We’ve Moved! 6121 Excelsior Blvd. St. Louis Park, MN 55416

Joe Lucey

Secured Retirement Lunch & Learn’s are Returning, July 26th

Lunch & learns are back at Secured Retirement. Would you please stop by and see our new location and classroom?  Exciting news, we can now Livestream the event if you are unable to make it in person.
 
We are pleased to announce that our presenter will be our own Chief Investment Strategist, Nathan Zeller, CFA®, CFP®.  Get the latest market updates and hear first-hand Nathan’s investment philosophy on how he will be managing funds exclusively for clients of Secured Retirement.
 
Nathan Zeller comes to Secured Retirement with decades of experience managing funds at some of the largest financial institutions in the country.  His areas of expertise include portfolio management, asset allocation, security analysis, manager selection, and due diligence. This timely update will cover how we are currently positioning portfolios for growth while managing volatility.  We will discuss risks in the markets, including how this could impact your investments and our thoughts on capitalizing on opportunities. Those who choose to attend our Lunch & Learn event in person will begin at 12PM at our St. Louis Park location.  Lunch will be served at this free event.  You can also choose to watch via Livestream.

Hear our investment outlook and learn more about Secured Retirement’s investment strategies on Monday, July 26.  Make sure to save your seat.  Call now to register at (952) 460-3260.

Don’t miss your opportunity to meet Nathan Zeller and see the new Secured Retirement Classroom!

To view the Livestream, please Click Here.


Joe Lucey, CFP® of Secured Retirement, accepted into Forbes Business Council

Minneapolis, June 23, 2021 — Joe Lucey, CEO of Secured Retirement, has been accepted into the Forbes Business Council, the foremost growth and networking organization for successful business owners and leaders worldwide.

Joe Lucey was vetted and selected by a review committee based on the depth and diversity of his experience. Criteria for acceptance include a track record of successfully impacting business growth metrics and personal and professional achievements and honors.

“We are honored to welcome Joe Lucey into the community,” said Scott Gerber, founder of Forbes Councils, the collective that includes Forbes Business Council. “Our mission with Forbes Councils is to bring together proven leaders from every industry, creating a curated, social capital-driven network that helps every member grow professionally and make an even greater impact on the business world.”

As an accepted member of the Council, Joe Lucey has access to various exclusive opportunities designed to help him reach peak professional influence. He will connect and collaborate with other respected local leaders in a private forum and at members-only events. Joe will also be invited to work with a professional editorial team to share his expert insights in original business articles on Forbes.com and contribute to published Q&A panels alongside other experts.

Finally, Joe Lucey, CFP®, will benefit from exclusive access to vetted business service partners, membership-branded marketing collateral, and the high-touch support of the Forbes Councils member concierge team.

“I’m excited to join the Forbes Business Council and honored to be recognized and invited into this growing community.”

ABOUT FORBES COUNCILS

Forbes Councils is a collective of invitation-only communities created in partnership with Forbes and the expert community builders who founded Young Entrepreneur Council (YEC). In Forbes Councils, exceptional business owners and leaders come together with the people and resources that can help them thrive.

To learn more about Forbes Councils, visit forbescouncils.com.

Nathan Zeller Joins Secured Retirement

Secured Retirement is pleased to announce the significant expansion of the portfolio management services offered to their clients.  Chief Investment Strategist Nathan Zeller, Chartered Financial Analyst® (CFA®) and Certified Financial Planner™ (CFP®), recently joined the firm and will oversee the Registered Investment Advisor department.

“I am extremely excited to leverage my expertise and proficiency managing institutional investments exclusively to clients, as well as contribute to the continued growth of the Secured Retirement brand.    SR’s commitment to ensuring each client achieves a tailored retirement plan including personalized investment strategies motivated me to join the team,” announced Nate. 

CEO, Joe Lucey, CFP® stated, “Nate brings over two decades of investment experience including the last 12 years managing trust portfolios at both Ameriprise and US Bancorp.  By adding an internally managed option to the strong externally managed portfolios that we have previously offered we have changed what it means to deliver peace of mind and fiduciary-based planning rarely seen in a firm our size. The caliber of investment management we now offer launches our service to the next level.”

Nathan Zeller’s areas of expertise include portfolio management, asset allocation, security analysis, manager selection, and due diligence.  His investment philosophy is based upon fundamental research to identify overlooked areas of the market and find growing companies selling at a reasonable price.  He also incorporates long-term trends and themes into the investment process.

