Retirement Planning Archives - BayTrust Financial

Jul 22

Personal Finance: The Importance of Starting Early

By cdrew Financial Planning, Retirement, Retirement Planning, Social Security, Tax Planning

Whether you’re just starting out in your career, you are a Gen-X-er sandwiched between your kids’ college expenses and aging parents’ needs, or you are a Baby Boomer eyeing retirement, starting early can help when it comes to your finances. Here are some reasons why.

When You’re Young—In Your 20s

We’ve all heard the famous quote by Albert Einstein, the one where he said, “Compound interest is the eighth wonder of the world. He who understands it, earns it. He who doesn’t, pays it.” And it’s true. In many cases, if you start out early—perhaps in your teens or 20s—saving just a small amount each month, you can amass more money through time than if you start saving at a later age, even if you save a larger amount each month. Of course, it depends on what you invest in. Be sure to check with a trusted financial advisor about how this works.

Investopedia uses this example:

Let’s say you start investing in the market at $100 a month, and you average a positive return of 1% a month or 12% a year, compounded monthly over 40 years. Your friend, who is the same age, doesn’t begin investing until 30 years later, and invests $1,000 a month for 10 years, also averaging 1% a month or 12% a year, compounded monthly.

Who will have more money saved up in the end? Your friend will have saved up around $230,000. Your retirement account will be a little over $1.17 million. Even though your friend was investing over 10 times as much as you toward the end, the power of compound interest makes your portfolio significantly bigger.

When You’re Older—In Your 40s, 50s or Early 60s

As you head into retirement, starting early to map and plan out your retirement—well before you retire—can help you for many reasons, because there are a lot of moving pieces to consider. Plus, everyone’s situation is completely different and what might work for someone else might not be right for you at all. For instance, one person’s desired retirement lifestyle could be drastically different than another person’s, requiring different budget amounts. (Consider whether you want to stay home and become a painter, or travel the world with your entire extended family. That’s what we mean by drastically different budgets.)

Once you have your required retirement budget amount settled, timing then becomes very important. A financial advisor with a special focus on retirement can really make the difference by laying out a retirement roadmap just for you. Here are some of the things you should know and think about:

1) Medicare Filing – Age 65

You are required to file for Medicare health insurance by age 65 or pay a penalty for life. To avoid this penalty, be sure to sign up for Medicare within the period three months before and three months after the month you turn age 65. If you are still working or otherwise qualify for a special enrollment period, you can sign up for Part A which is free for most people, and then sign up for Part B after you retire. Visit https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties to learn more about penalties and how you can avoid them.
You are required to have Medicare coverage if you are not working or covered by a spouse with a qualified health insurance plan, and Medicare (other than Part A) is not free. In fact, it costs more if your income is higher. Your Medicare premium is often deducted right out of your Social Security check, and premiums generally go up every year.

When you sign up for original Medicare Part B or a replacement Medicare Advantage plan, the least amount you will pay for 2024 is $174.70 per month per person. For those with higher incomes, the Medicare premiums you pay are based on your income from two years prior—those with higher incomes pay more. For couples filing jointly, the highest amount you might pay for Part B coverage if your MAGI (modified adjusted gross income) is greater than or equal to $750,000 is $594.00 per month per person for 2024.

So, depending on your income for the tax year two years prior to filing for Medicare, your premium could be from $174.70 to $594.00 in 2024, or somewhere in between.
If you plan ahead, your advisor might help you plan to take a smaller income in the years prior to turning age 65 in order to keep your Medicare premium smaller. For instance, some people might want to retire at age 62 or 63 and live on taxable income withdrawn from their traditional 401(k) or IRA account/s before they even file for Medicare or Social Security. Each person’s situation is completely unique, but advance retirement planning may help you come out ahead in the long run.

2) Social Security Filing – Age 62, 66-67, 70 or sometime in between

Another moving piece in the retirement puzzle is Social Security. The youngest age you can file for Social Security is age 62, but a mistake some people can make is thinking that their benefit will automatically go up later when they reach their full retirement age—between age 66 to 67 depending on their month and year of birth. This is not the case. If you file early, that’s your permanently reduced benefit amount, other than small annual COLAs (cost of living adjustments) you might or might not receive based on that year’s inflation numbers.
Filing early at age 62 can reduce your benefit by as much as 30% according to Fidelity. Conversely, waiting from your full retirement age up to age 70 can garner you an extra 8% per year. (At age 70, there are no more benefit increases.)

Planning ahead for when and how you will file for Social Security can make a big difference in the total amount of benefits you receive over your lifetime. And married couples, widows or widowers, and divorced single people who were married for at least 10 years in the past have even more options and ways to file that should be considered to optimize their retirement income.

