Freedoms and Opportunities

Sunday, we celebrate the founding of our country, the United States of America! For 245 years this land has offered opportunities in abundance to those who wish to grow their wealth. Hard work and perseverance are the two primary ingredients to creating and maintaining your family’s security. Today, I may reminisce about the opportunities I personally experienced as a citizen of this great country but many people have enjoyed the fruits of this fine land.

The future of the United States of America has always been about freedom. People from hundreds of countries across the globe have sought America as a land for their realization of a more secure future for their families. One of the greatest tools that allows U.S. citizens and residents to achieve their dreams is capitalism. Think about the number of immigrants who achieved wealth and fame by bringing their work ethic and creativity to this country. For example, Pierre Omidyar, the founder of eBay. Pierre is a French citizen who had a goal of developing technology in the United States that would allow people all over the world to interact and share interests. With revenue in excess of $10 billion, I would say that Pierre has realized his goal!

Along with the freedoms we enjoy in our country, we must accept our responsibilities as citizens. Not only did Pierre become uber successful, he shared his wealth by establishing a philanthropic foundation that supports others who simply wish to receive a hand “up” not a hand “out”. By sharing his wealth with others to build a better community and create opportunities for promising Americans, Pierre has been recognized and honored with a Carnegie Medal of Philanthropy.

It is often forgotten that we have a duty, as Americans, to help our fellow man from the benefits we have gained our wealth. Libraries, schools, hospitals, and other critical structures in our communities, across this land, are built from the wealth earned by those capitalists that sought and achieved greatness. One of the greatest experiences a successful entrepreneur can acknowledge is the granting of opportunity to someone who, similar to himself, only needed someone to believe in their potential. 

Our local community has benefited greatly from the generosity of such wonderful entrepreneurs and business people like Clark and Wanda Bass, Mike and Nancy McGowan, Gary and Ruyana Fugitt and many others. These dynamic families saw a need in their local community, and the State of Oklahoma, and sought a means of providing support. To build on their initial and abundant contributions is the responsibility of the next generation – you and me.

Take a look around at the many benefits we share as citizens of this, the greatest country on the planet, the United States of America. I have been fortunate to travel to many countries and am always proud to see home. 

We are not a perfect country but we are country that continually seeks a better way of life for its citizens. You want to be a success in the United States of America? Roll up your sleeves, serve others in a manner that will help them solve their challenges and you will realize success beyond your imagination! Who knows? You may develop the next SpaceX, eBay or Facebook. When you do reach the pinnacle of success, remember your responsibilities and help others climb along with you to reach their potential.

May God continue to richly bless each of you as you seek your opportunities and may He bless the United States of America. Happy birthday, USA!

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The Secret To Investment Success

The most negative action to reaching your goals in investing your retirement assets is emotion. Markets, by their very nature, expand and contract in every cycle. Why is it important to state the obvious? When humans invest, two emotions play a part. For example, when the market indexes are setting new records for growth, investors tend to become greedy. As soon as the expansion has cycled down and contraction in the economy is prevalent, fear becomes the emotion of the day.

To control your emotions while investing for your future, it is critical that you understand three factors about the process. First, if you are investing for your retirement, you must acknowledge the process is a long-term perspective. The assets you accumulate in life must sustain for at least thirty to forty years in retirement. With this mindset, you establish a personal investment policy that helps you capture market gains with a minimal amount of risk that you are willing to accept.

By focusing on the term of your income needs in retirement, you can weather the, somewhat volatile, market cycles without excess worry. Let’s face it, everybody worries about something, right? When you initiate your savings plan during your career, the accumulation phase consists of thirty to forty years as well. What this means is that the same approach to investing for your retirement will serve you well in retirement!

The second negative to reaching investment success is continually changing your investments based on returns. There have been many occasions in which an investor has irreparably harmed their success for retirement by simply trading their account excessively. For example, we developed a plan for accumulating a client’s retirement assets. Based on the age of the person, his risk tolerance and projected cash flow needs in retirement, he only had to follow through on the plan. However, he allowed emotion to overtake him when a colleague appeared in his office one day and remarked about the excessively high returns, he was experiencing in his employer’s retirement plan. 

