. While this may be true for some debts, it is not true for all; most of the time, it tends to not be true of the largest debts like anything left to pay on a home. If you have a spouse for is a co-signer on your mortgages or other loans, they may become responsible for the entire debt. Debtors may also come after the assets in your estate, which can significantly reduce the amount of estate that will

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Key Considerations as You Start Receiving Social Security Benefits

As your retirement draws closer, you will probably start to have lots of questions such as: How much Social Security will I receive? When should I retire? How will I know when to retire? Do I have enough saved? What will I need to do to maintain health insurance after I retire? The answers to these questions can vary widely depending on your income, your job duties, and your assets. However, there are a few factors that everyone should keep in mind when you begin making your retirement decisions. Keep reading to learn more about three key considerations relating to your future Social Security benefits. Your Full Retirement Age (FRA) If, like many, you are planning to rely on Social Security benefits as a key component of your retirement income, your FRA may dictate your retirement age. Those born in 1954 and earlier can reach FRA at age 66, while those born 1960 and after will not reach FRA until age 67.1 Claiming your Social Security benefits before you reach FRA will lower your monthly benefit for life, so it’s not a decision that should be entered into lightly. If you like your job and can keep it through your FRA, it may make sense to do so. Not only will it increase your monthly retirement benefit, but it will also provide you with a longer earnings history and allow you to save more and/or pay off debt before you retire. Your Health and Projected Lifespan Your decision on when to retire (and when to begin claiming Social Security retirement benefits) can often depend on how long you expect to receive these benefits. If you have a family history of longevity,

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Retirement Planning: To Roth or Not to Roth?

When saving for retirement, it often makes sense to contribute to employer-sponsored retirement plans to take advantage of any available employer match opportunities. However, not everyone has access to an employer-sponsored plan. Even if you do, there are reasons you may want to consider using Traditional and/or Roth IRAs to supplement your retirement savings. There are important differences between the two types of accounts.[i] Understanding the potential benefits and drawbacks of each type of IRA can help you make more informed decisions. Potential Benefits and Considerations Regardless which type of IRA you choose, the contribution limits are the same, although Roth IRAs contributions are subject to income limits.[ii] Traditional IRA contributions are not limited by income levels unless you or a spouse was covered by an employer-sponsored plan during the year of the contribution. In 2021, the total amount you can contribute to your Traditional and Roth IRA accounts is the lesser of your taxable compensation for the year or $6,000 ($7,000 for those age 50 or older.)[iii] However, there are important differences in tax treatment for these accounts. If your income is below certain thresholds, you may be able to deduct some or all of your contributions to traditional IRAs, reducing your taxable income in the year of the contributions.[iv] Taxes on contributions and any growth are deferred until you begin withdrawing them. So, if your tax bracket in retirement is lower than in your earning years, you may pay less in taxes on your retirement dollars. In contrast, you cannot deduct contributions to a Roth IRA – those are after-tax contributions.[v] However, qualified distributions from Roth IRAs are not subject to federal income taxes, potentially lowering your tax

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How to Increase Your Financial Literacy

Unlike verbal literacy, financial literacy isn’t often taught in schools—which means that many people may enter adulthood without having all the tools they need to make informed and effective financial decisions.[1] Fortunately, gaining financial literacy doesn’t need to be a long or complicated process. Read on for three simple things you can do to work toward increasing your financial literacy. Subscribe to Reputable Financial Publications and Newsletters As with just about any topic, the more you read about investing, budgeting, and analyzing financial strategies, the larger your base of knowledge will be. A strong knowledge base in a particular subject can make it easier to make wise decisions in the future—you should already have a good feel for the “do’s” and “don’ts” of certain financial questions. There are a variety of high-quality financial publications, newsletters, and daily digests that can be emailed to you for free. You can also opt to become a paying member of one or more financial websites in order to get advice that’s better tailored to your interests and goals. Manage Your Assets and Debts Financial literacy doesn’t exist in a vacuum—in other words, the purpose of increasing your financial literacy is to put yourself in a position to make better financial decisions. Two key parts of this include: Putting your assets to their highest and best use; and Reducing your debts and minimizing your “burn rate.” Investing in the stock market is often a key component of the first prong. Although the stock market is more volatile and less “safe” than cash, each dollar you invest now, at a modest six percent rate of return, will grow to $5.74 in 30 years.1 By putting even a

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4 Tips for a Healthier Financial Outlook

With Public Health Week on the way,[1] it is not only time to consider your physical and mental health but also your financial health. When your financial outlook is healthier, you will be less stressed and enjoy what all your hard work has given you. Start this Public Health Week by trying out a few tips to help create a healthier financial outlook for the future. Be Mindful When You Spend When it comes to spending money, be aware of what you need versus what you want. That doesn’t mean you should not buy the things you want, but it does mean making sure your needs and responsibilities are accounted for first. Thinking along these lines can help you make better spending choices and prevent you from regrets when you making a purchase. Save Early Saving early is important for many reasons. First, if you save for retirement early, your money is more likely to grow faster and could provide you with what you will need to enjoy your retirement. What you put aside will continue you be reinvested and hopefully snowball into a larger retirement fund when the time comes.[2] But retirement is not the only savings to focus on. Putting money aside for emergencies such as losing a job will better prepare you financially and alleviate stress when problems arise. Get a Handle on Debt Burying yourself in debt may lead to significant financial problems down the road and might even prevent you from obtaining some of your financial goals. If you already have debt, create a plan to pay it down as quickly as possible. Limit spending on items that are not necessary. Then budget in an

