Retirement | Live a Life By Design

Psychology Beats Economics

Posted on June 14, 2023June 14, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

All of us remember the childhood story, and related lessons, of the Tortoise and the Hare. The moral of the story is one that is applicable to people of any age. Start moving and keep a steady pace toward your goal is the virtue of the fable.

It sounds a little too simple, but we apply this approach to all our clients’ needs and goals. One of the most challenging actions to initiate is the first step. You expend the most energy when you create an action from nothing. It is only when you take your body out of movement stasis that it burns more calories, requires more brain input and causes you to become uncomfortable. A favorite saying of mine is, “you can’t grow unless you become uncomfortable.”

Applying this approach to your lifetime savings goals, consider starting with a slower pace as a new marathon runner would do. Save a smaller amount to start the habit of saving each period you choose (i.e., weekly, biweekly, monthly, etc.). As you witness your progress by watching your savings or investment account grow, you will experience a sense of accomplishment that will fuel your next step. Like dominoes lined up close to one another, after you get the first domino to fall the energy and contact on the next domino causes a chain reaction that is entertaining to watch.

To note your progress on this financial marathon, create checkpoints along the journey that trigger you to note your status on the way to your goal. You may want to check your account balance every six months or annually on the anniversary of your start date. This type of approach feeds your energy level to continue the process until you reach retirement or whatever goal you desired. I often tell people that the first million dollars in savings is the hardest to reach. After reaching that landmark goal, the next million is much easier.

Set yourself up for success by lessening the friction within the process of saving. Utilize deferrals from your paycheck to fund your retirement each pay period. If you do not see the funds or must write a check, prepare an envelope and mail the money to an account, you are more probable to stay on track. Also, do the same with your post-tax investment savings. Set up a systematic automated clearing house (ACH) arrangement to move funds from your checking or savings accounts to your investment account at prescribed intervals.

To help illustrate the power of compounding and accomplishing long-term savings goals, I will share the story of a client of ours. She had a limited income and worked in a career that provided a pension after she worked for the agency for 10 years or more. Her lifestyle was maintained within her means, and she created a savings schedule to contribute to her pre-tax retirement account with the agency from her first day of eligibility. At age 66, she retired after 40 years of service and began to receive her pension.

When asked about the difficulties she encountered during her accumulation years, she remarked, “Certainly difficult days did come. However, I simply recalled the reason for my savings, and I did not want more difficult days in my retirement years.” To paraphrase, she never experienced an “emergency” that caused her to halt or discontinue her saving for the future. She exhibited the discipline needed during her career to enjoy a fruitful life in retirement.

Oh, I forgot to mention that our client became a widow at age 54 and raised a granddaughter from age 3 and funded her college education after the child graduated from high school!

We all think life is tougher on us than anyone else we know. To me, you and I have much to be thankful for and are blessed significantly compared to many people in other countries on the globe. Stay positive and stay focused on the goals you set in life. You will be rewarded for your diligence.

To help you establish a plan for saving for your future, consider a complimentary consultation with a Certified Financial Planner™ professional. A system can be designed that allows you to earnestly save for the future while living your life by design today. Look around and enjoy each day. It is truly a paradise if you look with the right frame of mind!

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The Biggest Obstacle to Retirement Success

Posted on May 26, 2023May 26, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

What is it that causes humans to avoid the unknown and become complacent with the familiar? As children we would explore caves, old homes and lands that piqued our interests. As adults we assume a mindset of comfort and do so at our own peril.

As it relates to retirement planning success, too many of us are submitting to fear instead of boldly seeking our best interests for the future. We gamble with our life savings in entrepreneurial ventures that attract our passions and fail to consider the long-term implications. Often the smaller, consistent investment process over a period of decades yields the greater probability of success for our future.

A client came to our office recently and spoke of his fear of the debt ceiling, foreign wars and economic issues going unresolved by the government. I asked him a simple question, “What can you, personally, change of the three issues you spoke?” He looked at me with a whimsical glance and said, “I guess none of them.” Shaking my head to acknowledge his incorrect answer, I said, “You have more control over your world than you know.” As investors, we should only invest in those types of instruments that we have full knowledge of their function. To blindly cast our lot to the winds of chance is not a solid plan of action.