Our client decided the well-planned approach founded in logic was not meeting his needs because the markets would yield a much higher return. This is the emotion of greed taking control of the investment process. Within a year, the market cycle collapsed, and his portfolio had fallen by 50%. Imagine the next meeting we held with him and provided a comparison of his current allocation and results to that of the original allocation for his future. He was devastated and an emotional wreck!

The story does have a silver lining. We worked with him to formulate a plan that would place him back on track but required he work three years longer than he originally planned. Allowing your mind to host greed and fear has consequences. The probability of his lifetime plan for retirement being a success is very good.

Of the three negatives that can cause significant harm to your investment success is a concentration of investments. Diversification of risks within a portfolio helps you weather the market cycles by eliminating, or attempting to reduce, the impact of significant market volatility. In recent years, daily market swings have become the rule not the exception. Early in my career, I recall substantial swings in the S&P 500 Index would only be 10 or 15 points. In our current economic conditions, it is not uncommon to see fluctuations of 30 to 40 points in the index.

To allow yourself the highest probability of success in your investments, it is critical that you avoid emotions serving as guiding force, stick with your plan for saving and consistency will help you achieve your goals and diversify your portfolio to capture opportunities for reasonable returns in the long-term. A few small errors in investing can give rise to very large costs in your future savings. Seek the assistance of a CERTIFIED FINANCIAL PLANNER™ professional to help you establish a long-term plan that will give you confidence and clarity about your future. Until then, I’ll see you on the jogging trail!

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Timeline To Retirement

When making lifetime decisions it is critical that adequate time and consideration be given to the issue. Life has a way of paying us dividends based on the planning for events that we wish to occur. By reading this article, you will be more prepared to reach your desired results in life.

First, think about the desired outcome you seek. If you decide to retire, at some point in the future, it is integral to the level of success of this goal to plan accordingly. By initiating this process of systematic saving in your 20’s, the probability of success is higher than if you wait until you are age 60 to begin. 

We highly recommend that anyone planning to retire, in the next five years, give significant thought and planning to the design of this period of life. For example, will you travel, buy a second home, make substantial gifts to grandchildren or charity? These are worthy endeavors. However, to reach your goal you must plan for these expenditures.

Second, review your lifestyle needs. Oh, I didn’t define the difference between a need and a want. These two types of lifestyle goals are very different. Our brains are wired for gratification. I call this the “monkey” brain. We can’t seem to keep this “brain” focused on the important tasks in life because we are battling an insatiable hunger for fun and immediate responses. So many people have been trapped in poorly experienced retirements because of this phenomenon. 

To plan for long-term results that provide for your needs and wants, you must engage your “sage” brain which is the thought process that makes humans unique from animals. Your “sage” brain says, “When I start my first job, I will save 10% of my net earnings for my future.” The battle starts and “monkey” brain sees every toy that you have ever wished for and couldn’t afford. “Don’t worry about the future, live for today,” says “monkey” brain. You must be focused in the early years of life to create a future that is substantial.

Lastly, start today planning for your future. If you wish to live a life by design, it takes planning and soul searching. Retirement is a phase of life than can be tremendously enjoyable when planned accordingly. Seek out a CERTIFIED FINANCIAL PLANNER® to help you create your dream for the future. You will be glad you did!

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Small Mistakes, Big Consequences

As humans, we make mistakes all the time. Some mistakes may relate to your career choice. Other mistakes may relate to the location of your home. However, some of us make, seemingly, small mistakes and don’t realize the impact the outcomes will bring to our lives.

Small mistake #1: Failing to save for retirement early in your career. When a person is 23 years of age, the future seems so distant. Their entire career is just launching from the starting gates of their recent college graduation and time is their friend. Fast forward twenty-five years and the person is looking at their future with a different lens. Kids, mortgage, car payments, and other living expenses caused by the choices made many years earlier has redirected their otherwise retirement savings to current expenses of life.

The obvious outcome is one that none of us wishes to realize – working until we are much older than we would prefer. By initiating your future savings at the beginning of your career, time and compounding of money will help you realize your financial goals later in life. Start with your employer’s plan and contribute at least the amount the company will match. For example, if your employer matches 5% of your salary then you should seek a goal of contributing 5% of your salary. The math is easy on this one. You will have doubled your contribution amount annually with the employer’s matching contribution. Let’s assume the markets treated you favorable and the investment in your employer’s plan grew by 8% for the year. Now, you can experience growth far beyond your 5% initial deferral from your salary. 