As the Chief Investment Strategist, Nate focuses his attention on providing sound fiduciary investment management. He leverages his analytical background and extensive experience to construct portfolios tailored to each client’s unique needs.  Nate dedicates himself to ensuring clients achieve their retirement goals and possess peace of mind knowing their assets are properly managed. Nate graduated from the University of Wyoming with a Bachelor’s degree in Electrical Engineering and a Master’s of Business Administration (MBA).  When not studying the markets or digging into companies’ financial statements, he enjoys spending time with his wife, two daughters, and pets.

Proactive Retirement Planning

Chances are, you’re in one of two camps when it comes to planning for retirement.

If you’re being proactive, you’re addressing the coming challenges in retirement before they happen. This puts you in a position of strength and control.

But if you’re being reactive, there’s no plan to reduce your taxes in retirement. There’s no plan to pay for healthcare. There’s no plan to generate income.

This makes you vulnerable as problems arise.

In many cases, it could be too late to do anything about It.

I’ll share 4 proactive strategies that could be a game-changer for your retirement, including how you could turn your social security benefits into a $1.5 million annuity, the two words that could legally help you save a fortune in taxes, plus, a bullet-proof income strategy that could stand up to the challenges of a low-interest world.

Proactive Strategy #1: A Forward-Looking Tax Plan

From The Motley Fool: No matter how much you try to avoid it, Uncle Sam will always take a chunk out of your paychecks. The same is true in retirement, although taxes in retirement can potentially have greater consequences than when you’re working — because you’ll likely be living on a fixed income in retirement, spending more than you anticipated can throw off your entire plan. And if you’re not prepared for them, taxes can take a serious bite out of your retirement budget.

If you want to keep more of your hard-earned money, and ensure your success in retirement, you must have a plan for the taxes you could pay.

There’s a big difference between tax planning, versus tax preparation. Tax preparation is something you do with your Accountant, or CPA. You’re just reporting what happened last year. But if you want to pay fewer taxes, then this requires a forward-looking tax plan.

So what exactly is tax planning? According to Investopedia: Tax planning is the analysis of finances from a tax perspective, with the purpose of ensuring maximum tax efficiency. Considerations of tax planning include timing of income, size, timing of purchases, and planning for expenditures. Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss harvesting.

You need a tax strategy for the following:

Withdrawing money from you IRA, 401K, and other tax-deferred accounts

One of the biggest retirement tax traps, is withdrawing money from your 401K, IRA, or other retirement accounts.

What most people don’t realize is that you could be creating a tax time bomb. The IRS wants their cut, so when you withdraw that money, you must pay taxes. 

Required Minimum Distributions

RMDS force you to withdraw money from your tax-deferred accounts. You’ll have to pay taxes on that money.

According to Time Magazine, “A $2 Trillion Tax Bill is Coming Due for Baby Boomers.”

If you ignore required minimum distributions, or don’t follow the rules to a “T,” you could face taxes, penalties and fees. According to MarketWatch: You could face one of the steepest penalties the IRS levies, a tax penalty of 50%. For example, if your RMD is $40,000 and you fail to take it, the IRS will levy a penalty of $20,000.

Social Security

From The Motley Fool: Yes, you’ll likely still owe taxes on your benefits even when you’ve been paying Social Security taxes throughout your entire career. 

Most people don’t realize they could pay taxes on as much as 85% of their Social Security benefits.

According to Fidelity If you are approaching retirement and think your Social Security benefit always comes tax-free, you’re mistaken. Today, 56% of Americans pay taxes on their Social Security benefits—up from 10% of Social Security recipients in 1984 when the federal government first began taxing the Social Security benefit.

Here’s how you could reduce your taxes in retirement:

Tax Diversification

From Kiplinger “You don’t want to own too many assets that are taxed the same way or at the same time. This accentuates the significance of tax diversification. In my experience, it’s one of the most underrated financial planning concepts.”

There are three basic tax categories to diversify in:

Taxed always – brokerage accounts, checking and savings accounts. You pay tax on the dividends, interest, or capital gains.

Taxed later – 401(k), Traditional IRA, 403(b), real estate, or hard assets.

Taxed rarely – Roth IRA, interest from municipal bonds, and certain types of life insurance.

Converting some of your money to a ROTH

From Kiplinger: “By strategically shifting assets out of your IRA before you turn 70½ through Roth IRA conversions during years in which your marginal tax bracket is low, you may reduce your RMDs and the amount of tax you pay.”

“Even if you convert only a small portion of your traditional IRA into a Roth, this may help you lower your tax bill in retirement, since Roth distributions aren’t taxed.”