When we had concluded our discussion, he shook my hand and thanked me for “talking him down from the cliff.” After some thought, I realized that many of us give too much credibility to the fear in our lives when we should be embracing the opportunities. By starting our retirement savings in our 20’s, the compound effect over the next four decades is exponential. It is much easier to save smaller amounts over prolonged periods of time than to find lump sums to invest over a shorter period.

The solution to overcoming fear is to run toward it. David and Goliath are a familiar story in the Bible. Theological scientists have analyzed the narrative to determine that David’s proactive energy of running toward the giant Philistine played a significant role in the success of his conquering the enemy. The combination of forward motion, swinging the sling to create centrifugal force and the placement of the stone on its mark of the foe created a constructive collaboration of force so dramatic that the stone was sunk into the forehead of Goliath. Immediately the giant topples, and David claims his prize of the most feared man of the Philistines’ head to present to his king.

Do not spend too much time stewing over the process of planning. Start doing the things that are necessary to conquer your most feared adversary (i.e., lack of sufficient savings, health issues, psychological adaptation to a new lifestyle, etc.). Run toward these challenges in a manner that empowers you to take the necessary steps to gaining victory over the unknown – your future.

Another of our clients had saved diligently during his lifetime and was working until age 70 to maximize his Social Security Benefits. After retiring and receiving his first SSA benefits payment, he began to feel ill. His spouse convinces him to seek the advice of his doctor. The answers received were not good. He was suffering from an extremely aggressive form of cancer. His life would end within one year. Instead of feeling sorry for himself and resting on his comfort built over the past fifty years, he set new goals that could be accomplished within a year. Setting aside enough assets for his wife to live successfully in retirement, he sought new adventures through travel and philanthropic work. One of our last conversations was that he was happy with how his life had turned out and he would not have changed a thing.

My friend ran toward the unknown difficulties in his life and gained greater perspective. Our planning process helped him achieve happiness in life and fulfillment of his wife’s concerns for a better future for her. We do not know the future, but we can work to make the future what we want it to be.

Financial planning is the process of setting up goals and strategies to make your future what you wish it to be for your family. By meeting with a Certified Financial Planner™ professional, you are running toward the unknown with an expert to help guide you to your ultimate goal accomplishments. Leonard Sweet stated it best, “The future is not something we enter. The future is something we create.” See you on the jogging trail!

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Timeline to Retiring with Confidence

Posted on May 19, 2023May 19, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

When should I retire? When should I claim Social Security benefits? How will I afford health insurance in retirement? Do I have sufficient assets to support me in retirement?

These questions are the primary concerns of individuals considering retirement. The truth about the answers to these questions lies in the person’s facts and circumstances. Everyone is unique in their net worth, risk tolerance, cash flow needs and other crucial factors that determine retirement planning strategies. One simple answer does not apply to everyone’s questions about this important subject.

Let us tackle these important questions in a prudent manner. First, determining when a person retires is easier than imagined. Assuming you are healthy and have saved sufficient assets to fund your retirement cash flow needs, the date of your retirement is based on the time when you are mentally ready to do so. For many retirees, the qualitative (mental) aspects of retiring are more challenging than the quantitative (assets) ones. Either you have sufficient assets to retire, or you do not. However, the mental aspect of how you will spend your time in retirement is a much more puzzling question.

Ideally, a person should retire when she has hobbies to enjoy, trips to engage her and wealth to fund it all. There is not a certain age that one should retire. Many of our clients will continue working past the age of 65 because they are enthusiastic about their contributions for their employer, clients, or the world at large. This type of individual may sign up for SSA benefits but continue to work beyond their full retirement age as defined by Social Security Administration regulations.

More than 50% of qualified participants file for their SSA benefits prior to their full retirement age. Typically, these individuals believe their longevity in life will not be long enough to receive the return of the benefits they contributed from their payroll checks while working. Incidentally, the individuals may live to age 85 as their parents and grandparents experienced. If this is the case, the urge to collect their benefits early may cost them a substantial amount of money over their retirement years. A better approach may be to wait until the person reaches full retirement age of 65 to 67 before filing for benefits.