Small mistake #2: Failing to live within your means. A philosophy practiced in our retirement planning business is one of “pay yourself first” for our clients. You want to do things differently in your life than most of your friends – save first, spend second. What this means is that you will treat your retirement contributions as a priority before incurring and spending your earnings on current pleasures of life. Too often we experience clients that meet with us that have all the toys of the day but lack any liquid savings or future investments.

Maximize your probability for retirement success by implementing a budget and focus on “paying yourself first”. By taking a more realistic approach to your future, you will continue to enjoy life and enjoy it more abundantly when you retire. Of course, prudent investment selection and monitoring are critical during the accumulation phase of life. You may wish to seek the guidance of a Certified Financial Planner practitioner to initiate your plan and provide you annual feedback on your progress.

Small mistake #3: Allowing your credit card balance to remain unpaid after one month. This is something that too many of us fall victim to early in life and it is a difficult problem to solve if left unattended. Based on a survey performed by Nerdwallet in January, 2021, the average balance carried on a credit card is $7,149 and the U.S. household will pay interest charges of $1,155 on average for 2021. Further, the survey discovered 63% of the responses indicated that they feel their household finances have worsened from that of the previous year.

The best method of controlling the interest accruing on credit card balances is to remember the card is for emergency purposes only. Do not use a credit card for a purchase that can’t be paid in full with your current savings or income. To be obvious, the use of a credit card is a means to live outside your current means. 

To resolve this mistake, use a debit card that immediately withdraws the funds from your bank account. Another method of solving the credit card debt issue is to ask your credit card issuer to draft the full payment each month from your checking account. This is a critical step since you must be certain the funds are available for the payment each month.

Lastly, place your credit card in a small plastic bowl of water. Place the bowl in the freezer and leave it there for about 3 days. Remove the bowl and note the credit card is safely stored in a block of ice that requires thought and effort to free the card. I know this sounds silly, but it is effective for those people who are impulse buyers with their credit cards.

Don’t wait to improve your life by eliminating or resolving these three little mistakes from your life. Seek out a CERTIFIED FINANCIAL PLANNER™ professional to guide you in managing your cash flow to maximize your future savings. What have you got to lose? Worry, anxiety, stress, etc. See you on the golf course!

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It’s About More Than Numbers

Too often we paint someone with a broad brush as to their contributions to the world solely based on the group in which they are a member. For example, medical doctors may specialize in a field that allows them to focus on a specific area of the human body. These physicians are capable of providing you general advice and medical care but may also provide you greater, more detailed, information pertaining to a particular illness such as kidney ailments or cancer of the brain.

Wealth advisors are individuals who may specialize in certain areas of financial matters that a particular segment of the population needs. For example, many wealth advisors focus on corporate executives and their unique compensation opportunities. Other advisors may focus more on the intricacies of Social Security Benefits and less about long-term market investments.

To be certain, your life is more complex than simply working with numbers to reach your lifetime goals and dreams. It is vital that you consider the qualitative factors in your life as much, if not more so, than you do the quantitative factors. My case in point is the life of a lady we will call “Jane”. By all outward appearances, Jane had all that was needed to sustain her the remainder of her life and leave a legacy for her children to expand their wealth. A couple of years after her husband’s passing, we asked Jane if we could meet to discuss the important matters in her life. She assumed we were talking about her accounts and showed up with her Financial Organizer we provided when initiating the relationship.

Immediately, we recognized that Jane had not understood what we wished to discuss with her. After explaining the importance of happiness in her life, we asked her a few simple questions to initiate this subject. “What is one thing that happened recently that made you smile and one thing that was difficult?” She looked up at me and began to create a big smile on her face. She exuberantly stated, “I had the best time recently volunteering as a cancer patient attendee!” I asked her, “What of that process made you so happy?” She responded in a way that made me realize she had found a new purpose in life. “When John was dying, I had no one that understood, truly understood, what I was going through at that time in my life. By helping these terminally ill individuals live a more fulfilling life and knowing that someone understands the palette of emotions they are experiencing, helped me heal and find happiness again.”