3) Taxes In Retirement

Thinking that your taxes will automatically be lower during retirement may not prove true in your case, and it’s important to find out early if there is a way to mitigate taxes through early planning. Don’t forget that all that money you have saved up in your traditional 401(k) will be subject to income taxes—and even your Social Security benefit can be taxed up to 85% based on your annual combined or provisional income calculation.

And the IRS requires withdrawals. Remember that by law RMDs (required minimum distributions) must be taken every year beginning at age 73 and strict rules apply. You must withdraw money from the right accounts in the right amounts by the deadlines or pay a penalty in addition to the income tax you will owe on the mandated distributions.
Planning ahead to do a series of Roth conversions—shifting money in taxable accounts to tax-free* Roth accounts—might be indicated to help lower taxes for the long-term in your case, but these must be planned carefully and are not reversible.

Let’s talk about your financial and retirement goals and create a plan to help you achieve them. Don’t put it off—give us a call! You can reach Drew Capital Group in Tampa at 813.820.0069.

*In order for Roth accounts to be tax-free, all conditions must be met, including owning the account for at least five years.
This article is for general information only and should not be considered as financial, tax or legal advice. It is strongly recommended that you seek out the advice of a financial professional, tax professional and/or legal professional before making any financial or retirement decisions.

Sources:

https://www.investopedia.com/articles/personal-finance/040315/why-save-retirement-your-20s.asp
https://www.medicare.gov/basics/costs/medicare-costs/avoid-penalties
https://www.cms.gov/newsroom/fact-sheets/2024-medicare-parts-b-premiums-and-deductibles
https://www.ssa.gov/benefits/retirement/planner/agereduction.html
https://www.fidelity.com/viewpoints/retirement/social-security-at-62
https://content.schwab.com/web/retail/public/book/excerpt-single-4.html
https://www-origin.ssa.gov/benefits/retirement/planner/taxes.html
https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs

Jun 12

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Annuity Sales Are Surging. Do You Know What They Are?

By Drew Capital Group Retirement Planning

We’re here to help clear up some of the confusion about annuities during Annuity Awareness Month, which happens each June!

In the first quarter of 2024, U.S. annuity sales were $106.7 billion, the highest first quarter total since the 1980s, when LIMRA first started tracking annuity sales. Despite these high sales numbers, research indicates that many people don’t really know what annuities are.

One recent study revealed that only 9% of consumers say they feel very knowledgeable about annuities, while other studies confirm this lack of understanding. Research by the American College of Financial Services gave older Americans a score of 12% out of a possible 100% for their knowledge of annuities based on their performance on a short quiz. And a TIAA Institute and Stanford University study showed that the annuity ranks dead last—respondents know more about Medicare, life insurance and long-term care than annuities.

During Annuity Awareness Month, we wanted to cover some facts we hope will help you understand annuities better.

Annuities Are Ancient

The concept of the annuity goes back centuries. In fact, during the Roman Empire, soldiers and their families would receive annual payments for life known as “annuas” in return for their military service; this is the origin of the word “annuity.” In the Middle Ages, annuities were available in France during the 17^th century, when lifetime annuities (called “tontines”) could be purchased from feudal lords in exchange for an initial upfront payment.

In other words, for millennia, annuities have been around to provide regular income during retirement. Fast forward to today.

Annuities Are Contracts

When you invest in something, typically you assume all the risk. Since annuities are not investments, but instead are contracts between you and an insurance carrier, one of the main risks you assume with annuities is that the payouts will be made per the terms in your contract. Certain contractual guarantees* are made by any insurance company which issues an annuity, and these guarantees are subject to that company’s financial strength and claims-paying ability.

It is very important that you have a trusted financial professional, tax professional and/or legal professional by your side to examine the terms and language of your annuity contract as well as provide information about the insurance company’s financial rating before you make any decision.

In fact, this is good advice when making any decision that involves investing or entering into any kind of a contract. Some financial industry experts and academic leaders in the financial field, like Dr. Wade Pfau and Dr. Roger Ibbotson, have found that annuities belong in the fixed portion of some people’s retirement portfolios (depending on their individual situation) because of insurance company guarantees, and because some annuities may perform better than stock market investments for retirees.

But there are many different types of annuity contracts.

Today’s Annuities Are Complex

Despite their simple structure in the beginning, annuities have become increasingly sophisticated over time. In addition to providing retirement income, insurance companies have added more features to provide retirees with coverage for spouses, long-term care, death benefit for heirs, etc., either as part of the basic annuity or added on as a rider for an additional cost.

While not a comprehensive list, below is basic information about how some annuities work. We recommend that you work with a financial professional to help you compare and choose between the hundreds of annuity contracts available from dozens of different insurance companies. As with any contract, it’s important to read and understand the fine print before you sign, and you should compare policies from multiple insurance companies to find the best value. That’s where a good independent financial advisor can help.