Tax loss harvesting

Tax loss harvesting is a popular tax-savings strategy. Essentially, you are selling securities at a loss to offset a capital gains tax liability. If you have an underperforming security, consider using tax-loss harvesting to get a break on your taxes, and put the proceeds from the sale of this asset to better use.

Charitable contributions

Charitable contributions are another great way to lower your taxable income. From The Balance: Donations to qualified charities are tax-deductible expenses that can reduce your taxable income and lower your tax bill. You must itemize your tax deductions to claim them, however, and this is typically only in your best interest if the total of all your itemized deductions exceeds the amount of the standard deduction you would receive for your filing status. 

Proactive Strategy # 2: Lifetime Income

According to The Motley Fool: Most of us depend on a paycheck to provide the funds we need to cover costs of living. But when you retire, your paycheck ends even though you still need a source of support. 

Income will be the lifeblood of your retirement. It’s the only thing that could help ensure you money lasts as long as you do, so it’s critical you take a proactive approach to income planning.

From Investopedia: years ago, retirement income was often pictured as a three-legged stool. One leg was Social Security benefits, another was employer pensions, and the third was savings. A lot has changed since those days. Many of us no longer have traditional employer pensions, leaving us with a wobbly, two-legged stool. What’s more, because of today’s rising life expectancy, those two legs may have to support us for a much longer period of time—three decades or more in many cases.

We’re living longer than ever before

A “centenarian” is someone who has reached their 100th birthday. There are now an estimated 450,000 centenarians living in the world today. (Imagine what that number will look like 20-30 years from now). Now imagine you retired 5-10 years sooner than expected. This makes the problem that much worse.

“The world was home to nearly half a million centenarians (people ages 100 and older) in 2015, more than four times as many as in 1990, according to United Nations estimates. And this growth is expected to accelerate: Projections suggest there will be 3.7 million centenarians across the globe in 2050” – Pew Research

Longevity can be a snowball effect – the longer you live, means the more your expenses will pile up. And the greater your chance of experiencing a market (or multiple market) crashes. And the more money you will need for ongoing healthcare expenses, and the more expensive that healthcare will get, year after year. It’s never-ending.

Record low interest rates

Interest rates are still hovering at record lows. Not long ago, interest rates were on the rise. The fed raised rates 9 times since 20-15, with promises for even more increases to come. This was great news for savers. But recently the fed put on the brakes.

The Federal Reserve just cut rates again! From Barrons: “Federal Reserve officials reduced interest rates by a quarter-percentage point for the third time this year and signaled a pause in further cuts unless the economic outlook changes materially.”

If this was 1980, you’d be getting 20% with a savings account at the bank right now. But it’s not 1980. Today, rates on CD’s and savings accounts are a joke. It’s more like 2% OR LESS. Your money is basically keeping up with inflation, which means you are NOT generating any income at all.

The cost of Healthcare and Long-Term care are through the roof

From The Motley Fool: Healthcare costs alone are skyrocketing, and the average person in their 40s now is expected to spend roughly $335,000 on healthcare expenses throughout retirement, according to a study from Urban Institute. The numbers are even higher for those who expect to live long lives, too — the average worker who lives until age 90 or beyond could spend around $500,000 on healthcare costs over the course of retirement.

Retirees also face astronomical long-term care costs as they age. Seven in 10 retirees will need long-term care at some point, according to the most recent data from the U.S. Department of Health and Human Services. The average stay in a nursing home costs roughly $6,800 per month, so at that rate, three years of care will amount to close to a quarter of a million dollars.

As if that’s not a hard enough pill to swallow, the kicker is that Medicare won’t help with long-term care bills.

Inflation could devastate your portfolio

According to Investopedia: “Inflation can be a retirement killer.” Inflation steals from retirees by lessening the value of their savings. This erodes their purchasing power. A dollar today, will be worth less tomorrow. For example, a dollar in 1950 had the same buying power as $10.23 in 2017. That’s inflation. In 1930, the average cost of 1lb. hamburger meat was 12 cents. In 2013, it cost $4.68. That’s inflation.

This is another case of 1, 2 or even 3% may not seem like much. But if you add it up over 20 or 30 years, it could have a huge impact on your lifestyle in retirement. That’s why they call inflation the “silent killer.”

According to Kiplinger: Inflation is cumulative. A 2% inflation rate means that something that costs $10,000 now will cost $12,190 in a decade and $14,859 in two decades.

What to do about it

You might think that the people who will go broke in retirement are the ones who have little means. But that’s not the case. It’ll happen to people who are middle class, and it’ll to those who are wealthy. Nobody’s exempt.