We continued to discuss this wonderful opportunity for Jane to serve and offered her some qualitative advice. “Why don’t you establish a self-help group or lead others in the process of caring for terminally ill individuals that provides dignity, understanding and compassion?” This new form of serving her fellow man gave Jane the emotional support she needed to truly live again after the loss of her husband.

As wealth advisors that specialize in retirement planning, we place a significant amount of importance on helping clients understand, and navigate, the maze of life after the loss of someone special. We are proud of our technical competence and expertise. More importantly, we are most humbled that our clients know that we are here as a resource for more than numbers.

As humans, we are all different in some way. However, we all need emotional support, in addition to financial advice, to truly live a rewarding life. It is not all about the numbers unless you are talking about the lives you touched in deep, emotional moments that helped them see life in a better way. 

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Estate Tax Changes May Affect You

Big projects and changes in the operations of government are always sought by new presidents with in their first one hundred days in office. President Biden is no exception to this trend.

However, one of the areas of change proposed by the new administration is estate taxation. Under current law, most citizens’ estates in the United States would be well under the exemption allowed of $11,700,000. For those whose estates exceed this exemption amount, the rate at which their estate value is taxed is 40%. The current law is set to “sunset” after 2025 and the exemption would be returned to $5.5 million which would subject many more estates to taxation.

Biden has proposed a significant reduction in the estate exemption to $3.5 million and a limit of $1,000,000 on lifetime transfers. To provide some historical context, when I began my career as a CPA, the estate exemption was $600,000. While seemingly low, it did require many families to liquidate assets of their estates to pay the assessed tax. There were exceptions to the $600,000 exemption for farms and other “family-owned” businesses.

In the proposal to reduce the estate tax exemption, the proposed lifetime transfers limit of $1,000,000 will require many families to perform considerable planning to minimize the tax burden caused by such a low threshold. Under current law, the lifetime transfers, called “inter vivos gifts”, would be exempt from tax up to the amount of the estate exemption of $11.7 million. By uncoupling the exemption and gift tax amounts, many families will reassess their gifting plans for the next generation.

One of the most significant changes in the proposed law is the removal of the “step-up” in basis doctrine allowed by law for more than 50 years. Many attempts have been made over the years to repeal this valuable tool for estate planners. To understand how drastic this change would be to most American families, let’s consider the family home being bequeathed to the children of a decedent. When the parents purchased the home and 640 acres in 1960, the price paid of $25,000 would be their basis in the property. However, during the period of ownership by the parents, natural resources and subsurface mineral deposits of a vast amount were discovered. The land is now worth $5 million (keep in mind this is meant to be an educational example). Under current law, the heirs could sell the property immediately after the death of the parents and receive $5 million tax-free. Fast forward to 2022, assuming Congress passed the bill requiring taxation on capital gains and the lowering of the estate tax exemption to $3.5 million, the heirs of the estate would receive only $4.4 million after the payment of estate tax. The capital gains assessed on the conveyance would be another $1,386,000 to be paid by the heirs upon sale of the property. 

To summarize our very simple example, the total value of the property inherited would be $5,000,000. However, under the proposed law changes by the current administration of our government, total taxes in the amount of almost $2,000,000 would be assessed the transactions. Today, if this same scenario occurred, the family would be exempt from all estate and gift taxation as well as no capital gains tax producing a savings of $2,000,000 to the family.

Allow me to reminisce for a moment. In 2010, the United States had an unlimited estate exemption meaning any citizens dying in the year could pass all of their estate assets to their heirs without U.S. estate tax being assessed. The owner of the New York Yankees, George Steinbrenner, had an estimated net worth of $1.4 billion at the time of his death in 2010. His passing in 2010 enabled his heirs to receive his net worth without paying any estate tax to the United States. 

This is the thought behind the removal of the “step-up” in basis doctrine and lowering of the estate tax exemption. However, many Americans who have worked diligently to provide for their families and became successful over time may now be caught in the net of taxation at a time they can least afford it. Most family-owned small businesses may be worth more than $3.5 million but lack the liquid assets to pay the tax burden. This scenario would require the sale of the company, or at least its assets, to pay the tax. This draconian approach to taxing the middle class will not bring much treasury to the coffers of the United States. 

