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Your 2022 Year-End Financial To-Do List

By Financial Planning

The end of the year is upon us. Here are some tasks to check off before 2023 arrives!

 

As the year wraps up, it can be a great time to take financial inventory. Your circumstances are constantly changing and evolving, and the proper financial plan is not meant to be a set-it-and-forget-it thing. With the end of the year presenting the perfect chance to revisit your goals, here are a few areas you may want to check in on before we flip the calendar to 2023.

  1. Review Your Financial Plan

The proper holistic financial plan isn’t just about your investments or your retirement. It also accounts for budgeting to achieve long- and short-term goals, making sure you have adequate insurance to hedge against financial risks, planning for wealth transfer to your heirs and/or charities, looking ahead with a plan to mitigate taxes—really every aspect of your financial life. As the year comes to a close, it can be a great idea to reassess your financial circumstances and make necessary adjustments to your financial plan. Maybe your goals have changed. Maybe you’re on a fast-track toward goals you expected to take longer to reach, so you can move some dates up. Remember, it’s always important to make sure that your beneficiaries are up to date annually on all of your accounts, investments and insurance policies. This time of year, while it’s in the front of your mind, you can use the tools and resources at your disposal to update and to reinvent your financial plan to more closely match your situation.

  1. Adjust Your Monthly Budget

A budget is an important part of any financial plan, and having one can be a great way to keep track of where your money comes from and where it goes. Now that we’re in the final month of the year, you may be in a good position with a clear vision as you revisit your budget and adjust as needed. Maybe you received a nice annual bonus or raise, or maybe you’ve recently had a baby and haven’t had a chance to fine-tune your budget through the sleepless nights. No matter your circumstances or the new milestones and stages of life you reached in the past 12 months, it can be a really good idea to take a look at how your income keeps up with your expenditures and tweak accordingly.

  1. Review Your Investments

It’s important to understand that diversifying with different asset classes can help protect your portfolio from market volatility, which is especially important as you get closer to retirement. Most traditional retirement accounts like 401(k)s have funds invested in the market, so they are not protected from market risk. This may be perfectly fine when you’re young, but as we saw with the high inflation, higher interest rates and increased volatility of 2022, it can cause panic for retirees, pre-retirees and people who are risk averse. Be sure that your overall portfolio positions you with a level of risk you’re able to tolerate, and that your retirement is protected.

  1. Recalibrate Your Retirement Account Contributions [1,2,3]

Your retirement accounts may be your greatest assets when it comes to funding a comfortable and stable lifestyle in retirement. As you traverse your career and attempt to carve out a lifestyle that will be sustainable once you get the chance to quit working and chase your retirement dreams, it’s important to know how much you’re allowed to contribute to your various accounts. For example, in 2022, the contribution limit is $6,000 for traditional and Roth IRA accounts, and it is $20,500 for 401(k)s. In 2023, those limits will increase to $6,500 and $22,500, respectively. If you’re 50 or older, you’ll also be able to make catch-up contributions of up to $1,000 to your IRA and $7,500 to your 401(k) as soon as the new year hits.

  1. Take Your RMDs [4]

Unfortunately, your retirement accounts cannot be left to grow tax-deferred forever. If you turned 70 after July 1, 2019, you must begin taking annual required minimum distributions, or RMDs, starting at age 72. The amount you must withdraw is typically calculated using life expectancy as determined by the IRS. Failure to adequately withdraw funds will result in a 50% excise tax, which is considerably higher than even the highest federal income tax withholding rate. Luckily, accounts growing tax-free, such as Roth IRAs and Roth 401(k)s do not have RMDs, but the deadline to withdraw the minimum amount from tax-deferred accounts is Dec. 31. If you’ve reached the age at which you must take the distributions, it can be beneficial to ensure that you’ve withdrawn the proper minimum amount from the right accounts to avoid a hefty penalty.

  1. Spend Money Left in Your FSA [5]

Health savings accounts (HSAs) and flexible spending accounts (FSAs) offer a chance for those with employer benefits to cut medical costs by contributing pre-tax dollars that are allowed to be used for qualifying expenses. Unlike HSAs, however, FSAs do not typically allow you to roll your excess funds into the next year. You may have a grace period provided by your employer, but even the grace period often comes with a limit as to how much can roll over. Some ideas to avoid losing funds left in your FSA include booking general wellness appointments like visits to the eye doctor, annual physicals and dental cleanings.

  1. Talk to Your Financial Professional or Advisor

The job of a financial professional, planner or advisor is to offer complete and personalized service for your holistic plan. That means assisting you with your unique circumstances and goals, helping you set realistic and reachable objectives while inspiring you to stretch farther and drive harder toward your ideal portrait of a comfortable lifestyle. Whether you’re looking to check off all of these boxes as the year ends or start 2023 with fresh goals, we can help!

If you have any questions about your end-of-year financial checklist, please give us a call. You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

Sources:

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
  4. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  5. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over

 

This material is provided as a courtesy and for educational purposes only. Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

All information contained herein is derived from sources deemed to be reliable but cannot be guaranteed. All views/opinions expressed in this newsletter are solely those of the author and do not reflect the views/opinions held by Advisory Services Network, LLC.

 

Life Insurance

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

Taxes

Advisory Services Network, LLC does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. Federal and state laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.

5 Common Mistakes to Avoid with Medicare

By Health Care Expenses, Retirement Planning

Medicare can be tricky. Here are some common mistakes to avoid!