The only way to ensure this doesn’t happen to you is to have multiple sources of income (aka income diversification). Income diversification isn’t a one-time thing. You should be constantly updating of your plan.  Things change quickly in today’s world, so if you aren’t updating your plan, you’re setting yourself up for a major fall.

From Investopedia: The question of how much retirement income is “enough” doesn’t lend itself to a one-size-fits-all answer. It depends on many factors, most notably your future retirement expenses, to the extent that you can predict them.

Proactive Strategy #3: Social Security

According to Forbes: Proactive planning Is critical for claiming social security benefits.

Thinking of Social Security as longevity insurance is advantageous and understanding how it integrates with your overall financial and retirement planning is critical.”

Even if you’ve earned a modest income throughout your career, your Social Security benefits could add up to 6-figures in retirement. If you’ve earned an average income, it could be worth a few hundred thousand dollars.  And if you’ve earned an above-average income, your benefits could be several hundred thousand dollars in retirement.

Claiming your Social Security benefits is more complicated and confusing than ever before.  How and when you claim your benefits impacts a lot more than the amount of your benefits check. You could also unknowingly trigger an avalanche of taxes; double your Medicare premiums; and cause you to forfeit thousands of dollars in spousal benefits. 

Most Americans take their social security benefits at face value, and they wind up leaving tens of thousands, if not hundreds of thousands of dollars on the table. According to new research featured in Bloomberg 96% of HARDWORKING Americans lose an average of $111,000 in social security benefits. And it’s all due to critical timing mistakes.

Spousal benefits

You aren’t the only person to think about when you make your claiming decision. This is more than just about you. This impacts your spouse too. If you make a mistake, your decision could wipe out your spouse’s spousal benefits. And there’s no getting this money back. Once it’s gone … it’s gone. Your spousal benefits could add tens of thousands of dollars to your benefit. But it’s riddled with trap doors, so you have to know the rules.

Restricted application strategy is expiring soon

According to Forbes, there’s an opportunity that could INCREASE your Social Security income up to 32%! But this opportunity is expiring soon! They are talking about the restricted application strategy.

“If you were born before Jan. 2, 1954, and you wait to file for benefits at full retirement age, you have the option of filing what is called a “restricted application.” Put another way, anyone turning 66 years old before January 2, 2020, can employ this Social Security benefits strategy.”

The restricted application is a planning tool, used at full retirement age, that allows you to restrict your application for spousal benefits only and delay your own retirement benefit to age 70. This allows you to accumulate delayed retirement credits, effectively increasing your retirement benefit up to 32%.

Proactive Strategy #4:Asset Allocation/rebalancing

From Investopedia: Despite the Federal Reserve’s decision to cut rates for the third time this year, several prominent market strategists see a big stock market selloff in the near future.

Proper asset allocation/diversification is critical to your success in retirement. A properly diversified portfolio– one that mirrors your appetite for risk – could help protect you in any kind of market downturn.

According to Investopedia: The S&P 500 Index is expected to be at 2,500 by early 2020, a plunge of about 18% by early next year, Business Insider reports. He sees bearish manufacturing and consumer data, making a recession likely by the second half of 2020.

From MarketWatch: The ‘mother of all bubbles’ could blow up the economy if profits don’t improve.

“At the end of any economic cycle, we often get warnings that appear to be unrelated. It’s in hindsight that we realize that they were not at all random. Investors saw this during the runup and aftermath of the housing bubble, he added, and we’re seeing it now. Among the recent troubles he thinks are connected are repo market woes, negative-yielding debt, global trade conflicts and collapsing manufacturing. And every cycle ends with excess.

The chances of a bear market rearing its ugly head are growing by the day. We recently celebrated thetenth anniversary for the longest bull market on record. On March 9, 2009, the S&P 500 bottomed out at 676.53. Investors have been richly rewarded since then, the S&P has rallied a whopping 312% since then.

The average stock market correction over the past 70 years lost 13.3%. And the last MAJOR stock market correction resulted in a 57% loss. And $16 TRILLION in market value evaporated

You know what they say, what goes up, must come down. So, it’s not a matter of “if” but “when” this bull market finally comes to an end. And if you plan on retiring soon, this could pose a real threat to your livelihood in retirement.

This is why it’s critical you rebalance your portfolio now before it’s too late. This isn’t a one-time thing, you should be constantly updating your asset allocation. And If you’re current advisor isn’t meeting with you to make proper adjustments at least once a year, you may want to look for a second opinion.

This may sound intimidating, and maybe even a bit depressing. It doesn’t have to be this way! If you have any questions or concerns about your current retirement strategy or investments, please call 952.460.3260 to get in touch with one of our qualified advisors. We’re here to help.