Few people take advantage of the 8% bonus earnings for waiting to file for benefits after full retirement age until they reach age 70. These bonus credits may contribute an additional 24% to 32% of monthly benefits! This amount of bonus received over a person’s lifetime beyond age 70 could be helpful for them later in life when medical needs may be higher.

Most people need health insurance to mitigate one of the largest costs of living they will experience. After leaving your job, you may be able to use COBRA for the purchase of your health insurance from your previous employer. However, this means you will be responsible for the full cost of the insurance, and it is a significant burden.

A better approach may require that you wait until age 65 to retire. You would be eligible for Medicare benefits at a much smaller premium amount than COBRA coverage through your previous employer. Of course, we recommend a supplemental policy to help cover the 20% coinsurance you are required to pay.

If this process sounds daunting, it does not have to be. Seek the assistance of a Certified Financial Planner™ professional to determine when the best time is for you to retire and the options you must fund the lifestyle you choose. Maya Angelou said it best, “My mission in life is not merely to survive, but to thrive and do so with passion, some compassion, some humor and some style.”

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Bridging the Gap in Retirement

Posted on May 3, 2023May 3, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Preparing for retirement is part science and part art. The science portion of the planning process is based on factual matters such as resources saved for retirement, predictable fixed and variable costs of living, cash savings for emergencies and use assets that are free of debt. To measure these items when planning for retirement, one simply makes a list from the most recent statement of accounts or values assigned to the property (i.e., when valuing a home or rental property).

However, the more difficult aspects of life to define and quantify are longevity of life, market conditions upon retirement, health expenses during the period after your career and lifestyle needs that may change with age. To fail to consider these aspects in your retirement plan is tantamount to ignoring your blood pressure until you have a heart attack. The most crucial factors in planning for the future are typically pertaining to lifestyle. Why? Because these costs can be significant in impact to your overall plan for cash flows and require immediate attention to squelch the negative outcomes.

One such planning point is the transition from career to retirement while considering multiple income streams. Let’s assume you no longer receive a salary but desire a consistent revenue stream. By investing in the appropriate equity positions that pay dividends consistently, you may experience salary-like cash flows to help you meet your obligations. For example, consider stocks that pay dividends in January, April, July, and October of each year. Also, you may want to consider other stocks that pay dividends in February, May, August, and November of each year. By laddering the receipt of dividends, you will be receiving potential cash flow each month that helps you assimilate the receipt of a salary.

Another approach, using fixed income investments, is to buy certificates of deposit with laddered maturity dates such as 30-day, 60-day, 90-day, and six-month maturities. This will provide cash flow for the periods purchased to help you maintain continuous streams of monies to contribute toward your cost of living. Also, a similar approach may be taken with bonds. These are approaches that a wealth advisor may consider for your cash flow transition from employment to retirement.

Being consistent in saving for your future is a good habit to build. Time is one of the best builders of wealth. There are no guarantees in investing or life. However, if you allow yourself the amount of time necessary to properly save for retirement, while investing in a prudent manner, your probabilities for success are much higher. Another caveat is to only invest in the types of companies and or industries that you understand. While it may seem inspiring to invest in the most recent technology company because of a new app that will change the world, ask yourself about the true purpose of your investment. Are you expecting the investment to grow significantly in a brief period? Or are you looking for cash flow through consistent dividend payments?

Before investing your hard-earned money, I highly recommend you fully evaluate the underlying business operations, product sales history, management capabilities and additional financial information to gain a good understanding of the company. Many of the growth companies that look good on paper, fail to pay dividends because of their nature of operations. Growth companies, unlike value companies, reinvest their profits to facilitate their growth initiatives in market share.

Balance is the key to a portfolio that provides total return. By definition, total return is growth of the capital investment plus the dividends received from the investment. To achieve your cash flow needs, you may be required to sale your growth company stock to receive the capital gains you desire. This will be a taxable event and, therefore, you will receive less cash than planned. Remember, there are no free lunches in life!