The Medicare open enrollment period has begun, so we thought it would be a great time to discuss some of the most common mistakes retirees make when it comes to their healthcare. Along with your streams of income that you’ve created for yourself during your career, Medicare is one of your most important tools in retirement. It can protect you against medical emergencies that could be financially devastating, especially when you’re living on a fixed income.

It is, however, important to know that Medicare has its limitations, potentially making you susceptible to mistakes when signing up and choosing a plan. Far too often we visit with and hear about retirees who aren’t aware of how Medicare works or how to correctly utilize it as a tool for protection. We believe that many of the headaches could be avoided simply by knowing the obstacles that may present themselves along the way, thereby allowing you to prepare for what’s ahead. Let’s go over the five most common Medicare mistakes, as well as a few ways to avoid them.

  1. Not Understanding What It Is

In 2021, two-thirds of Americans were covered by a private insurance plan, meaning that they were either part of a group plan through their employer, or they sought out coverage from an insurance company on their own [1]. While private insurance plans may differ on a case-by-case basis, they generally function similarly with premiums, deductibles and various amounts of coverage in each plan. In comparison with the healthcare insurance you may have had during your career, Medicare has slight yet key differences.

For example, Medicare has four parts: A, B, C and D. Parts A and B are usually referred to as Original Medicare, with Part A covering visits to hospitals and skilled nursing facilities as well as hospice care and some home-based healthcare. It is free for those who qualify, which includes those age 65 and older who have contributed Medicare taxes for 10 years or longer.

There are, however, monthly premiums for Part B, the portion of Medicare that covers the cost of outpatient care, such as standard visits to a general practitioner.

Parts C and D can be a bit trickier for those first signing up for Medicare. Part C is commonly known as a Medicare Advantage or Medigap plan, and these plans generally replace Parts A and B (and often Part D) with a plan through a private insurance company which gets subsidized by the government. Part C Medicare Advantage or Medigap plans can also include extra coverage like dental, vision and hearing.

Part D is prescription drug coverage, which is not included in Original Medicare Parts A and B but can be added for an additional premium amount.

No matter which plans you choose, Medicare premiums typically come directly out of your Social Security benefit, and it is important to account for those deductions when figuring your Social Security benefit into your net income.

  1. Overestimating Its Capabilities

As we mentioned above, Part A of Medicare is free to those who qualify, potentially generating the common misconception that Medicare as a whole is free for those in retirement. In reality, only premiums for Part A come at no cost to the insured, which still doesn’t include 2023’s $1,600 deductible for hospital visits [2]. Part B comes with a standard monthly premium which will be $164.90 per month in 2023. Increasing and enhancing your coverage with a Medicare Advantage plan can also hike your rates, and the cost of Part D can increase with a penalty for missing your initial enrollment period.

When planning your retirement, it’s important to know that those with higher incomes pay more for Medicare, and there is a two-year look-back on your income per your tax returns when determining how much you will pay.

It’s also important to know that Medicare does not cover long-term care. While no one likes to think about the prospect of leaving their home, their possessions and their loved ones behind, 70% of today’s retirees will need some type of long-term care, and 20% will need it for longer than five years [3]. When the national annual median cost of a private room in a nursing home can top $100,000[4], it’s easy to see where the problem lies. It may be helpful to look elsewhere for long-term care coverage, including into a long-term care insurance policy or a life insurance hybrid policy that includes assistance to pay for long-term care if you need it or a death benefit for your beneficiaries if you don’t.

  1. Signing Up Outside the Initial Enrollment Period

You are not automatically enrolled when you qualify for Medicare at age 65, you must enroll yourself. There is a seven-month enrollment window which starts from the three months before your 65th birthday, the month of your 65th birthday and the three months following your 65th birthday.

Failure to enroll during that period could cause you to incur permanent surcharges.

For instance, with Part D prescription drug coverage, you may incur a penalty. That penalty is calculated by taking 1% of the “national base beneficiary premium,” which is $32.74 in 2023[5], and multiplying it by the total number of full months you’ve gone beyond your initial enrollment period. For example, with next year’s national base beneficiary premium, if you delayed enrollment for Part D by 12 months, your premium would be an additional $3.93 per month.

  1. Picking the Wrong Plan

In the same way that your healthcare plan during your career probably had limited coverage, Medicare Advantage plans and Medicare Part D plans cover different providers and prescription drugs [6].

That’s why when you’re considering Medicare options, it’s important to have a list of your doctors and medications in hand. Consider working with a Medicare specialist who can help you choose between multiple carriers rather than going it alone.

  1. Neglecting to Revisit the Plan During the Open Enrollment Period

Medicare open enrollment runs annually from Oct. 15 through Dec. 7, so now is the perfect time to review your options. And remember, as you get older, your needs will likely change. You may move. You may begin to see different specialists or healthcare providers. Almost certainly, your need for different prescription drugs will change. As those needs change, so can your Medicare plan.

The open enrollment period gives Medicare beneficiaries a plethora of options in changing their coverage to tailor it to their unique circumstances. For example, you can opt to change your Original Medicare plan to a Medicare Advantage plan, or vice versa. Furthermore, you can change your Medicare Advantage plan to a different one that offers more complete coverage for your care. Finally, it gives you the ability to customize your Part D coverage, whether you’re adding it to your current plan, removing it from your plan or changing it to accommodate your needs [7].

Too often, Medicare beneficiaries have improper coverage, leaving them scrambling to pay for their care. You can revisit your plan each year during the open enrollment period to help ensure that you aren’t stuck with medical bills you could have avoided.