5 Big Tax Mistakes That Could Cost You an Arm and a Leg When You Retire

How much money have you saved for retirement?

How much of it is inside an IRA, or 401K?

Let’s say you’ve saved $250,000 in one of these tax-deferred accounts.

You know it’s not really 250 grand, right?

When you withdraw this money in retirement, you could lose a big chunk of it to Uncle Sam.

Most people ignore the significant impact taxes could have on their IRA and 401K because they think they don’t have a choice in the matter.

That’s simply not the case.  

In fact, you have far more control over your taxes than you know, including

  • Your IRA and 401K
  • Your social security benefits
  • Your investment income, and more

I’ll reveal how you could avoid 5 big tax mistakes as you plan for retirement, including

  • How you could reduce, or eliminate paying taxes on up to 85% of your social security benefits. 
  • How you can use “tax diversification” to save a bundle
  • Plus, the tax planning strategies to help you avoid getting gouged by taxes with your IRA and 401K.

Mistake #1: Ignoring the significance of taxes in retirement

What do you think will be your biggest expense in retirement? Most people think it will be their mortgage, or their healthcare expenses. But, it will likely be taxes.

Taxes on your IRA, 401K and other retirement accounts. Taxes on your Social Security benefits. And taxes on your investment income. It could be a field day for Uncle Sam, unless you take proactive steps to protect yourself now. 

From Forbes “Retirement tax mistakes can wreak havoc on your financial independence. Avoiding them can help you wring every last dollar of enjoyment from your retirement nest egg. Ignoring them could result in paying more taxes and potentially running out of money before you run out of life.” s

The conventional wisdom claims that you will have lower taxes when retire. But we’ve found this to be wishful thinking at best. Your taxes could actually be much higher.

According to Forbes “Taxes could double in the next 10 years.” (Click Here)

According to CNBC your marginal tax rate could jump to as much as 46% when the Trump Tax cuts expire in 20-25.That’s a huge threat retirees overlook the threat of future tax increases. No one knows for sure what future tax rate will be, but it’s safe to say the stage is set for higher rates to come. Not only are Social Security and Medicare on shaky ground, but the country has $22 Trillion in national debt that keeps growing by the minute. The only way to solve these problems will most likely be higher taxes to come.

According to the Washington Times (Click Here)“Federal Debt To Reach 100 Trillion” within 30 years (2048). And “Social Security will become insolvent early in the 2030s.”

If you want to keep more of your hard-earned money, and ensure your success in retirement, you must have a plan for the taxes you could pay.

There’s a big difference between tax planning, versus tax preparation. Tax preparation is something you do with your Accountant, or CPA. You’re just reporting what happened last year. But if you want to pay fewer taxes, then this requires a forward-looking tax plan.

So what exactly is tax planning? According to Investopedia:

Tax planning is the analysis of finances from a tax perspective, with the purpose of ensuring maximum tax efficiency. Considerations of tax planning include timing of income, size, timing of purchases, and planning for expenditures. Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss harvesting.

How will you reduce your taxes when you withdraw money from your IRA and 401?

How will you navigate required minimum distributions?

Mistake #2: Not having a strategy for your tax-deferred accounts

Taxes on your IRA and 401K

One of the biggest retirement tax traps, is withdrawing money from your 401K, IRA, or other retirement accounts.

Retirement accounts like the IRA and 401K are extremely popular ways to save money for retirement. Most employers not only offer workers these accounts, they are willing to match a portion of the funds you contribute. It’s a no-brainer, right?

The icing on the cake is that these accounts offer tax savings to boot. The money you contribute is tax free.

What most people don’t realize, is that you could be creating a tax time bomb. Why? Because the IRS wants their cut. So when you withdraw that money, you have to pay taxes. And that could be a major problem you weren’t expecting. 

The truth is, some people will pay through the nose in taxes in retirement. But a smart and savvy few will legally pay far less. That only happens by having a tax-efficient investment strategy.

According to Time Magazine“A $2 Trillion Tax Bill is Coming Due for Baby Boomers.” (Click Here).  And that’s because Required Minimum Distributions (RMDs) could be your worst enemy (unless you take action).

Here’s how RMDs work: When you turn 70 and a half, RMD’s kick in, and you could be forced to sell your investments and withdraw money from your IRA, or 401K whether you want to or not. And you’ll never get this money back again.

If you ignore required minimum distributions, or don’t follow the rules “to a T,” you could face taxes, penalties and fees that could rob you of more than 50% of your IRA, 401K or other retirement accounts.