Cash flow is the most critical concern of most retirees. Transitioning from full employment to retirement is a challenge. To gain confidence in the process, we highly recommend you seek the advice of a Certified Financial Planner™ professional to analyze and create a cash flow plan that assails your fears. President Eisenhower, while serving in WWII, stated, “In preparing for battle, I have always found that plans are useless, but planning is indispensable.”

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Social Security Program Solvency

Posted on April 21, 2023April 21, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Since its signing into law by President Franklin Roosevelt on August 14, 1935, the Social Security Administration has helped millions maintain a monthly benefit to support their families. Initially established as a program to keep families out of poverty, the benefits from social security have taken a more substantive role in the finances of families.

With fewer corporations providing workers a pension plan for lifetime benefits, social security benefits have taken the role as a primary income item for most families. Failing to save for retirement is a terrible and tragic mistake. Longevity has improved for Americans due to the improvement of medicines, treatments, and advancements of surgeries. If we are going to live longer, shouldn’t we consider it may take more assets to support our lifestyle?

The original law included benefits for individuals aged 65 and older that participated in paying their share of the premiums for the benefits through their employment. Your employer pays half of the obligation. The initial purpose of the law was to address the period after a person finished working (i.e., retirement).

Over the decades, the Social Security Act has been amended for other purposes. It does make sense that the loss of a family member who is responsible for a substantial portion of the financial support would need their income replaced. Of course, life insurance is a simple manner of replacing lost income for the family, but many companies do not provide life insurance to their employees. To solve the problem, and to keep families from facing poverty, the Social Security Administration was authorized to assist families with survivor benefits. To qualify, the surviving spouse must be the caregiver for a disabled child or a child under the age of 16. Some other qualifications are required as well.

The logic behind this process of granting survivor benefits is that the deceased participant would not be receiving the benefits they may have been entitled to now or in the future. Payments do not last forever, and the child will eventually lose the monthly payments due to age unless disabled.

If a person became disabled before reaching their Full Retirement Age (defined as either age 66 or 67 depending on your year of birth), she may qualify for disability benefits from the program. Additional qualifications are expected before granting the benefits.

These amendments and granting of benefits for other reasons than retirement have caused concern that the Social Security Program will become incapable of funding benefits at their current levels by 2032. Today, there are two people paying into the trust fund for benefits for every beneficiary. This is unsustainable.

Congress should review the current funding and obligations of the program to make reasonable changes. For one, the amount contributed could be changed by 1% and would extend the funding for the program for many years. The program could increase the age for full retirement benefits to 68 which would save the plan’s longevity for many years.

Lastly, it would be a start to allow a privatized portion of the social security premium contributed by each worker. Start with a smaller percentage such as 15% and allow the individual to direct the investment strategy to meet their personalized needs.

No matter what the approach to resolve the problem with funding, something should be done soon. There is no concern for current beneficiaries being affected. However, individuals ages 25 – 40 may see a far different benefit program when they are retirement age.

It is important to be proactive when planning for retirement. Think about your goals for the future and seek out a Certified Financial Planner™ professional to create a plan for achieving them. The future is predictable if you work toward the goals you wish to accomplish. Warren Buffett offers us some good advice about saving for the future when he said, “If you spend money on things you don’t need, soon you’ll have to sell the things you do need.”

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Don’t Leave Your Money Behind When You Leave a Job

Posted on March 9, 2023March 9, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

If you were to leave your home and move to another one, would you leave your valuable jewelry and other assets with the old home? Of course not! In a similar sense, millions of Americans leave their place of employment and fail to protect one of their most important assets after the change in employment – their retirement account.

Participants of 401(k) plans control, to a degree, the mobility of their retirement accounts. We were visiting with a business executive recently who had been very successful in his career. One interesting note was that he had worked for five different companies during his career and left his sizeable retirement accounts at each of the employers. When I asked his reason for abandoning his accounts with a previous employer, he simply stated that he had invested his funds in a proper allocation and wanted to diversify his total investment for retirement.