Fixed Annuities

Fixed annuities are probably the easiest type of annuity to understand because they work similarly to the way a bank CD (certificate of deposit) works. An insurance company will pay a fixed interest rate on your fixed annuity contract for a selected term, usually from one to 15 years.

Variable Annuities

Variable annuities were developed in the 1950s, and unlike most other types of annuities, before purchase they require that you be issued a prospectus, since part of your money will actually be invested in the stock market. This means that there is market risk involved with variable annuities—you can either make money on the amount invested in what’s called “sub-accounts,” or you can lose it depending on market performance.

Variable annuities can’t be sold by an investment advisor, they have to be through a Series 6 or Series 7 licensed, registered representative who is affiliated with a broker/dealer. (NOTE: A registered representative might sometimes be a dual-licensed broker/dealer.) There are a few companies who are now offering annuities that are fee based and do not pay commissions; however, the list is very small.

Variable annuities are considered highest risk because growth is based on market performance and the annual fees tend to be very high, especially if the client purchases a rider as one of the annuity features.

Variable annuities are usually purchased with the expectation that at some point the contract owner will annuitize or begin taking periodic payments. But depending on contract terms, your annuity payments may fluctuate based on stock market performance, and it’s possible that some variable annuity policies can lose principal due to stock market losses.

Fixed Indexed Annuities

Fixed indexed annuities (FIAs) were first designed in 1995. The biggest difference between FIAs and variable annuities is that fixed indexed annuities are not actually invested in the stock market so they are not subject to market risk. Instead, a selected index (such as the S&P 500) is used as a benchmark for policy credits at periodic intervals, such as annually.

Many FIA contracts offer a minimum amount which gets credited, and nearly all FIA contracts will not credit less than 0%, which means even that if the benchmark index loses money, your FIA contract value will not go down. With fixed indexed annuities, after you have owned the policy for a specified number of years (called the “surrender period”) your principal is guaranteed* and credits, therefore any policy gains, are locked in.

In other words, with fixed indexed annuity contracts, you have the potential to participate in market gains but are protected from market downturns. And most FIAs offer the option of lifetime income no matter how long you live either as part of the main annuity contract, or available as a rider for an additional charge.

Other Things to Know About Annuities

*The guarantees provided by annuities rely on the claims-paying ability and financial strength of the issuing insurance company.

Some annuities can be purchased on a deferred basis, and some on an immediate basis, and you can use pre-tax or after-tax funds. It’s important to get professional help to understand the implications for your particular situation.

Annuities must be considered carefully based on your particular situation because they are not liquid. Almost all annuities are subject to early withdrawal penalties. Make sure you understand the contract terms and the type of annuity you are purchasing. Your financial advisor and tax and legal professionals can help you compare and analyze policies.

Are You Prepared for Retirement?

With people living much longer and pensions quickly becoming a thing of the past, annuities can help provide income throughout retirement and help quell the fear of running out of money. If you are considering the purchase of an annuity, it’s important to speak with a financial professional who understands them, and can explain the fine print of an annuity contract.

Contact us to explore your options! You can reach Drew Capital Group in Tampa at 813.820.0069.

This article is provided for general information purposes only and is accurate to the best of our knowledge. This article is not to be relied on or considered as investment or tax advice.

Sources:

https://www.limra.com/en/newsroom/news-releases/2024/limra-first-quarter-u.s.-annuity-sales-mark-14th-consecutive-quarter-of-growth/

https://insurancenewsnet.com/oarticle/consumer-knowledge-gap-persists-despite-booming-annuity-sales

https://www.usatoday.com/story/money/2024/04/30/annuities-are-good-retirement-investment/73437135007/

https://www.nber.org/system/files/working_papers/w6001/w6001.pdf

NOTE: Annual fees can be high with any type of annuity. Please check with your financial professional to examine fees before purchasing.

Fixed Annuity: A fixed 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. A fixed annuity is not a registered security or stock market investment and does not participate in any stock or equity investment or index. Guarantees are based on the claims paying ability of the issuing company.

Indexed Annuity: 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.

Variable Annuity: 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.

If a registered representative (IAR, investment adviser representative) is dual-licensed and is also a registered rep with a broker/dealer, variable annuity advertising may need to be filed with FINRA through their broker/dealer.

Variable annuities are long-term, tax-deferred investments designed for retirement, involve investment risks, and may lose value. Earnings are taxable as ordinary income when distributed. Individuals may be subject to a 10% additional tax for withdrawals before age 59† unless an exception to the tax is met.

May 30

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What is Sequence of Returns Risk?

By Drew Capital Group Retirement Planning

Sequence of returns risk can put your retirement portfolio in jeopardy, but what is it, and how do you fight it?