Kiplinger calls your IRA, 401K, or other “tax-deferred” retirement account a “sleeping tax bear” that“wakes up when we get into our 70s, and it growls loudly.” (Click Here)

According to Forbes, some taxpayers over 70½ can find themselves subject to a 55% marginal income tax rate due to a combination of RMD income, Social Security benefits and capital gains.”

RMDs aren’t easy. They are often misunderstood, or totally ignored. The key is to address this issue early so you can get in front of any potential problems. Creating a withdrawal strategy in your late 50’s/early 60’s could prevent you from needlessly paying thousands in taxes, penalties and fees to the government.

Know what account are subject to RMDs

Mistake #3: Not having tax diversification

We’re not talking about asset allocation or investment diversification. We’re talking about tax diversification!

From Kiplinger (Click Here), “You don’t want to own too many assets that are taxed the same way or at the same time. This accentuates the significance of tax diversification. In my experience, it’s one of the most underrated financial planning concepts.”

There are three basic tax categories to diversify in:

  1. – brokerage accounts, checking and savings accounts. You pay tax on the dividends, interest, or capital gains.
  2. – 401(k), Traditional IRA, 403(b), real estate, or hard assets.
  3. – Roth IRA, interest from municipal bonds, and certain types of life insurance.

You have more control over how much you’ll pay in taxes in retirement, than any other time in your life. But you have to be proactive and get in front of this. BEFORE the tax bill comes.

Mistake #4: Not converting some of your money to a ROTH

From Kiplinger“By strategically shifting assets out of your IRA before you turn 70½ through Roth IRA conversions during years in which your marginal tax bracket is low, you may reduce your RMDs and the amount of tax you pay.”

“Even if you convert only a small portion of your traditional IRA into a Roth, this may help you lower your tax bill in retirement, since Roth distributions aren’t taxed.”

What is a Roth?

An IRA or 401K allows tax-free contributions. But when you withdraw that money in retirement, you have to pay taxes on that money. But you could avoid by converting some, or all of your traditional IRA or 401K … to a ROTH.

Here’s how a ROTH works: A ROTH IRA or 401K doesn’t allow tax-free contributions (that’s the catch), but you pay zero tax when you withdraw money in retirement. And you don’t have to deal with RMDs either. That means you get taxfree growth – which could add up to tens of thousands of dollars in retirement, if not more. That could be a financial game-changer for you and your family.

Another benefit – there are no early withdrawal penalties to worry about. If you withdraw from a ROTH account before 59 ½, you only pay taxes on your earnings. If you withdraw any money from your Traditional IRA or 401K before you turn 59 ½, you’re slapped with a stiff 10% penalty on the amount you withdrew. This  plan is not usually sponsored by your employer, and it’s NOT tax deductible, you might turn a blind eye to a ROTH IRA or 401K. But this is the only way to build tax-free growth and you could be missing out on a huge windfall of money in retirement. Think long term.

What’s the difference between a Roth IRA and Roth 401K? Good question. Here’s a great explanation from Investopedia (Click Here)

There is another 401(k) plan that combines the traditional 401(k) with a Roth IRA. Established in 2006, the Roth 401(k) offers participants a different tax-advantaged option. With these plans, you make contributions with after-tax dollars, but withdrawals are fully tax-free as long as certain conditions are met. In other words, while you do have to pay tax on your contributions to a Roth 401(k), you won’t have to pay any tax when you withdraw the money in retirement. All the money in your account grows tax-free. This type of plan is ideal for people who think they will be in a higher tax bracket in retirement than they are now. Additionally, unlike Roth IRAs, there are no income limits on being able to contribute to a Roth 401(k). You can only contribute to a Roth IRA if your income is below a certain threshold. (In 2016, that income max is $133,000 for single filers and $194,000 for married filers.) Therefore, Roth 401(k)s offer an avenue for high earners who want to invest in a Roth without converting a traditional IRA. The Roth 401(k) option is available in more than 50% of company 401(k) plans. 

With the new Trump Tax plan, this could have a once in a lifetime opportunity right now that you can’t afford to ignore. Taxes may never be this low again, so a ROTH conversion could be a financial windfall for you in retirement.

The Trump Tax Plan is set to expire in 2025, so the time is now to make a conversion. With a skyrocketing deficit and national debt, combined with lots of pressure from the opposing party, there’s a good chance the trump tax cuts won’t be made permanent.

With the new Trump Tax Plan, there are some things to look out for when converting to a Roth IRA or 401K: Roth re-characterizations. This is the big change with the new Trump tax plan.