If you have any questions about retirement issues like Medicare, please give us a call! You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

Sources:

  1. https://www.cdc.gov/nchs/data/nhis/earlyrelease/insur202205.pdf
  2. https://www.cms.gov/newsroom/fact-sheets/2023-medicare-parts-b-premiums-and-deductibles-2023-medicare-part-d-income-related-monthly
  3. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
  4. https://health.usnews.com/best-nursing-homes/articles/how-to-pay-for-nursing-home-costs
  5. https://www.medicare.gov/drug-coverage-part-d/costs-for-medicare-drug-coverage/part-d-late-enrollment-penalty
  6. https://www.aarp.org/health/medicare-insurance/info-2019/common-medicare-mistakes.html
  7. https://www.investopedia.com/medicare-open-enrollment-guide-5205470#toc-what-can-you-change-during-medicare-open-enrollment

The Importance of Having an Estate Plan

By Estate Planning

A proper estate plan can protect your assets and your family. Here are some answers to questions you may have!

October is National Estate Planning Awareness Month, so now is the perfect time to discuss the importance of having an estate plan. We get it. It’s something nobody wants to think about, especially your loved ones, who can’t imagine living without you. But estate planning is a necessary part of the financial planning process. It helps ensure that everything you’ve worked so hard to accumulate gets passed on according to your desires in the most tax-advantaged manner possible.

Moreover, no financial plan is truly complete without an estate plan. The ideal financial plan preserves and protects your assets throughout your life all the way through your retirement, helping ensure that you don’t outlive your resources, but it also accounts for your legacy and wealth transfer at the end of your life. Without an estate plan, your assets, whether that be money, real estate, possessions or even precious family heirlooms, could end up in the wrong hands.

Let’s go over some commonly asked questions to make the estate planning process more understandable and easier to approach.

What is an estate plan?

An estate plan is a detailed, documented plan for what will happen to your assets when you’re gone. It’s intended to ease the transition following death by directing the transfer of your things. The most commonly known document in an estate plan is your last will and testament, which specifically lists and designates all of your assets to your beneficiaries. It also names an executor who is in charge of making sure the beneficiaries listed in the last will and testament receive what they are entitled to and that all of your final affairs and financial matters are settled. In the case of minor children, your last will and testament also specifies who you wish to raise your children in the event that both you and your spouse have passed away.

Additionally, an estate plan can contain other documents like trusts, health care directives or living wills, and powers of attorney. Your comprehensive estate plan is essentially a plan for the worst, should you be unresponsive, unable to make a decision or deceased [1].

Why is it important for me to have one?

There are many reasons to have an estate plan, the most important of which likely being the bequeathing of your assets to specific beneficiaries. Without proper documentation, the best-case scenario sees the correct distribution left up to chance, the courts and your heirs. The worst-case scenario means all-out war inside your surviving family.

An estate plan can also save your family from unnecessary tax burden. Oftentimes estate plans and financial plans come together to determine the most tax-efficient distribution of your property and accounts. You’ve worked so hard your entire life, both for your family and for yourself. Chances are, you’d love to see that money in the hands of those you love rather than in the pockets of the IRS [2].

Aren’t estate plans only for the ultra-rich?

A common misconception is that estate plans are exclusively for those with multiple million-dollar estates, priceless artwork or valuable shares in major companies. But that just isn’t true. In fact, those with fewer assets may have an even greater need for tax-efficient estate planning so that their families are protected during a potentially financially devastating time.

But even the rich are often unprepared. The unfortunate truth is that 67% of Americans don’t have an estate plan [3], but anyone with a family or assets should plan for the future, whether you’re handing down the majority stake in a large corporation, a vacation home or the remaining balances of your retirement accounts.

No matter the amount of assets, an estate plan can save your family headaches, time and tears by predetermining ownership before they are thrust into one of the most stressful endeavors of their lives. It’s worth it to strategize in life so that when your time comes, your family can spend their time properly grieving instead of worrying—or fighting—about how to split your belongings.

Things will sort themselves out, even if I don’t have a plan, right?

Well, technically, yes. Things will sort themselves out. But you’ve spent your entire life in the driver’s seat, making decisions that matter for you and your family. If you pass away without an estate plan and legal documents, small decisions are left to your extremely emotional family, and major decisions are left to probate court in what is usually a very costly and lengthy process.

In distributing your assets, courts can often be more expensive and time-consuming than need be. Tack on the fact that the legal system doesn’t understand your family’s history or dynamic, and it becomes a recipe for trouble. As someone who does understand how your family operates, which members deserve which assets and which members are able to be responsible for what they inherit, you can simplify the process by organizing an estate plan while still alive and sound of mind.

How do I start the conversation?

Determining how your family proceeds when you’re gone is no easy task. It can be just as difficult, or maybe even more difficult, for your children who have never been forced to live without you and the support you offer.

In our experience, we’ve found that the earlier the conversation begins, the easier it is to have. It’s always simpler to plan out of luxury than necessity, and estate planning is no different.

Communication is key. Talk to your heirs and loved ones about what your desires are, and ask them about theirs. You may be surprised to find out that it’s the sentimental items they want rather than the expensive ones. By having a clear plan that’s communicated well beforehand, years prior to any eventuality, you can avoid permanent family rifts and resentments later.

How can I get started with my estate plan?

Once you’ve consulted your heirs, or your parents if you are the heir, it’s important to accept that you’ll need help to complete a legally-recognized estate plan.