We get it. Retirement can be scary. We know this because it’s our job to help our clients plan for and seamlessly transition into what should be one of the most rewarding times of their lives. What we often find, however, is that most are worried about retirement because of the risks that come with it. But what are some of the risks that strike fear in the hearts of retirement hopefuls? Well, the first is related to longevity—it’s the possibility of running out of money as you get older, and being unable to go back to work in order to support yourself. We also find that people getting ready to retire are concerned about inflation, the cost of health care, the possibility of needing long-term care and more.

There’s one risk, however, that hides in the shadows, waiting to rear its ugly head and throw turbulence into the lives of new retirees and those right on the edge of retirement. It’s called market risk, or the possibility that you could lose your retirement money during market crashes or downturns. How might this look? Specifically, something called sequence of returns risk can be the most dangerous aspect of market risk. And while it might sound complicated, it’s a simple concept with the potential to have major implications on your retirement dreams. Let’s go over what sequence of returns risk is, as well as a few ways you may be able to fight it!

What is Sequence of Returns Risk?

Simply put, sequence of returns risk is the risk of negative market returns occurring right before you retire and/or very early in your retirement. During this time, market downturns can have a much more significant impact on your portfolio.

Again, it might sound like some buzzword the financial industry throws around to scare consumers, but sequence of returns risk is exactly what it sounds like. It’s the sequence, or the order, in which your portfolio provides market returns. It’s key to remember that sequence of returns risk is specifically associated with money directly invested in the market. That means it could apply to vehicles like employer-sponsored retirement accounts, traditional and Roth IRAs, mutual funds, brokerage accounts, variable annuities and any other assets that can lose value during market downturns.

Now, let’s think about your goals for your retirement. If you’re just starting your career, or you’re right in the middle of your working years, you may contribute to your various saving and investing vehicles with the goal of having a large pool of funds when you finally retire at, say, 65 years old. You’d hope that diligent saving and favorable returns would bring your assets to their highest total right at that point, giving you ample funds to draw from once you retire.

Sequence of returns risk is the potential of the market dipping near the end of your career, or in the first few years of your retirement, meaning those drops affect your account balances at their peak. You would then take losses on greater amounts of money, creating greater losses. While you never want to experience dips, it makes sense why you’d hope those periods of market volatility that you will likely encounter at some point during retirement occur farther down the road, especially when you’re concurrently withdrawing money to support your lifestyle.

An Example Where Both Retirees Have $1 Million Saved

Just as an example, let’s consider two retirees, and what happens during their first 10 years of retirement. Both have $1 million saved, and they both determine they need to withdraw $50,000 per year from their accounts to fund their lifestyles.

Our first retiree is lucky. They retire and then experience eight years of a bull market, growing their portfolio by 5% each year. In the next two years, however, they experience declines of 5%, bringing their balance back down.

The other retiree sees the exact opposite sequence. They immediately encounter a bear market upon entering retirement, which drops their accounts by 5% in each of the first two years. Then the market rebounds and goes up 5% each year for the next eight years.

Both retirees continued to withdraw $50,000 per year from their accounts. So, what was the result?

Even though both retirees had the same initial balance, withdrew the same amounts, experienced eight years of bull markets and two years of bear markets, the order or “sequence of returns” made a big difference.

The first retiree didn’t experience market dips at the beginning when their account balances were highest. At the end of the 10-year period, they still had $788,329 left in their account.

The other retiree, on the other hand, wasn’t so lucky. They took losses during the first two years of their retirement, on their highest balances, and by the end of the 10-year period, they only had $695,226.

Please remember this example is purely hypothetical and not reflective of real scenarios or real people. We simply used a starting balance of $1 million for each person, then subtracted $50,000 in income at the beginning of each year, then multiplied the accounts’ balances by the annual positive or negative effect on the market we imagined for this example. Actual market returns are unpredictable and tend to vary far more than in the case study shown. This is strictly to display the potential effects of the aforementioned risk.

What are Some Ways to Mitigate Sequence of Returns Risk?

You can see how the sequence of your returns can affect your portfolio. The market is unpredictable and bottomless, so it’s important to try to shield yourself from, or at least mitigate the possibility of, taking those losses at the starting gate. But how can you do that when the market is completely out of your control? Well, you have a few options.

First and foremost, you can work with a financial professional to diversify your portfolio. While diversification can never guarantee any level of protection or growth, it may give you the ability to withstand dips in certain sectors of the market. It also spreads risk across different asset classes, or even different categories within the market itself. That can potentially help you avoid taking losses in your entire portfolio, even if one sector experiences headwinds.

For instance, non-correlated asset classes, which could include annuities or life insurance policies, might be a retirement diversification option for some people. Modern policy designs like fixed-indexed annuities and indexed universal life insurance policies are typically linked to a market index, while not actually participating in the market. These products can provide the upside of market gains while still protecting the principal, or the money used to fund the policy, in addition to locking in the gains.