Retirees face a major hurdle when they do a Roth conversion. It’s hard to know exactly what tax impact a conversion might have until the year is over and you know what other income, deductions, and other factors will determine your overall tax liability. A conversion may have seemed like a smart move at first, until you get all the pieces of the puzzle.  Now it’s going to cost you.

Before 2018, you could reverse your Roth conversion decision and pinpoint the smartest amount. Now you can’t. You are now stuck with your decision (which could be costly if you don’t plan it just right.)

This is why it’s more important than ever to seek the right financial advice.

Mistake #5: Forgetting about taxes on your social security benefits

Most people don’t realize they could pay taxes on as much as 85% of their Social Security benefits. And when the tax bill hits, it’s too late to do anything about it.

I’ve got some news for middle income retirees you’re about to get punished by the Social Security Administration. All that money you’ve contributed to the system could be significantly reduced unless you take serious action well in advance.

According to Fidelity (Click Here) If you are approaching retirement and think your Social Security benefit always comes tax-free, you’re mistaken. Today, 56% of Americans pay taxes on their Social Security benefits—up from 10% of Social Security recipients in 1984 when the federal government first began taxing the Social Security benefit.

According to MarketWatch (Click Here)“Because of the way Social Security benefits are taxed, many middle-income retirees face a ‘tax torpedo,’ where their marginal tax rate can more than double.” This should certainly get your attention.

Here’s how your benefits are taxed (Click Here) …

  • If your income is over $25,000 a year, or if you’re a couple with over $32,000 a year you will face taxes on up to 50% of Social Security benefits.
  • If you have over $34,000 in income, or $44,000 for couples you could pay taxes on up to 85% of benefits.
  • Were you planning on paying taxes on up to 85% of your benefits?

Here’s a great article with some ideas for reducing your taxes on your social security benefits

US News: How to Minimize Social Security Taxes Click Here

  1. Stay below the taxable thresholds.
  2. Manage your other retirement income sources.
  3. Consider taking IRA withdrawals before signing up for Social Security.
  4. Save in a Roth IRA.
  5. Factor in state taxes.
  6. Set up Social Security tax withholding.

If you have any questions or concerns about what you’ve read here, please don’t hesitate to call us at 952.460.3260. We’re here to help!

Sequence of Returns Risk

What will be your biggest risk when you retire? It’s probably not what you think it is.

Most people think it’ll be the skyrocketing cost of health care, higher taxes, or social security going bust.

But it’s not any one of these issues!

The biggest threat facing you in retirement is “sequence of returns” risk, and it could have a devastating impact on your nest egg.

According to CNBC “It could cause you to end up with two-thirds less money for the rest of your life.”

So, what exactly is “sequence of returns” risk?

It’s the risk of retiring during a downturn in the stock market.

If the stock market is falling during the first few years of your retirement, the combination of stock market losses and the need to withdraw money to pay for retirement could literally decimate your nest egg.

Because the stock market has been on a tear for the past 10+ years, the chances of a stock market correction, or bear market are growing by the day.

Imagine that when you retired, you’re forced to sell your investments in your IRA, 401K or other tax-deferred accounts during a downturn in the stock market – whether you want to or not.

This is exactly what could happen due to Required Minimum Distributions.

The government forces you to sell your investments inside your tax-deferred accounts whether the stock market is up or down. Once you sell these investments, you’ve locked in your losses, and you’ll never get this money back.

The only way you could avoid this is by having a strategy for RMD’s. The sooner you create that strategy, the more money you could potentially save.

Nest egg considerations:

Kiplinger (Click Here) has a great point about withdrawing money in retirement –

Let’s get real about “decumulation”—the process of spending down your nest egg in retirement. While it’s tempting to rely on simple rules of thumb and “safe” spending rates, they don’t address all of the unknowns: How long will you live? What unexpected expenses will you face? How will market performance, inflation and tax rates change in the future? Getting retirement spending right is actually “like trying to hit a moving target in the wind.”

Because of sequence risk, it’s not an effective way to plan for retirement by plugging a simple rate of return into an online retirement planning tool, which assumes you earn that same return each year.

A portfolio doesn’t work that way. You can invest the exact same way, and during one 20-year period, you might earn 10% plus returns, and in a different 20-year time period, you’d earn 4% returns. Average returns don’t work either. Half the time, returns will be below average.

Do you want a retirement plan that only works half the time?