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What to Know About Roth IRA Conversions

A Roth IRA is a retirement savings vehicle like no other. Not only can account holders withdraw their contributions at any time without taxes or penalties, but also these accounts aren’t subject to required minimum distributions (RMDs)—and all earnings are tax-free.[1] Investors who feel they are too heavily steeped in pre-tax retirement contributions may decide to convert some traditional IRA contributions into a Roth, repaying any tax credits received for the contributions while allowing future gains to grow tax-free.[2] However, the Roth conversion process can sometimes be complex, and a misstep can cost you money in taxes, fees, and penalties. How does a Roth conversion work, and what should you know before getting started? What is a Roth IRA Conversion? A Roth conversion involves transferring pre-tax or tax-deferred retirement assets (from a traditional, SIMPLE, or SEP IRA) into a Roth IRA. This creates a taxable event, which means that you will likely owe taxes on the amount converted in the year of conversion—but after that, these contributions are treated as though they had originally been put into a Roth in the first place. You also shouldn’t owe any early withdrawal penalties, as the conversion simply moves these assets from one retirement account to another. When you reach retirement age, you can withdraw any earnings and contributions without paying a dime of tax. How are Roth Conversions Executed? The IRS has described three different ways to convert a traditional IRA to a Roth.1 A rollover allows you to take a distribution from your traditional IRA—usually by check or online transfer—and move that money into your Roth within the next 60 days. A trustee-to-trustee transfer requires you to instruct the financial institution that holds

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Contribute to an IRA Before the May 17th Deadline

Taxpayers of all ages may be able to claim a deduction on their 2020 tax return for contributions made to their Individual Retirement Account made through May 17, 2021 (the U.S. Department of the Treasury is delaying the April 15th deadline to file and pay taxes until May 17th, giving individuals and businesses another month to file and then pay the government what they owe). And unlike in past years, there is no longer a maximum age for making IRA contributions. Contributions to a traditional IRA are usually tax deductible, while distributions are generally taxable. There is still time to make contributions that count for a 2020 tax return, so long as the contributions are made by May 17, 2021. The good news is that taxpayers can file their return claiming a traditional IRA contribution before the contribution is actually made, but the contribution must then be made by the May due date of the return. While contributions to a Roth IRA are not tax deductible, qualified distributions are tax-free. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit. Contribution Limits from the IRS Generally, eligible taxpayers can contribute up to $6,000 to an IRA for 2020. For someone who was 50 years of age or older at the end of 2020, the limit is increased to $7,000. The restrictions on taxpayers age 70 1/2 or older to make contributions to their IRA were removed in 2020. Qualified contributions to one or more traditional IRAs are deductible up to the contribution limit or 100% of the taxpayer’s compensation, whichever is less. For 2020, if a taxpayer is covered by a workplace retirement plan, the

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Retirement Income Planning

For investors approaching retirement, it is important to begin thinking about retirement income planning. This involves a mindset shift from accumulating an investment portfolio designed for growth to creating a portfolio of retirement income designed to help you pursue your lifestyle goals.[i] There is not a one-size-fits-all formula when it comes to determining how much income you will need in your retirement years, although most financial professionals agree that it is not necessary to replace 100 percent of working income.[ii] To determine retirement income needs and develop strategies for creating income streams, pre-retirees should consider the following factors: Goals. Identify what you want to get out of retirement. If you want to travel the world or pay for grandchildren’s college educations, your income needs will differ from someone who wants to simplify their life in retirement and focus on hobbies at home. Income sources. Anticipate your sources of retirement income, such as Social Security, pension, fixed annuities, and non-guaranteed income from investments. Carefully evaluate your options for when to begin claiming Social Security. For some people, it makes financial sense to claim benefits as early as possible; for others, it’s beneficial to defer benefit payments. Expenses. Estimate your fixed expenses and discretionary expenditures. Your retirement income plan should also address your anticipated needs for health care and long-term care in the future. For many retirees, health care is one of the most significant expenses they need to budget for.[iii] Consider also the potential impact of future inflation on your buying power. Market volatility. Depending on your risk tolerance and goals, your plan may be more focused on investing for potential gains during retirement, investing for both growth and income, or taking a more conservative approach using

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How Financial Asset Management May Help Investors Stay the Course

Most people who decide to purchase stocks, bonds, mutual funds, or other investment vehicles do so understanding that there are risks associated with investing, but believing that the potential growth they may realize over time outweighs such risks. However, because there are no guarantees, investing assets can be a nerve-wracking experience – especially during periods of market turbulence.[i] Taking a deliberate approach to financial asset management and working with a financial professional, rather than choosing to manage your own portfolio, may help you weather the ups and downs that come with investing.[ii] This, in turn, may make it easier to stay the course over the long run. Understanding the Elements of Financial Asset Management Financial asset management encompasses several concepts, including diversification, asset allocation, portfolio rebalancing, and the decisions that go into choosing and evaluating the performance of your investments.[iii] Let’s explore each of these individually: Diversification. You have likely heard the adage “don’t put all of your eggs in one basket.” The idea of diversifying your investment portfolio, which is a central tenet to financial asset management, is based on the idea of spreading risk by putting your investment dollars into multiple baskets. There is no one-size-fits-all strategy for how to diversify your portfolio. For one investor, a well-diversified portfolio may include just a handful of investments. For another, a portfolio with dozens of securities may be best.[iv]  There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk. Asset Allocation. While diversification refers to investing in more than one security, asset allocation is a deliberate approach to diversifying, investing a certain percentage of your overall

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