Ideally, your financial professional and your estate attorney should work together. Your financial professional can bring an estate planning attorney to the table, or work in conjunction with yours. What the financial professional does is find tax-advantaged vehicles and efficient ways to transfer wealth that an attorney may not know about or have access to, while the attorney brings the legal expertise, knowledge of state laws, and ability to generate all the needed legal documents.

Remember that it’s equally important to revisit and review your estate plan periodically, preferably every year. Life continually evolves as you acquire new assets and your family grows and changes.

If you have any questions about your estate plan, please give us a call! You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

Sources:

  1. https://www.businessinsider.com/personal-finance/what-is-estate-planning#what-are-the-main-steps-in-estate-planning
  2. https://www.investopedia.com/articles/wealth-management/122915/4-reasons-estate-planning-so-important.asp
  3. https://www.cnbc.com/2022/04/11/67percent-of-americans-have-no-estate-plan-heres-how-to-get-started-on-one.html
Estate Planning

Christopher Drew Featured on The Balance to Discuss Estate Planning

By Estate Planning

Christopher Drew, the founder of Drew Capital Group, was recently featured in an article from The Balance to discuss the importance of early estate planning.

At Drew Capital Group, we understand that even opening the conversation about an estate plan can be a terrifying idea. It’s a plan for the inevitable, but that doesn’t make it any less vulnerable or unsettling. Nevertheless, an estate plan is extremely important, which is why The Balance turned to our founder, Christopher Drew, for insight, firsthand accounts and testimonials to their value.

As families age, caretaking responsibility often falls on children and other family members. While half of that responsibility includes acts of service, the other half relies on the emotional and mental part of the relationship. Chris Drew believes that family members with a grasp and understanding of their loved ones’ wishes can cut down on awkward discussions they may not be interested in having.

The process can also be simplified by starting the planning process early. First and foremost, as we age, we may experience some sort of physical and mental decline. A great deal of stress can be avoided by getting affairs in order while you or your parents are operating at peak efficiency.

It can also be tremendously helpful to avoid planning out of necessity. For example, a major life event can force some families to confront their problems before they’re mentally prepared to deal with them. “It’s a reality that can make financial futures more complicated, which is why it’s ideal to start discussing financial matters and wishes for after death early,” Drew said.

Other reasons to create and maintain a proper estate plan include the avoidance of court proceedings, the simplification of the process, the preservation of wealth and the closing of the racial wealth gap. A consistent, periodic updating of beneficiaries can ensure that your assets fall into the hands of exactly who you intend to pass them to, and the discussion shouldn’t be avoided out of fear or shame.

The article also notes that simply opening the conversation can be difficult, so it offers a few tips to those looking to get ahead of the curve. First, for adult children, it may be advantageous to consult siblings. Equal division of assets may sound ideal, but it can vary based on needs and desires. Additionally, initiating the discussion could be smoother with a united front.

Dialogue can also begin with simple questions with good intentions, as to show parents that you’re focused on alleviating stress and promoting their legacy. At the end of the day, estate planning is about them, and it should be focused on eliminating difficulty in the planning process as opposed to personal gains. Some strategies to keep the conversation focused include using relatable examples and focusing on tax benefits, assuring them that you’re looking to protect more of their hard-earned money.

To read the entire article and learn more tips about estate planning, click here.

If you have any questions about beginning the conversation or crafting the right estate plan for your situation, please give us a call. You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Advisory services offered through Drew Capital Management, a Member of Advisory Services Network, LLC. Insurance products and services offered through Drew Capital Group. Advisory Services Network, LLC and Drew Capital Group are not affiliated.

Life Insurance

4 Recent Innovations in Life Insurance Policies

By Life Insurance

Life insurance is no longer constrained to the inflexible policies our parents held. Here are some of the latest additions and innovations to give you more options than ever.

Today’s life insurance policies are not the policies our parents and grandparents grew up with and purchased. They offer more features and more customization, at a price lower than many consumers expect to pay.

In fact, a recent study showed that more than 50% of people assume that the cost of life insurance is three times higher than it actually is [1]. Furthermore, 44% of millennials, a group whose net worth continues to rise more rapidly than any other generation [2], overestimate the cost of term life insurance by more than six times.

Price, however, isn’t the only barrier holding people back from looking at what life insurance has to offer. Lack of information, explanation and time to research options, combined with the fact that no one enjoys thinking about and planning ahead for their own death, can make life insurance a tough subject.

New life insurance policy features are designed to quell those worries, as insurance companies look for more ways to build client-oriented policies. Here are some of the latest innovations in the life insurance industry:

  1. Cash Value Component and Living Benefits

Life insurance used to be exactly what it might sound like: insurance for your life. In the event of their unexpected death, policyholders wanted to protect their families, usually by purchasing term life insurance. Term life insurance covers policyholders for a predetermined period of time, typically for a low monthly rate.

Now, carriers offer whole and universal life insurance, which are permanent policies with a tax-deferred cash value component that allows retirement planners to create another avenue to build a nest egg, or savers to save for other things, like college or self-funding a business startup venture. Though the cash value component often increases the monthly premium costs, with these types of policies, the cash value can grow at a rate guaranteed by the claims-paying ability of the insurance company.

One advantage of universal life as opposed to whole life is flexible premiums, allowing you to increase or decrease your premium and the amount that goes toward your cash value. Indexed universal life, a type of universal life insurance, can offer principal protection with market upside potential in correlation with a market index or indexes. (It’s important to understand that indexed universal life is a contract between a consumer and an insurance company, and unlike variable life insurance, isn’t actually subject to stock market risk.)