These solutions may not match every consumer’s situation or financial objectives, however, so it’s important to speak to your advisor to explore policies and see if they make sense for your portfolio. For some people, annuities can provide a stream of retirement income that can cover lifestyle expenses, allowing retirees to leave their assets in the market during downturns rather than being forced to make withdrawals.

Be sure to speak with a financial professional who understands your circumstances, goals and tolerance for risk. The right partner can help you develop a custom withdrawal strategy and a plan to generate a reliable stream of income with your accumulated retirement assets. Your plan may include portfolio diversification, the establishment of a liquid emergency fund, the inclusion of alternative strategies and more, all with the intention of making your money last your entire life.

If you have any questions about how you can fight sequence of returns risk, give us a call today!

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Jan 29

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5 Things You Should Know if You’re Retiring in 2024

By Drew Capital Group Retirement, Retirement Planning

Heads up! If you plan to retire this year, you should know these five things.

Are you planning to enter the most exciting phase of your life in 2024? A phase where you get to do what you want to do, not what you have to do? With the right planning and preparation, it’s possible, but you should be aware of the year-over-year changes that occur for retirees, especially if this is your first year. Here are five changes you should know about if you plan on entering retirement in 2024.

Higher Income Tax Brackets^[1,2]

Traditionally, tax brackets rise with inflation on an annual basis, and 2024 is no different. For instance, the top end of the 0% capital gains bracket is up from $44,625 to $47,025 for single filers and from $89,250 to $94,050 for those who are married and filing jointly. Retirees who expect to withdraw from accounts subject to income tax—like traditional 401(k)s—may also expect to see a bit more relief this year in their income. See below for 2024’s ordinary income tax brackets.

Rate (%)	Filing Single	Married Filing Jointly	Married Filing Separately	Head of Household
10%	$0 to $11,600	$0 to $23,200	$0 to $11,600	$0 to $16,550
12%	$11,601 to $47150	$23,201 to $94,300	$11,601 to $47,150	$16,551 to $63,100
22%	$47,151 to $100,525	$94,301 to $201,050	$47,151 to $100,525	$63,101 to $100,500
24%	$100,526 to $191,950	$201,051 to $383,900	$100,526 to $191,950	$100,501 to $191,950
32%	$191,951 to $243,725	$383,901 to $487,450	$191,951 to $243,725	$191,951 to $243,700
35%	$243,726 to $609,350	$487,451 to $731,200	$243,726 to $365,600	$243,701 to $609,350
37%	$609,351 or more	$731,201 or more	$365,601 or more	$609,351 or more

Higher RMD Ages^[3]

As of Jan. 1, 2023, retirees must begin taking required minimum distributions at age 73 unless they’ve already started. This was part of a gradual change made by SECURE Act 2.0 that will again raise the RMD age to 75 in 2033. This change can offer more flexibility to retirees who don’t need the money from their qualified accounts and otherwise would have incurred unnecessary income taxes. It also gives them an extra year to find other sources of income or to convert those funds to tax-free money. If you are turning 73 in 2024, your first year required minimum distribution from your qualifying accounts must be withdrawn by Apr. 1, 2025. In subsequent years, they must be withdrawn by the end of the year, or you may incur a 25% excise tax, which may be dropped to 10% if corrected in a timely manner.

Elimination of RMDs for Roth 401(k)s^[4]

One of the perks of the Roth IRA is that it does not come with required minimum distributions because you purchase them with already-taxed money. Roth 401(k) accounts through your employer were the same—except for the employer matching part. Before the passage of the SECURE 2.0 legislation, if your employer offered matching contributions and you chose a Roth 401(k) instead of a traditional 401(k) account, employer matching funds had to be placed into an entirely separate pre-tax traditional account which was taxable. Then, upon reaching RMD age, withdrawals were mandated for both accounts, even though taxes were only due on the matching portion.

Now, as of the passage of the SECURE 2.0 legislation, employers at their discretion can offer their matching amounts on an after-tax basis into Roth 401(k)s or Roth 403(b)s. If your employer offers this option and you choose it, you will owe income taxes on the employer match portion in the year you receive the money, but RMDs will no longer be due.

Preparation for 2026 Tax Cut Sunsets^[5]

Though tax cuts sunsetting at the end of 2025 won’t immediately impact 2024 retirees now, it may be crucial to begin preparing for the 2026 tax year. While the federal estate and gift tax exemption amount is currently $13.61 million per individual, it’s expected to drop back down to below $7 million in 2026. For those with larger estates, that could slice the amount of tax-free money going to beneficiaries in half. Income tax rates could also revert to what they were prior to 2018, meaning that it may be helpful to convert taxable income to tax-free income—for instance, by using Roth conversions—in the next two years. Additionally, those impacted by this change could also look to work with a financial professional to implement long-term tax strategies that give them the opportunity to pass their wealth to their beneficiaries as efficiently as possible.