My next question caught him ill prepared. I asked, “Who is the new custodian for the plan you HAD with XYZ Company?” For purposes of full disclosure, I had direct knowledge that the XYZ Company had changed platforms for the retirement plan twice since this gentleman had been last employed with the company. He couldn’t answer my question. Then I asked what he knew of his sign on and password for the platform to obtain balances and statements. Again, he admitted that he did not know the information.

A valuable lesson to be learned is to take control of your retirement assets from your former employer by transferring them to your Individual Retirement Account (IRA). Too many times have we witnessed the stress a person experiences when they can’t gain access to their money because of changes in platforms, company being sold or some other transaction that occurs since their last date of employment.

By taking proactive action upon separation from service from your employer, you have the information to request a trustee-to-trustee transfer to an IRA without tax impact. Further, you will have retained the pre-tax favorability of the assets by transferring to your IRA. Lastly, you will have the opportunity to invest in a much larger selection of investment types than most plans can provide you.

Another excellent benefit for maintaining control of your employer plan accounts is that you can consolidate all of your 401(k) accounts into a single IRA which will make your management of the funds much simpler. By maintaining a single IRA, you can monitor any potential rebalancing or concentrating in a single asset class that will help you mitigate risk in the portfolio.

Life in retirement should be simpler and with more freedom than you accomplished while in your career. It does take a plan to reach a simpler lifestyle and it is something we do every day for our clients. No one retires to work harder managing and protecting their assets. Life is simple but we tend to make it harder than it must be.

If you have orphaned a 401(k) account with a previous employer, act today to regain control of your assets. We believe it is in your family’s best interest to communicate the location last recalled of the assets with a spouse or significant other. What if you decease while the plan assets remain with your employer? There are steps you can take to protect your family and facilitate the distribution or transfer of these assets. To help you paint the picture of your bigger future, seek a complimentary consultation with a Certified Financial Planner™ professional. A quote by Joshua Becker is so fitting to end this article, “The first step in crafting the life you want is to get rid of everything you don’t.”

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“During” Retirement is Different than “To” Retirement

Posted on March 3, 2023March 3, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Work, work, work! This is the metronome of our lives for more than 40 years of our existence. My father was an excellent instructor on life as he dispensed exorbitant amounts of wisdom to me while growing up. Some of his sage advice, not original to him, was “you don’t have time to do it twice so make sure its done right the first time.” Or, the excellent mode of always staying focused on the task at hand as he framed in the statement, “the idle mind is the Devil’s workshop, therefore, if you have time to breathe, you have time to work.”

My father is not moving as fast as I remembered from my early childhood but at the young age of 83, he continues to mete out wonderful statements and quotes about work being good for a person and building character. Recently, he made a statement during our telephone conversation that got me to thinking. His comment was regarding his longevity in life and his admission that he would have taken better care of himself had he known he was going to live this long.

Many people initiate savings for retirement in their employer’s benefit plan. Whether it is a SIMPLE Plan or 401(k), most of the participants establish the allocation of the underlying investments and forget about them. Every pay period the funds are deposited in their account and a statement is produced every quarter which may, or may not, be reviewed with an eye toward the ultimate goal of retiring.

It is critical that a change of mindset be adopted toward the processing of saving for retirement and investing during retirement. These are two distinct functions with differing goals. While accumulating wealth it is a goal to invest in growth as well as value stocks. Perhaps a younger person may invest a greater allocation of their savings in equities and allocate bonds in greater percentage as they age. Further, additional risks may be assumed by younger investors that allow for non-traded investments to be a diversification strategy for their portfolio.

As a person gets closer to their targeted retirement date, a different thought process must be invoked. For example, it is imperative that a pre-retiree understand their income streams which will be needed to support their lifestyle when their salary is no longer an option. Understanding your Social Security benefits, pension options and Medicare plans are the basics for preparing for retirement.