Estate laws are very complex. If you wish to maximize the amount of assets you wish your heirs to inherit, now is the time to create a plan. Seek out the advice to take advantage of opportunities to reduce the burden of taxation on your wealth. Contact a CPA and CERTIFIED FINANCIAL PLANNER™ professional to assist you in creating and maintaining a plan for your future. I’ll see you on the jogging trail!

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The Cost of Cash

One of the most important areas of planning for a secure future is to be able to weather the storms of life without invading your long-term investments. When working with a new client, we always ask questions regarding their current monthly living needs. By monitoring and managing your basic living needs such as food, shelter, clothing, entertainment, gifts, etc., you can determine your cash needs on a monthly basis.

This is the first step to developing a cash management plan that will serve you well in life. Once you know the cash flow need for a typical month, it is critical that you expand the thought process to cover a period of 90 – 120 days. Should a catastrophic event affect your family you will be confident that you can sustain your lifestyle without negatively impacting your future by withdrawing retirement assets prematurely.

The process of cash management is a delicate one. There is such a state of having too much cash. Yes, you read the sentence correctly! When a portion of your overall net worth is in cash you are experiencing something negative in your overall financial picture – loss of purchasing power. One of the most critical costs of retaining cash is that you lose the opportunity for the investment (cash) to maintain or exceed inflation with growth. A prime example is a recent client who came to meet with us for retirement planning. When we spoke about his overall wealth, he was rather proud of the fact that he had accumulated what he thought would be sufficient assets to live the life he desired.

However, when we applied inflation and taxes to the overall asset structure he maintained currently, he was not so happy. When your investments are stressed with the actual costs of living, and we all know that inflation and taxation may be present during our lives, the overall balance of assets for your lifestyle is less than the amount you currently see in your bank account.

The key to creating and maintaining a successful cash management program is in the process you utilize for your total investment portfolio. Cash is important and should be maintained in your financial plan. To arrive at the appropriate amount of cash needs it is critical you analyze your spending for a period of a month that is typical of your life. Do not measure a month like November when you are buying more food for Thanksgiving or gifts for Christmas. Rather, choose a month without these extraordinary expenses and evaluate what you are truly using the cash to provide you.

Once you understand where your money is being utilized, you may wish to make some adjustments. Now multiply the amount of cash flow needed in the month you analyzed it and multiply it by 3 or 4. The result of this calculation is the amount of cash you should maintain in a checking or savings account. If it sounds like you are losing money on these funds by not investing them in something that will meet or exceed inflation, you are correct. However, the real purpose of these funds is to provide you confidence and security if, or should I say “when”, a disaster was to strike your family.

Review your cash balance account every month and make certain you return it to your target amount. This is your security blanket. It is a good practice to analyze your spending at least one month per month to determine if you need to adjust your cash balance account for possible changes in life such as added prescriptions, increases in insurance needs, etc.

It is critical you plan properly for the future while sustaining your lifestyle today. If you don’t feel secure about your future, it is time to seek help. Contact a CERTIFIED FINANCIAL PLANNER™ professional to assist you in creating and maintaining a plan for your future. I’ll see you on the golf course!

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Millennial Perspective: Planting Roots in a Pandemic

As a millennial, buying a home is already hard enough. Trying to save up enough money for an average 6% down payment, trying to determine how much home we can afford, trying to find the time to house hunt, and battling debt to income ratio. Now we are dealing with a seller’s market with some of the lowest interest rates we have seen in years and a pandemic. Many of my fellow millennials are trying to take advantage of these low rates, but it has been a bumpy ride for a lot of us. Throughout this article I will recount my personal experience buying a home as well as the experiences of others in my generation in the past year.

Let us rewind to March of 2020. I know, this is not the best month that we have all had, but it was certainly looking like it was going to be for my husband and me. We had found a home that we both loved at a price point that was perfect in a buyer’s market and we were prepared to take this giant step towards this milestone. We settled on an offer with the seller, signed a contract, and we were on our way. Then the pandemic hit. 