Higher Medicare Costs but Increased Social Security Payments^[6,7]

Medicare costs are also up in 2024. Though Part A is free to beneficiaries, it does come with an annual deductible, which is up $32 from $1,600 to $1,632. Medicare Part B premiums are also up in 2024 from $164.90 to $174.40, an increase of roughly 6%. It’s important to know that those premiums are traditionally deducted from Social Security payments, which typically also rises with a cost-of-living adjustment determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W. In 2024, that increase is 3.2%, so while the adjusted checks won’t be entirely proportionate to the higher Part B premiums, the COLA may help to offset the extra costs.

If you think you’re ready to retire in 2024, we can help! Give us a call today to work with a professional and start the transition into the most exciting time of your life. You can reach Drew Capital Group in Tampa at 813.820.0069.

Sources:

Jul 27

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7 Signs You May be Ready for Retirement

By Drew Capital Group Retirement, Retirement Planning

It can be difficult to know when you’re ready to retire, but checking these seven boxes may be a sign that the time is coming.

Preparing yourself for retirement can be scary, as so many variables and questions leave timing up in the air and offer little to no confidence when it comes to selecting the perfect moment to quit your job and spend your time doing what you want to do instead of what you have to do. There are, however, strong indicators that may help you realize that you’re ready to retire. While many savers and pre-retirees set concrete milestones and timetables, only a few of the important signs that you can retire comfortably have to do with your age. Here are some ways to know that you might be ready to leave the workforce.

You Have Adequate Savings to Cover Your Projected Lifestyle Expenses

One of the first and most certain indicators that you’re ready to retire is having adequate savings to cover your projected lifestyle expenses throughout retirement. Granted, this will be different for everyone based on desired lifestyle and expected costs, which is why it can be helpful to consult your financial professional as you make your way toward retirement. They can help you determine a retirement budget that suits your spending habits and desired lifestyle, as well as the longevity of your savings in relation to that estimate. It can also be important to consider that your expenses may rise in retirement, as you might work to check off bucket list items you’ve had for years. It’s all part of the planning process that will be unique to you and your goals.

You Are Debt-Free

It’s not typically a good idea to take on a pile of debt while living on a fixed income. With that in mind, ensuring that you have little to no debt when you enter retirement can be paramount to your ability to live your desired lifestyle and have a safe, secure post-career life. This could mean paying off credit card debt you’ve accrued while raising children, but it could also mean tackling home loan bills that never quite seemed to stop arriving in your mailbox. The problem with bringing your debt with you into retirement is that you stop working for your money and you start asking your money to work for you. While that’s the best-case scenario, it doesn’t always work perfectly in, for instance, periods of market downturns, which may force you to drain your savings to pay for necessities.

You Have Secured Multiple Income Streams

Oftentimes, retirement isn’t as much about total savings as it is about income. That income is what you’ll use to cover your projected expenses, meaning it’s integral to your ability to provide yourself with the lifestyle you both want and deserve. In the modern retirement landscape, it can be helpful to secure multiple income streams that can provide different levels of growth and protection, thereby helping you fund your dreams with different sources of funds. Additionally, one retirement account may not suffice. Rather than relying solely on your 401(k), it can be helpful to add other retirement investment accounts or insurance products that match your goals, thereby allowing you to collect income based on which source is the most advantageous at a given moment, something your financial professional should be able to help with. Additionally, those extra income streams can be helpful if you decide to delay claiming Social Security. Simply by waiting past your retirement age, your benefit can be permanently increased by up to two-thirds of a percent each month—a total of 8% for each year you wait—offering an opportunity to enhance your benefit forever.

Those Income Streams are Diversified Between Tax-Free and Tax-Deferred

Diversification of your retirement portfolio and tax-advantaged accounts may not guarantee success in retirement, but it could position you to offset certain tax obligations depending on future circumstances and legislation. On one hand, tax-free saving and investing vehicles, like Roth 401(k)s, Roth IRAs and permanent life insurance policies, can present a more secure option through offering tax-free growth and withdrawals. Additionally, later tax legislation probably won’t affect your withdrawals, and you may avoid required minimum distributions. Tax-deferred accounts, like traditional 401(k)s and traditional IRAs, are funded with pre-tax dollars then taxed as ordinary income upon withdrawal. While this can present an opportunity for greater growth, the tax landscape is ever-changing, potentially causing less certainty in how much you’ll have when you retire.