To potentially increase your cash flow in retirement, many investors will allocate a portion of their portfolio equities to value stocks which, generally, pay a consistent and higher dividend than their growth counterparts. Bonds become more prevalent in a retiree’s portfolio than during the accumulation phase. It is also important to review or stress-test your portfolio for potential market contractions to determine if the income streams generated will be sufficient for your lifestyle. Remember, if the markets decline in performance, you costs of living do not cease or lower.

Two of the most negative consequences to a retiree’s portfolio are mostly uncontrollable – inflation and taxes. Certainly you can plan your finances in a manner that reduces the impact of inflation and taxes but you can’t remove them as an influence on your budget. Inflation applies to every good you buy such as groceries, gasoline and clothing. Taxes are assessed on most everything you own or touch – property, automobile, consumer goods, etc.

The best method of being prepared for retirement is to seek out an independent opinion as to your plan for the future before you retire. We advise our clients to meet with us approximately five years before their planned retirement date to allow time for them to implement their plan and feel comfortable with the intended outcomes.

One of the most empowering processes we developed for our clients is called The LifePlan Solution™. This unique process analyzes the resources you have available for retirement, provides a comprehensive approach to lifetime income and instill confidence by consistently communicating potential changes that are necessary to maintain your desired lifestyle. To gain confidence in your future plans, seek a complimentary consultation with a Certified Financial Planner™ professional. It is much easier to hit a target that you have defined and stay focused on for your life.

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New Retirement Changes That May Secure Your Future

Posted on February 1, 2023February 1, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

One of the best attributes about my profession is the constant change in the rules for which we give advice to our clients. One of the worst attributes of our profession is the constant change in the rules for which we give advice to our clients. This double-edge sword keeps our team of professionals motivated to learn new strategies each day. Another aspect of constant change is the challenge of providing long-term advice to clients.

On December 29, 2022, while many of us were preparing for a New Year’s Eve Party, Congress and the President were finalizing the printing and signing of the Consolidated Appropriations Act of 2023 which contains a substantial number of changes pertaining to retirement plans. To summarize the plethora of changes, the idea was to create greater opportunities for plan participants to save for their future. Congress attempted to simplify many of the complex rules pertaining to employer retirement plans and encouraged employees to become savers through automatic enrollment provisions within retirement plans.

To encourage smaller employers, defined as those entities with 50 employees or less, to establish retirement plans, the IRS will allow a tax credit for 100% of the start-up costs for a plan. This is an increase from the previously allowed 50% credit. To take advantage of this credit the plan must be started after January 1, 2023. Many smaller companies may find that a retirement plan serves as a wonderful retention tool to maintain their workforce.

For individuals reaching a certain age in which distributions from their Individual Retirement Account (IRA) are required, good news is included in the new law. Prior to 2023, required minimum distributions (RMD) were mandated by the IRS at age 72. If the individual failed to meet the minimum distribution amount in distributions, a penalty of 50% of the value required to be reported in income as was assessed on the appropriate income tax return. Starting in 2023, the age for required distributions from an IRA is 73. The law also provided for greater longevity of life in the United States in that RMDs will not start until age 75 beginning on January 1, 2033.

Some employers have desired to provide incentives to certain classes of employers to participate in retirement plans. The new law provides for employers to offer de minimis financial incentives, not paid with plan assets, such as low-dollar gift cards, to boost participation in workplace retirement plans.

One of the reasons for employees to deny participation in workplace retirement plans is that the money is required to be invested for a considerable period of time and access to the funds for an emergency is penalized unless certain criteria are met. Under the new law, employers may rely on the employee certifying that deemed hardship provisions are met. This will allow a short-term distribution of assets or a permanent distribution based on the needs of the participant.

Smaller employers generally establish SIMPLE (Savings Incentive Match Plan for Employees) IRA Plans or SEP (Simplified Employee Pension) Plans due to the lowered threshold of reporting and minimal administrative costs associated with such plans. Certain criteria must be met by the employer in the number and types of employees but overall these plans are effective in saving for the future while capturing current tax deductions for the employer. In 2023, SIMPLE IRA’s are allowed to accept Roth contributions (which are post-tax). Also, SEP contributions by the employer (employees do not contribute to these types of retirement plans if not an owner) may be treated as Roth contributions. This, my friends, is a big deal for younger workers who may wish to take advantage of a lower income tax burden early in their career.