Permanent life insurance policies that can build cash value can be a good option for healthy younger investors with time and low likelihood of death in the near future. Depending on their situation, healthy retirees can also sometimes benefit from single-premium permanent life insurance which can provide tax-advantaged retirement income.

  1. Long-Term Care Hybrid Policies

Just as no one enjoys planning for their own death, no one likes to imagine needing long-term care. Unfortunately, 70% of people currently age 65 or older in America will need long-term care, with 20% needing support for longer than five years [3}. Additionally, Medicare does not cover long-term care, necessitating some sort of plan to pay for long-term care to avoid the accelerated depletion of funds in retirement.

One solution to the problem is a modern life insurance and long-term care hybrid plan. Obviously, the main sticking point and fear when it came to traditional long-term care insurance was the potential for not needing long-term care, and that fear was completely rational and well-founded. Older policies were “use-it-or-lose-it.” If you didn’t end up needing long-term care, all of those premiums you paid through the years were for nothing.

Now, hybrid policies provide flexibility. Policyholders have the ability to use their benefit to fund long-term care if they need it. If they don’t need it, it becomes a death benefit provided to their beneficiaries.

  1. Riders

One of the biggest expansions in life insurance is in the way you can customize a policy to your needs using a wide array of options available as riders that can be added to an insurance policy. A guaranteed insurability rider, for example, allows the policyholder to purchase more coverage without additional medical examination. It can be helpful to have a guaranteed insurability rider if you expect changes in circumstances that would have affected your original premiums.

Accidental death riders are also common, usually doubling the death benefit in the event that the policyholder dies in an accident. Additionally, accelerated death benefit riders can give the policyholder access to the death benefit if diagnosed with a terminal illness [4]. The amount accessed is typically subtracted from the death benefit, meaning that the policyholder’s beneficiaries receive a smaller death benefit, but it’s yet another example of a feature allowing access to funds during life.

  1. Better Support for Policyholders

Whether it be because of life insurance riders or enhanced operations, life insurance does not have to be difficult to obtain. Modern technology, increased access to better medical information and simplified underwriting have helped innovative companies that are always looking for ways to reach broader audiences with better products.

With an independent financial advisor who works with multiple insurance companies, you can find the insurance policy that suits your own unique situation and budget, with the most beneficial features and/or riders for your needs.

If you have any questions about life insurance and the latest advancements, please give us a call! You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

Sources:

  1. https://lifehappens.org/research/life-insurance-is-on-peoples-minds/
  2. https://www.cerulli.com/press-releases/millennials-want-more-advice-and-are-willing-to-pay-for-it
  3. https://www.annuity.org/retirement/planning/average-retirement-income/
  4. https://www.investopedia.com/articles/pf/07/life_insurance_rider.asp

 

Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.

This site may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

Christopher Drew Featured on Yahoo! News

By News

Christopher Drew, the founder of Drew Capital Group, was recently quoted in an article discussing the pandemic’s effect on personal finances.

Among events like the pandemic, the Russian invasion of Ukraine and other world-shaking crises, the American economy has seen dramatic shifts over the past few years. It has many questioning how financial principles have been affected by the new state of reality.

Reporters turn to financial professionals like Chris Drew to answer questions about the state of the economy, personal finance and what you should do now. First and foremost, Drew believes it’s more important than ever to follow timeless money management principles, and to be cautious about spending at the moment. “Be more cautious about your spending habits due to the increase in inflation,” Drew said. Now may be the time to save for long-term goals and reassess priorities.

Other financial professionals and journalists agree, pointing out the importance of saving for the future rather than indulging in goods that only provide instant gratification.

The article also highlighted a change in life philosophy, with more Americans prioritizing family and experiences over possessions. That adjustment appears to have consumers managing their finances with more sentimental goals, focusing on making memories rather than the acquisition of material goods.

Drew outlined the importance of your relationship with your financial advisor. While advisors should always be reaching out and keeping clients in the loop like he does, it’s never a bad idea for clients to pick up the phone and inquire themselves, especially when markets are volatile.

“Because of economic factors affecting the market in today’s environment–such as interest rate hikes, the war between Russia and Ukraine, and a massive spike in inflation–we have had to make adjustments to portfolios along with asset allocation changes to help reduce the [impact of] overall volatility of the markets,” Drew said.

Picked up by multiple media outlets, you can read the entire article on Yahoo!, Yahoo! News, MSN, AOL and GoBankingRates.

 

If you have any questions about ways you can protect your finances from the impact of stock market volatility, please give us a call. You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

 

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Advisory services offered through Drew Capital Management, a Member of Advisory Services Network, LLC. Insurance products and services offered through Drew Capital Group. Advisory Services Network, LLC and Drew Capital Group are not affiliated.

As Featured In

What is COLA, and How Does it Affect Retirement?

By Retirement, Social Security

The COLA on Social Security is projected to increase benefits by more than 10%. How does that affect your retirement?

Inflation in the United States is at a 40-year high, and the entire country seems to be feeling the squeeze of rising prices, regardless of income level. Though the debate over the cause of current inflation rates rages on, one thing seems to be certain: the cost of everyday goods, like rent, gas and food, continues to rise [1].

Understandably, that leaves American consumers with questions and concerns. First, as the value of the dollar decreases, which lifestyle adjustments can be made to compensate for the loss in buying power? Second, won’t somebody do something?