You Have Liquid Savings

One of the first components of a healthy financial plan, no matter your age, is an emergency fund. The traditional recommendation for an emergency fund is somewhere between three- and six-months’ worth of living expenses, giving you the opportunity to cover necessary costs should you face an unexpected financial hurdle. In retirement, that liquid savings could prove even more important, as you may incur costs you don’t expect while living on a fixed income and drain funds meant to support your lifestyle for decades. As we mentioned above, it’s a good idea to clear most if not all of your debt prior to entering retirement, but having an emergency fund could help you protect yourself from car or home repairs, medical emergencies, part-time job loss and more. This is important even if you’ve shored up your savings and created multiple income streams.

You Have Hobbies

While this isn’t necessarily financial advice, having hobbies you really want to pursue can be another sign that you’re ready to retire. Your free time is set to skyrocket, and you’ll need a few ways to spend it to avoid immediately becoming bored. If you don’t currently have hobbies, or ideas of how you’ll spend your free time, it may be a good idea to remain in the workforce a little while longer while you try a few different pastimes. Some ideas include traveling, collecting, learning a new skill, picking up a part-time job, starting a business, golfing, volunteering and more. The possibilities are nearly endless, as long as you’re doing something you love and something that drives you to get out of bed in the morning long after the alarm means that it’s time to get ready for work.

You Have a Plan

Finally, having a written plan that is easy to follow and remain dedicated to is key to a successful retirement, and it’s important to create your plan long before you choose to leave the workforce. A successful plan isn’t just for decumulation and distribution of your various retirement accounts. It’s also a comprehensive map and strategy that outlines ways you will cover your many expenses, including those that simply bring pleasure. Furthermore, though you’ll certainly want your plan to be flexible and malleable, it can be helpful to have an idea of how you’ll use your funds, giving you a better grasp of how much you’ll spend on a monthly or annual basis and how much you’ll want to save prior to entering retirement.

The perfect time to retire will vary based on your unique circumstances, but we’re here to provide you with the education, tools and preparation you need. Give us a call today to explore your options and plan for the retirement of your dreams! You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment or any change to your retirement plan. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

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.

Feb 22

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7 Ways SECURE Act 2.0 Could Affect Your Retirement

By Drew Capital Group Legislation, Retirement Planning

SECURE Act 2.0 was signed into law at the end of 2022. Here are a few ways it could affect your retirement.

After consumers throughout America were forced to endure a harsh financial storm in 2022, the year came to a close with President Biden signing a bill intending to increase and enhance the capabilities of retirement accounts. The bill is commonly referred to as SECURE Act 2.0, and it is the follow up to the Setting Every Community Up for Retirement Enhancement Act of 2019. It is expected to assist retirees and pre-retirees even further in the pursuit of a comfortable and sustainable retirement. Let’s go over the biggest changes that have already taken effect as well as ones that will roll out over the course of the next decade.

Pushed Back RMDs^[1,2]

As of the beginning of 2023, the age at which retirees must begin taking required minimum distributions from their qualified retirement accounts is 73. Previously it was 72, meaning that retirees will now have an extra year to plan for the distribution of their accounts or enact a strategy to minimize taxes on tax-deferred accounts. Furthermore, the RMD age will move back to 75 in 2033; however, in all cases, if you have already begun taking RMDs, you must continue to take them.

Ed Slott, an American financial expert, a CPA and the president of Ed Slott & Co., looks to simplify dates a bit with a quick guide. He says those born in 1950 or earlier should use age 72 as their expected RMD age, while those born between 1951 and 1959 should use age 73, and those born in 1960 or later should use age 75.

Lowered Penalties for RMD Failures^[2]

Prior to SECURE Act 2.0, failure to take required minimum distributions 1) in the right amounts, 2) from the correct accounts 3) by the deadline of midnight, December 31st each year could cause you to incur an additional 50% penalty on the amount not withdrawn, a hefty price on what may be your most precious assets in retirement. Now, the penalty for not withdrawing the minimum amount has been reduced to just 25% with the potential to drop to 10% if corrected in a timely manner, which Ed Slott says typically means within a two-year timeframe.

Increased Catch-Up Contributions^[1,3,6]

Currently, those over the age of 50 can make catch-up contributions of $7,500—up from $6,500 in 2022—to employer-sponsored plans like 401(k)s, while catch-up contributions of $1,000 (above the total contribution limit of $6,500 for 2023) can be made to either traditional or Roth IRAs by those age 50-plus. It’s also important to know that individuals in higher income brackets may not be able to contribute to IRAs.

Beginning in 2025, those age 60 to 63 will be able to make catch-up contributions of $10,000 to employer-sponsored plans, and the limit will be indexed to inflation thereafter. Additionally, catch-up limits for individuals age 50 or older for both traditional and Roth IRAs will be indexed to inflation beginning in 2024. Ideally, this should give those nearing retirement a chance to grow their accounts as they close in on that important stage of their lives.