Our situation completely changed. We were no longer in a place where we could get the home. Thankfully, our sellers, lender, and realtor worked with us and we were able to essentially pause the whole process. It was only supposed to be two weeks, right? Then two weeks turned into a month, then two months, and so on. When we finally got back to a place where we could proceed, my husband and I ultimately decided that the time was not right and we needed to wait until COVID-19 blew over, so we ended our contract. 

Ending our contract and losing the opportunity turned out to be a blessing in disguise because we also decided to move closer to family. Not being able to see anyone and not knowing if we may ever see them again due to a deadly virus makes you think about where your heart is meant to be. We packed everything up a few months later, moved across the state, and devised our new plan. We would rent for another year and look at plans to build our dream starter home the following summer. Then the market flipped, and construction costs rose nearly 130%! It was back to the drawing board for us. 

The small community we are now living in is growing and many houses on the market are new construction. Since this was no longer a viable option for us, we would need to find a completed home, but any homes that were listed were typically off the market within 24 hours, were pocket listings, or they entered bidding wars which drove the price up tens of thousands of dollars. This made our search a little tricky. Thankfully, an opportunity to buy a perfect home fell into our laps. We are now back on track to buying our first home. It feels that we got lucky.

I have seen many of my friends post on social media or reach out with the news that they have also found a home. It is great news, and it makes me happy to see so many people in my generation finally able to reach this milestone. I have discussed experiences with several of them and their stories sound very familiar. They spent countless hours searching for homes on sites like Zillow and Realtor.com with little luck. When a home is found and an appointment is secured to view it, it is off the market. You do not get a lot of time to think about the investment you are about to make and practically must sign an offer within hours of viewing the home. The whole task can be very daunting compared to last year’s market. However, with today’s low rates it is something that we simply cannot pass up.

All this to say, hang in there millennials. The timing for buying a house is perfectly imperfect right now. Do not get yourself down if a home falls through. It just means that something better is waiting for you around the corner. Buying a house is a huge step and you do not want to get roped into something that you will regret. Keep searching and the right opportunity will come to you!

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Important Retirement Considerations for Educators

Educators are challenged every day. Why would you want to make your retirement transition challenging? You have worked for 30 years educating individuals that have changed the world through your guidance. Mrs. Smith, my first-grade teacher, was the first motivational speaker I heard in my life. At six years of age, Mrs. Smith instilled in me, or perhaps I should say endowed in my mind, the mantra and belief that “I could be anything I wanted to be if I worked hard enough”. This wonderful lady may have known, but I certainly did not, that she was bestowing to me a lifetime adventure of learning and dreaming that would reward me in tremendous ways throughout my life.

Teachers are the influencers, supporters, and cheerleaders for their students. What does this information have to do with retirement planning? Everything! At a time in the professional life of a teacher when he or she is making lifetime decisions, inadequacy rears its ugly head. As specialists in retirement planning, we focus on a variety of pension platforms and one of the most comprehensive is the Oklahoma Teachers Retirement System (OTRS). This system is the pension plan that provides support for teachers, administrators and support staff in the field of education in Oklahoma. 

Many people become confused and simply disregard provisions of the pension plan that would help them live a better life. The OTRS requires certain decisions for the participants to retire that are lifetime elections. Once the decision is made, even when life may go strangely awry, you cannot change your initial plan for retirement. How can you mitigate this risk? First, ask questions of the plan administrators, read the plan manual and familiarize yourself with the information and terms of the plan.

Second, seek out an expert to help you coordinate retirement, estate and income tax planning to equip you with the capability to enjoy your retirement years with potentially less worry. The OTRS provides a monthly benefit to qualified participants once the election to retire is filed. However, you may not wish to give total control of your future cashflow to the plan. What will you do if your health were to suddenly worsen immediately after retiring? The plan contains a provision that allows participants with 30 or more years of service to elect a Partial Lump Sum Option (PLSO) which allows the participant to rollover, or transfer tax-free, a sum representing 12-, 24- or 36-months of benefits to an Individual Retirement Account. Why would you wish to do this? You are in control of the distribution of the funds should an unexpected event occur!