This year, the Federal Reserve has taken action by raising interest rates several times in an effort to curb spending and cut demand, ideally forcing the price of goods down, or at the very least, leading them to stagnate [2]. But lately, the Fed has been criticized by experts worried that their actions may not be having the desired effect, but instead may be bringing on a recession [3].

So, what other actions does the government take to protect people from inflation? For retirees and those collecting Social Security benefits, the Social Security Administration began implementing an annual COLA almost five decades ago.

What is a COLA?

No, it’s not the tasty drink you order when you first sit down at a restaurant. COLA stands for “cost-of-living adjustment” and was first introduced by the Social Security Administration in 1975 in an effort to counter inflation for beneficiaries relying on those funds [4]. Beneficiaries of Social Security, which include individuals who have reached the age of 62 or have qualifying disabilities, can receive an increase in their benefit based on the Department of Labor’s Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W.

For example, at the beginning of this year, Social Security beneficiaries may have noticed their checks increasing by 5.9%. That increase didn’t happen by chance or because of a missed decimal point in the accounting department. It was a carefully constructed adjustment based on 2021’s inflation rate, ideally giving those living on fixed income a chance against rising costs.

And next year’s COLA for 2023 could be the highest we’ve seen since 1981.

How does this affect retirees?

Retiring isn’t easy, and there’s a reason workers open IRAs and employer-sponsored retirement accounts, like 401(k)s, early in their careers to begin building for the future. Retirement comes with a great deal of financial risk, and one of the biggest contributors to that risk is inflation.

Retirees often live on fixed incomes, withdrawing money from savings accounts, retirement accounts, pensions, annuities, investments and Social Security to cover their living expenses. Though a proper financial plan accounts for inflation, it can be difficult to foresee spikes like the one in 2022, potentially upsetting expectations of how long your money will last. Though imperfect, the COLA can offer retirees increases to one of their main sources of income in retirement, hopefully offsetting change that can occur over the course of decades.

What is the next COLA expected to be, and when can I expect it?

A recent COLA projection made headlines with an eye-popping number. The Senior Citizens League estimates that Social Security beneficiaries could see a 10.5% COLA, meaning that the average monthly benefit could increase by about $175[5].

That estimate has steadily climbed over the past few months, though it’s certainly not yet set in stone. The Social Security Administration will announce the next COLA in October, and it will go into effect in January of 2023.

Are there any problems with COLA?

Though an increase in your Social Security check might sound entirely positive, there are drawbacks to COLA and the problems it aims to correct. The COLA is intended to cover the difference between the current cost of living and the previous year’s cost of living, but it is possible that the extra money in your benefit will only partly cover your increased living expenses.

The COLA is not directly aligned with inflation, so it is possible for inflation to rise faster than Social Security’s adjustment. For example, in 2021, inflation climbed 7% [6] while the COLA only increased by 5.9% [7]. Similarly, the Social Security COLA can remain unchanged year over year, just as it did following 2009, 2010 and 2015 when inflation rose 2.7%, 1.5% and 0.7%, respectively [8].

While not completely reflective of each other, the COLA and inflation do correlate, and inflation is currently outpacing wages. In fact, in 2021, wages actually saw a 3.5% drop when living costs are accounted for [9]. Though this doesn’t directly affect Social Security beneficiaries, the Social Security trust funds are built by contributions from income taxes [10]. It stands to reason that inflation’s outpacing of wages would mean that the Social Security trust funds, which currently project to only be able to pay at their current rate until 2035, would deplete even quicker [11].

So, as someone who collects Social Security or hopes to in the future, what can I do?

First and foremost, we would always recommend speaking with your financial professional to assemble a proper plan for your retirement. The right financial plan can be the difference between having adequate funds for your desired lifestyle or running out of money. Social Security is only one income stream, and backup plans with alternative sources of funds are vital.

If you have any questions about your Social Security benefit, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

 

Sources:

  1. https://www.marketwatch.com/story/coming-up-consumer-price-index-for-may-11654862886
  2. https://www.forbes.com/advisor/investing/another-75-point-fed-rate-increase/
  3. https://www.forbes.com/sites/jonathanponciano/2022/07/27/fed-raises-interest-rates-by-75-basis-points-again-as-investors-brace-for-recession/
  4. https://www.ssa.gov/oact/cola/colasummary.html
  5. https://www.cnbc.com/2022/07/13/social-security-cost-of-living-adjustment-could-be-10point5percent-in-2023.html
  6. https://www.cnbc.com/2022/01/12/cpi-december-2021-.html
  7. https://www.ssa.gov/oact/cola/colaseries.html
  8. https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093
  9. https://www.cnn.com/2022/07/29/economy/worker-wages-inflation/index.html
  10. https://www.ssa.gov/news/press/factsheets/WhatAreTheTrust.htm
  11. https://www.thestreet.com/investing/social-security-2035

 

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

This blog may contain links to articles or other information that may be on a third-party website. Advisory Services Network, LLC is not responsible for and does not control, adopt, or endorse any content contained on any third-party website.

Inflation as a Risk in Retirement

By Inflation Risk, Retirement Planning

Inflation can be troubling, especially for those living on a fixed income. Here’s what you need to consider.

Exiting the work force and beginning the next chapter of your life can be infinitely exciting. After a long career, free time afforded by retirement offers a great opportunity to check off long-awaited bucket list items or develop those relationships with loved ones. You might also stop setting alarms in the morning, making sure that you get the right amount of sleep to propel you toward your dreams. There is, however, one area in which you might not want to hit the snooze button: your finances.