Increased Options for Employer Matches^[1]

Prior to SECURE Act 2.0, even if employers offered a Roth option for their 401(k) or similar plan, the employer match amount was required to be made on a pre-tax basis to a traditional account, meaning taxes would be owed when that portion of the money was withdrawn. The SECURE Act 2.0 allows employers to offer post-tax matches to Roth accounts, meaning employees pay taxes now but the match amounts can grow and distribute tax-free later.

Additionally, beginning in 2024, employers may match student loan payments with contributions into retirement accounts. For example, if a qualifying student makes a student loan payment of $500, that payment is able to be matched and contributed to a retirement account if it’s within the matching capabilities of the plan, allowing it to grow for the future. This allows students who may be buried deep in student debt to still achieve their employer match in a retirement account, meaning they won’t miss out on valuable contributions due to student loan obligations.

Auto-Enrollment into Employer-Sponsored Plans^[1]

Enrollment into new employer-sponsored plans, such as 401(k) and 403(b) plans, will be automatic beginning in 2025. Upon hiring or upon the inception of the 401(k) plan, employees will automatically be added at a rate of at least 3% but no higher than 10%. Despite automatic enrollment, employees will still have the ability to opt out of the plan.

Employers already have the right to remove former employees with low balances from their retirement plans by cutting them a check for the remaining amount if the employee has taken no action to move their money. Beginning in 2024, the definition of a low balance will be more than $1,000 but less than $7,000, and SECURE Act 2.0 portability provisions will allow employers to make a tax-free rollover distribution of a low balance account into an account in the former employee’s name at their new job without their permission.

Other SECURE 2.0 Act provisions include the establishment of the nation’s first lost-and-found database for retirement accounts which will be undertaken by the U.S. Labor Department at some point in the future.

Ideally, all of these changes could help people end up with higher savings when they retire.

New Options for 529 Plans^[4]

Beginning in 2024, unused funds from 529 plans, which are tax-advantaged accounts traditionally used by grandparents and parents to help a beneficiary pay for college, can now be rolled over into a Roth IRA on behalf of the plan’s beneficiary.

This could provide a small boost to an individual’s Roth IRA, but you may want to look out for a few distinct limitations to this new option. First and foremost, the 529 account must have been established and in place for at least 15 years. There is a $35,000 limit on funds able to be converted, and that is an overall total, not an annual total.

Furthermore, rollovers will be subject to the IRA contribution limit, which for 2023 is $6,500 (plus $1,000 if age 50 or older), and the beneficiary must have earned income of at least that amount in the year the rollover is completed.

There are still a lot of questions about this provision of SECURE Act 2.0 which must be clarified by lawmakers or the IRS, including the naming or changing of beneficiaries. Prior to SECURE Act 2.0, beneficiaries of 529 plans could easily be changed, and account owners could even name themselves as beneficiaries as long as funds were used for legitimate education expenses.

Increased Flexibility in Annuities^[1,5]

Annuities, which are a contract with an insurance company rather than a direct investment in the market, can offer principal protection and a rate of growth guaranteed by the issuing carrier. They have the potential to allow you to participate in stock market upside without experiencing market decline.

SECURE Act 2.0 offers a bit more flexibility in the purchase of qualified longevity annuity contracts, or QLACs, with funds held in qualified retirement accounts. Previous limits held premiums to 25% of an account’s balance and capped them at $145,000, but SECURE Act 2.0 has eliminated the 25% rule and increased the total cap to $200,000, giving retirees more options in the diversification of their portfolios.

If you have any questions about how SECURE Act 2.0 might affect your retirement, please give us a call. You can reach Drew Capital Management in Tampa, Florida at (813) 820-0069.

Sources:

Add-on benefits are available for an extra charge in addition to the ongoing fees and expenses of the annuity and may be subject to conditions and limitations. There is no guarantee that an annuity with an add-on living benefit will provide sufficient supplemental retirement income.

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.

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.

Dec 01

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5 Common Mistakes to Avoid with Medicare

By Drew Capital Group 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.

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.

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.

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 65^th birthday, the month of your 65^th birthday and the three months following your 65^th 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.

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.

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:

Jul 21

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Inflation as a Risk in Retirement

By Drew Capital Group 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

Jul 15

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Christopher Drew Guest Contributes for Benzinga

By Drew Capital Group 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.

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

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

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.

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.

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.

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.

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.

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.

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.

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.

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.

Jun 14

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How Annuities Offer Protection and Growth Potential

By Drew Capital Group 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

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.

Retirement Planning

Annuity Sales Are Surging. Do You Know What They Are?

What is Sequence of Returns Risk?

5 Things You Should Know if You’re Retiring in 2024

7 Signs You May be Ready for Retirement

7 Ways SECURE Act 2.0 Could Affect Your Retirement

5 Common Mistakes to Avoid with Medicare

Inflation as a Risk in Retirement

Christopher Drew Guest Contributes for Benzinga

How Annuities Offer Protection and Growth Potential

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