One of the more tenuous debates in Washington, DC has been the student loan forgiveness ordered by President Biden. Many students have worked multiple jobs to pay their way through college while others applied for loans. Some of the animus results from the students who chose to attend college while working and now seem to be offended by the exclusion of their efforts from the forgiveness order. Further, some allege individuals who attended very expensive private universities would be favored since they chose to attend a university requiring significantly higher tuition than the student who attended a state-sponsored university.

The reason for opening the debate door on student loans is that employers are allowed to make matching contributions to allowed retirement plans with respect to “qualified student loan payments” beginning in 2024. This will allow the employee to continue to reduce student loan debt while not forgoing savings for their future.

Emergencies do occur in life and many are caught without liquid funds to address the problem. In 2024, plan participants will be allowed a $1,000 early withdrawal without penalty to address emergency expenses. The participant has the option of repaying the withdrawal to the plan within three years.

Retirement does not have to be a complicated process. By planning accordingly with a Certified Financial Planner™ professional, you will feel more confident and comfortable about the future you choose. As I often inform clients, “You retire for the first time only once. It is better for your future that you do it right.” Go make your world a little brighter, smile at everyone you meet!

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To retire, overcome these three challenges

Posted on January 13, 2023January 13, 2023 by Jimmy J. Williams, CPA/PFS, CFP®

Retirement planning of itself has many challenges for individuals. It is an area of life that has many concerns and questions because of the unknowns in the future. It is as the Boy Scouts would say, you must be prepared for anything. To help you accomplish your goal of retiring with a worry-free lifestyle, we believe you should overcome three challenges in the planning process, as well as the remainder of your life. The first of these challenges is longevity.

Longevity

Longevity is that period of time for which you may outlive your sustained investments. Too often, we are asked by our clients, “How long do you think I will live, and how much money do I need to live comfortably?” This is a question, of course, that we cannot answer with any certainty. No one knows what tomorrow may bring. However, it is critical that you provide a savings plan for your future with the hope of reaching the longevity goal you establish for yourself. It is not an answer any of us know with a degree of certainty. For example, I have a friend who is dying from cancer at the age of 45. However, my grandmother lived to the age of 100 years and 10 months. Why this happens, we don’t know. However, we must be prepared for either event.

Inflation

The other challenge to overcome in retirement planning is inflation. It is critical to understand that inflation cycles throughout the economies through the decades of life. No one knows what the next cycle of inflation may entail. However, let’s review what has happened in the past. Over the past two and a half years, our inflation in the United States has increased to a height of 9.1%. It is critical to understand that the cost of buying goods for your everyday living has increased by 9.1%, and certain sectors of the market increased much more. Food and fuel have increased far more than 9.1% over the past two and a half years. It is critical that you understand this large increase takes a tremendous toll on the investments you may have saved with a planned distribution rate of a much lower amount than the inflation factor.

One of the challenges you experience with inflation is that you do not know the length of time or term the inflationary period will be. The height of inflation and the term of which it lasts, both play a role in the use of your retirement funds.

Taxation

The third challenge, as mentioned in the previous paragraph, is taxation. It is true that as Americans, we are taxed on many things, from income, the purchases we buy, and the real estate we own. Taxation impacts literally every aspect of our lives in the United States. However, there are areas that you can control in your cash flow to assist your savings for retirement in lasting longer.

The timing of certain events with your retirement savings can help mitigate the tax burden you are impacted with on an annual basis. It is also a measure of how you invest that you will be taxed. For example, shouldn’t most of your retirement savings be in a qualified plan, such as your 401(k), or an IRA? These types of savings require taxation on the first dollar to be distributed from the respective plan.