With improvements in science and medicine have come increases in life expectancy, extending the length of retirement for the modern worker. While it’s great to plan to be around longer to pursue passions and spend time with family, longer life expectancy does present a challenge. Retirees used to plan for 10 to 15 years of retirement, but it’s no longer strange for someone to live to 100, meaning that retirement could potentially last 30 years [1].

Prolonged retirement can bring about longevity risk, which is the risk of running out of money while still alive, and inflation provides zero relief when it comes to making your money last. Inflation decreases the purchasing power of the dollar, which can create a serious problem for retirees living on fixed incomes and retirement accounts they’ve built over the course of their careers. Now inflation is at a 40-year peak [2], which can cause headaches, especially for those entering retirement as they’re forced to deplete savings faster than they might have under lower inflation rates.

Luckily, there are a few ways to alleviate some of the pain points when it comes to inflation in retirement. First, it can be beneficial to contribute to your retirement accounts early in your career. You can begin planning for retirement too late, but you can never begin too early. Some investment vehicles designed to build retirement assets for your future include employer-sponsored 401(k) plans, 403(b) plans, traditional IRAs, Roth IRAs, SIMPLE IRAs and SEP plans.

Traditional 401(k) and IRA accounts grow tax-deferred, meaning that contributions will be made before taxes are taken from your paycheck then are taxed upon distribution. Roth accounts are distributed and grow tax-free if all IRS regulations are followed, but initial contributions are made with post-tax dollars. Both grow with compound interest; which Albert Einstein called the eighth wonder of the world. Compound interest means you will accrue more interest through time based on your growing account balance, so taking the time to feed those accounts when you’re younger can be extremely rewarding.

If you are getting close to retirement and don’t have decades of time on your side, there are a few more things about inflation that you should know.

Social Security considers inflation annually when calculating benefits, and some years it provides a cost-of-living adjustment, or COLA, based on one of the federal government’s consumer price indexes called the CPI-W. In 2021, Social Security beneficiaries received a 5.9% COLA, which was the highest increase since 1982, but it’s important to remember that COLA may not always cover increased costs. For example, beneficiaries received no increase in 2015[3] despite an incremental 0.12% inflation rate [4].

Some annuities are also specifically designed to combat inflation by offering a COLA. Annuities are contracts between buyers and issuing insurance companies which guarantee annuity payments based on the insurance carrier’s claims-paying ability [5] as well as the terms of the contract. With annuities that offer a COLA, the pre-determined payments may be adjusted to account for inflation.

Lastly, it’s always important to consult your financial professional to find solutions to suit your unique, individual situation. The proper guidance can assist you in determining whether or not you’re placing enough money into various retirement accounts for potential future inflation without disrupting your desired lifestyle.

If you have any questions about how inflation may affect your retirement, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

 

Sources

  1. https://money.usnews.com/money/retirement/articles/how-living-longer-will-impact-your-retirement
  2. https://apnews.com/article/key-inflation-report-highest-level-in-four-decades-c0248c5b5705cd1523d3dab3771983b4
  3. https://www.ssa.gov/oact/cola/colaseries.html
  4. https://www.worlddata.info/america/usa/inflation-rates.php
  5. https://www.investopedia.com/terms/l/lifetime-payout-annuity.asp

Christopher Drew Guest Contributes for Benzinga

By Financial Literacy, Retirement Planning

Christopher Drew, the founder of Drew Capital Group recently published an article for Benzinga to discuss 10 things he believes everyone should do to stay on track financially.

When mapping out a financial plan, it can be difficult to know where to begin. Now, with inflation at its highest in decades, only one-third of Americans expect their financial situation to improve in 2022. Nevertheless, Christopher Drew believes that anyone can act to improve, and he laid out a 10-step ongoing to-do list to guide anyone looking for a place to start. Here’s how to stay on top of your affairs.

  1. Do a deep dive into your spending and recast your budget.

Eliminate excess spending and wasteful patterns that detract from your savings and retirement.

  1. Evaluate your debts.

Commit to lowering your debt by paying the most expensive debts first. You can also renegotiate your interest rates or transfer debt to a card with 0% interest.

  1. Increase your retirement contributions.

Eliminate debt and contribute to retirement accounts that potentially provide growth and help build your nest egg. If your company offers a 401(k) plan, contributing pre-tax income to a 401(k) can help build your retirement tax-deferred and with compound interest.

  1. Consider opening an HSA.

A health savings account takes pre-tax contributions and allows you to use them on medical expenses not covered by your insurance plan. An HSA requires you to be enrolled in a high-deductible health plan. A High-Deductible Health Plan, which you are required to have to qualify for an HSA, can put a greater financial burden on you than other types of health insurance. There are advantages and disadvantages to HSA’s, and you should always consult your financial advisor regarding your own personal situation.

  1. Review your estate plan.

A proper estate plan can help your family rather than burdening them with tasks. This can include drawing up wills and living wills, designating power of attorney, and making beneficiary designations.

  1. Review your insurance plans.

Check your insurance plans like life, home and auto to determine if you need more coverage. Another important consideration is for the possibility that you may need long-term care insurance.

  1. Plan for life events.

Everyone knows how important an emergency fund is for events like medical expenses and accidents, but it’s also necessary to plan before marriage, having a baby, purchasing a home or car, or changing jobs.

  1. Consider a home office tax deduction.

Working remotely may have changed your ability to claim part of your home as a business expense. It is always helpful to consult a business or tax professional to see if you qualify.