Third, the timing of your notification filed with the plan of your planned retirement date is critical for the receipt of your first retirement benefit payment. For example, if you wish to receive continuity in your family’s income, and you plan to retire on July 1, 2021, you must file your Pre-Retirement Information Verification (Form 3) on or before April 1, 2021. This date is non-negotiable. To help you understand the strict interpretation of this required date, if April 1, 2021, was a weekend or holiday, you would not be extended any grace period to meet this deadline. Additional subsequent dates must be met to experience a smooth transition to retirement.

Each person’s retirement is unique. Do not rely on others’ comments or experiences to make important decisions for your future. A horror story from the past comes to mind. One of the educators I know came to me after filing his initial documents with OTRS. After we discussed it for a few minutes, he realized he had made a horrible mistake on his paperwork. Certain elections were not heeded, and life was not going to be as he had planned. However, we were able to resolve the issues for him in time to meet his statutory deadlines. His first retirement trip was exciting, and his cash flow was on time.

To enjoy your future years, and experience uninterrupted cashflow, the OTRS filing process requires attention and proper timing. Seek out a Certified Financial Planner™ or other retirement planning expert to help you through this tedious process. You should be planning your next trip to celebrate retirement, not worrying about your lifetime income source. Go ahead, book your trip and do not forget the sunscreen!

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When to Claim SSA Benefits

When the economy takes a downward trend and the retirement you planned did not quite work out in the manner you thought, what can you do? Most of us look at this scenario as an opportunity to engage in the workforce. Much confusion exists about working while claiming your Social Security Benefits. 

“Can I work and receive my SSA benefits?” This is the typical question we receive when planning for retirement with our clients. I look the client straight in the eye and answer “depends”. Well, that wasn’t very helpful. However, the SSA regulations applied to this scenario are complex and may be confusing to many of us. To properly apply the rules, think in terms of life sections: 1) before reaching your full retirement age (FRA) as defined by law; 2) the year you reach FRA; and 3) the period after you reach FRA.

Let’s address the first section of life which is before you reach FRA. The earliest a person can receive SSA benefits, without being a survivor or disabled, is age 62. To determine your FRA, you must consider the year of your birth. For example, if you were born in the period of 1943-1954, your FRA is 66. The amount of SSA benefits you are entitled to at age 62 is reduced permanently to 75% of your projected full retirement benefits. For example, if you would have been entitled to $2,000 a month of SSA benefits at FRA, by claiming your benefits at age 62, your lifetime initial benefit will be reduced to $1,500 per month. The loss of $500 per month of lifetime benefits, depending upon your longevity, may become a significant amount. By working and delaying your claiming of benefits closer to your FRA, you will have opportunity to receive a larger percentage of your benefits. For example, if you claimed your benefits at age 64, you would be entitled to 86.7% of your full retirement benefit. The closer your age to your FRA, the greater percentage you may claim of your full retirement benefit.

The next section of life is the year of reaching your FRA. Let’s assume you were born July 1, 1955. Your FRA would be 66 years and 2 months. Therefore, you could work in your full-time position earning up to $50,520 in the period of January 1 to June 30, 2021. You would be allowed to claim your SSA benefits and receive the full retirement amount even though you worked more than that allowed for those beneficiaries who wish to retire before FRA. This is where the confusion lies. Think about the individual who decided to retire early at the age of 63. This person may earn only $18,960 in 2021 without impacting their SSA benefits. However, for every $2.00 earned over the $18,960 limit, their SSA benefit will be reduced by $1.00.

Lastly, let’s explore the impact on the SSA benefits and the amount of earnings an individual may earn initiating with the month after reaching FRA. A person who has delayed claiming SSA benefits until reaching FRA, may continue to work full-time and not subject their SSA benefits to any reduction. There are some tax implications that will be imposed on your SSA benefits when you file your individual income tax return but we will address this issue in a future column.

Thinking about the three phases of before, reaching and after retirement age will help you make a better decision on the timing of your SSA benefits. We typically perform an analysis that helps you understand the economics and the qualitative issues of claiming your benefits at the proper time. This complex set of laws can be difficult to grasp. Seek out a complimentary consultation to determine the date of claiming your SSA benefits and maximizing your retirement income. See you on the golf course!

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