However, for most of the wealthy, additional investments are made in those types of companies, or assets, that grow in value. This growth in value is not taxed until such a time as you wish for it to be taxed. For example, you must sell or liquidate the investment for a taxable event to occur. Once you decided and have liquidated the investment, capital gains at a much lower rate that ordinary income tax rates will be attached to the event. If you were invested primarily in growth-type companies and/or assets, your maximum rate on those capital gains in today’s law is 20%. This is a much lower rate than the 37% maximum ordinary income tax rates.

The wealthy in the United States pay an effective lower rate of tax than most Americans that are wage earners. This seems to be an abnormality. However, it is due to the impact and control these wealthy individuals exert over their investments and the realization of gains on a basis for which they control. For example, if you had property that you invested a very small amount in, and sold for a much larger amount, two to three times what you paid for it, the capital gains would then be applied to that portion you sold. Twenty percent tax rates on capital gains has been the effective rate on capital gains for many years now. It allows the planning for such events to have a little more certainty.

For you to be successful in retirement, it is vital that you overcome the challenge of longevity, inflation, and taxation. If you desire some guidance and seek some form of assistance, contact your local CERTIFIED FINANCIAL PLANNER™ professional for a complimentary consultation. You will be glad you did. See on the jogging trail!

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Defining Retirement Success

Posted on June 24, 2022June 24, 2022 by Jimmy J. Williams, CPA/PFS, CFP®

The word “success” scares a lot of people, confuses some and eludes most. This word is such a phenomenon that many of us can’t define it in terms that are relatable to others. Why is this so? I believe the word “success” has been given a bad reputation because many people associate the word with wealth or money.

Success is simply the level of happiness you attain in life. If this means you must possess great wealth to be happy, be careful for what you wish. Many of the wealthiest families I know have experienced significant familial hardships throughout the decades. Too many opportunities for negative aspects of life to become entrenched in your family are realized. Simply put, to seek a goal of having an abundance of wealth for wealth’s sake is not a proper goal. It is the person you become while attaining wealth that should be the goal – more charitable, more caring, more family supportive.

As retirement planning specialists, we are often asked, “How much money do I need to retire?” This question is valid and the answer is, “Enough to meet your family’s needs and acquire some of your wants.” When we state this response to our client the wheels start turning in their mind and their eyes become bigger. The follow-up response is, “How do I know what my needs and wants are for this purpose?”

Now we are at the point of the matter. Too often retirees compare their personal situation to generic plans or the specific plans of others with dissimilar facts. The most significant and impactful approach to retirement success is cash flow planning. By understanding your cash inflows and managing your cash expenditures on a monthly basis, you will gain confidence that your time in retirement will be enjoyed.

Let’s explore some critical errors to avoid in retirement. The first four to five years of retirement should be funded in a manner that you are not required to take significant distributions from your long-term funding sources such as Traditional IRAs or Roth IRAs. To leave these pools of money intact is critical in the later years of retirement when additional cash outflows are required for health maintenance and other lifestyle needs.

Another error in retirement is improper use of resources in elimination of debt. Ideally, we prefer our clients to be debt-free before initiating retirement. However, in some cases this is simply not feasible. To effectively create a means where your assets are creating sufficient income streams to address the monthly outlay for housing or automobiles, your asset allocation should consist of more income-generating assets such as bonds, real estate and value stocks. Project the return your portfolio may generate and compare the need for the payments you must tender each month. If your portfolio is generating a greater return than the interest charged on your indebtedness, you are on the right track. In this instance, your earnings on the investments will, over time, completely liquidate the indebtedness.

If retiring in the current market cycle, additional challenges will need to be overcome in your investment strategy. Further, if possible, it would advisable to delay retirement if you’re concerned about the sufficiency of income from your existing sources to fund your lifestyle in retirement.

Deciding to retire is a huge life event. One shouldn’t make this decision without consideration for all aspects of life that require use of resources. If you are considering retirement within the next five years, it would benefit you to create a plan of action that will give you confidence and comfort that your life will continue on your terms. Contact a CERTIFIED FINANCIAL PLANNER^TM professional to obtain a second opinion or construct a plan that meets your goals and desires. Remember, you retire for the first time only once. It is better to be confident than to be forced to correct course at a time in life you should be enjoying your time. Make it a great weekend!