  1. Build an emergency fund.

We think your emergency fund should hold six months’ worth of expenses and be separate from your personal savings. Adding periodically can be the best way to watch it grow, contributing when you receive bonuses or tax refunds.

  1. Evaluate your investments.

Assess your risk tolerance and rebalance your portfolio accordingly. You can work with a financial professional to set new goals and draw a map to reach them.

If you have any questions about financial health and how you can improve your situation, please give us a call! You can reach Drew Capital Management, in Tampa, Florida at (813) 820-0069.

To read the entire article and learn more about Christopher Drew’s financial to-do list, click here.

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation. Advisory services offered through Drew Capital Management, a Member of Advisory Services Network, LLC. Insurance products and services offered through Drew Capital Group. Advisory Services Network, LLC and Drew Capital Group are not affiliated.

Annuities

How Annuities Offer Protection and Growth Potential

By Financial Literacy, Retirement Planning

National Annuity Awareness Month is upon us! Let’s go over how annuities can be an important part of a retirement plan.

June is National Annuity Awareness Month, giving us the perfect reason to discuss how they can positively impact your retirement. Annuities have always played a role in retirement planning, but with growing uncertainty and market volatility, their importance has boomed. Certain annuities offer the chance for growth along with the protection of principal during market downturns which is guaranteed by the claims-paying ability of the issuing insurance carrier.

While they can be a vital part of the retirement-planning process, annuities can sometimes be overlooked by advisors who focus strictly on accumulation and stock market investments. For people getting close to retirement and those without the appetite or flexibility for stock market risk, annuities can be an attractive option to guarantee income for life.

In fact, annuities were created for retirement; they were first invented during ancient Roman times to compensate retired soldiers. They’re meant to help you generate income once you stop collecting wages. There are many different types of annuities, but fixed and fixed indexed annuities are different than retirement accounts like 401(k)s and IRAs in that they are not subject to market risk, and they offer guarantees.

In other words, fixed and fixed indexed annuities can offer a guaranteed income stream to eliminate some of the uncertainty that comes with retiring. It’s important to understand fixed and fixed indexed annuities are not investments, they are contracts. Even though they may credit interest based on market gains, they are not actually invested in the market at all. Fixed and fixed indexed annuities are contracts between you and the issuing insurance company, who again, based on their claims-paying ability, guarantee your principal and sometimes offer participation in stock market upside.

One of the main concerns of Americans on their way into their golden years is funding a secure retirement. In fact, a recent study showed that 56% were worried about running out of money in the next stage of their lives [1]. That worry seems to be well-founded, as a 2019 study projected that over 40% of U.S. households will run out of money in retirement [2].

One of the biggest reasons retirees run out of money is sequence of returns risk. This can happen when clients withdraw money from accounts early in retirement in a down market. The withdrawals can then out-pace the growth of the account, making it more likely that a person completely drains their funds while still living.

A fixed indexed annuity can counter sequence of returns risk by providing a guaranteed lifetime income option. Under a properly-structured fixed indexed annuity, the principal and the lifetime income benefit are both protected, which can be beneficial in a market crash. They also offer flexibility in diversifying your portfolio, as retirees with a guaranteed lifetime income benefit can keep other assets invested in the market, conceivably giving them a chance to wait out valleys and plateaus.

Some annuities are even designed to help combat inflation by offering a COLA, or cost of living adjustment. Considering the 2021 inflation rate was the highest America has seen since 1981[3], it’s no wonder experts are expecting an increase in inflation-protected annuities [4].

While annuities are popular among those looking for protection as well as growth potential, purchasing one can be treacherous without proper help. There are many different types of annuities, and they won’t all offer identical benefits or protections. For example, variable annuities are directly invested in the market and carry the same risk that any market investment would. There are pros and cons to each type, and innovative insurance companies are working to design new annuity products with enhanced benefits every single day.

If you have any questions about annuities or how to protect your retirement funds, please give us a call! You can reach Drew Capital Group Private Wealth Management in Tampa, Florida by calling (813) 820-0069.

Sources

  1. https://www.nirsonline.org/wp-content/uploads/2021/02/FINAL-Retirement-Insecurity-2021-.pdf
  2. https://www.ebri.org/content/retirement-savings-shortfalls-evidence-from-ebri-s-2019-retirement-security-projection-model
  3. https://www.thebalance.com/u-s-inflation-rate-history-by-year-and-forecast-3306093
  4. https://ifamagazine.com/article/inflation-could-lead-to-a-resurgence-in-popularity-of-annuities-says-continuum/

This material is provided as a courtesy and for educational purposes only.  Please consult your investment professional, legal or tax advisor for specific information pertaining to your situation.

Variable annuities are offered only by prospectus.  Carefully consider the investment objectives, risks, charges and expenses of variable annuities before investing.  This and other information is contained in each fund’s prospectus, which can be obtained from your investment professional and should be read carefully before investing.  Guarantees are based upon the claims paying ability of the issuer.

An indexed annuity is for retirement or other long-term financial needs.  It is intended for a person who has sufficient cash or other liquid assets for living expenses and other unexpected emergencies, such as medical expenses. Guarantees provided by annuities are subject to the financial strength of the issuing company and not guaranteed by any bank or the FDIC.

Indexed annuities do not directly participate in any stock or equity investment.  Clients who purchase indexed annuities are not directly investing in the financial market. Market indices may not include dividends paid on the underlying stocks and therefore may not reflect the total return of the underlying stocks; neither a market index nor any indexed annuity is comparable to a direct investment in the financial markets.