Problems with the 4% rule

  1. Forbes, “The 4% Retirement-Asset Spend-Down Rule Is Rubbish.” But many retirees count on the 4% rule for their withdrawal strategy. According to article … “The 4% retirement rule says you should withdraw and spend an amount equal to 4% of the retirement account balances you held when you first retired”(Click Here). 
  2. Sequence of returns risk poses a major threat to this rule. You need flexibility when how much you withdraw. If the stock market plunges, the last thing you want to do is withdraw more than you need.
  3. Motley Fool, the 4% rule “doesn’t account for changing market conditions. In a recession, it’s probably not wise to step up your withdrawal amounts; you may even want to reduce them slightly. But when the markets are doing well, you might be able to withdraw more than 4% comfortably.”
  4. Kiplinger: Is 4% Withdrawal Rate Still a Good Retirement Rule of Thumb?

Watch out for RMDs

You could be forced to sell your investments and withdraw money from your retirement accounts whether you want to or not, and you’ll never get this money back again. This forces you to lock in losses, whether you like it or not.

They kick in when you turn 70 ½. And if you fail to take them, or if you make a mistake, you could face a stiff 50% penalty on the money you were supposed to withdrawal. That could leave you in a dire financial situation.C

CTA/ REBALANCE

When’s the last time you updated or rebalanced your investments? For many people, it’s been years. This is how you could get yourself into real trouble, especially with how fragile the markets are now.

The single, most important thing you could do for yourself is update and rebalance your investments, including the investments in your IRA, 401K and other retirement accounts.

This is a lot more complicated than a simple mix of stocks, bonds, and mutual funds.

We can show you the strategies that could properly diversify your portfolio that could keep your money working for you while reducing your risk.

The problem with sequence of returns risk is you have no control. You have no control over the ups and downs of the stock market.  You have no control over government rules that force you to withdraw money from your IRA or 401K.

However, you DO have control over one thing. You have control of converting your traditional IRA or 401K to a ROTH, which could help you sidestep sequence of returns risk.

Consider a Roth conversion

Depending on your situation, if might be beneficial to convert your 401K or Traditional IRA to a ROTH, or simply to save a portion of your retirement savings in a ROTH. A traditional IRA allows tax-free contributions, but when you withdraw that money, you must pay taxes. When you turn 70 ½ you are forced to withdraw this money (RMDs). 

A ROTH doesn’t allow tax-free contributions, but you pay zero tax when you withdraw money in retirement, and you don’t have to deal with RMDs. That means tax-free growth.

A Roth could give you the flexibility you need when dealing with sequence of returns risk. You gain complete control over your withdrawals.

The trick with a Roth IRA is you need to have a Roth IRA for at least five years before you can take money out of it tax-free.

Have diversified streams of income (including social security, annuities, laddered bonds)

According to The Balance, the best thing you can do to protect yourself from sequence of returns risk

“Is understand that all choices involve a trade-off between risk and return. Develop a retirement income plan, follow a time-tested disciplined approach, and plan on some flexibility.”

The 3 most important words in retirement are income, income and income.  Income will be the lifeblood of your retirement. Show me someone who lives in constant fear of running out of money in retirement, and I’ll show you someone who doesn’t have a plan to generate income.

It’s not about simply having a plan to generate income. You need a diversified income plan if you want to protect yourself from sequence of returns risk. It’s too risky to rely on just one source of income in retirement.

Income diversification isn’t a one-time thing. You should be constantly updating of your plan.  Things change quickly in today’s world, so if you aren’t updating your plan, you’re setting yourself up for a major fall.

The following are some potential sources of income to help protect you from sequence of returns risk.

Here’s a great resource fromForbes: 4 Approaches to Managing Sequence of Returns in Retirement

There are 4 general techniques for managing sequence risk in retirement:

  1. Spend Conservatively
  2. Maintain Spending Flexibility
  3. Reduce Volatility (when it matters most)
    • Build an income bond ladder
    • Build a lifetime spending floor with an annuity
    • Rising equity glide path
    • Use funded ratio to manage asset allocation
    • Use financial derivatives to cut downside risk
  4. Buffer Assets—Avoid Selling at Losses
    • Cash reserve to fund near-term expenses
    • Cash value of life insurance
    • Line of credit/Home equity

Here’s another fromForbes: 6 Ways to Generate Lifetime Income in Retirement

Immediate Annuity

An immediate annuity mimics the behavior of a pension by providing a fixed amount of income every month for the life of the retiree. It is the simplest and most-direct approach to converting a retirement nest egg into a steady income stream to meet monthly expenses.

Laddered Bonds

Unlike an immediate annuity, a laddered bond enables you to convert your savings into cash if needed. Investing in bonds of staggered maturities (“laddering” them) provides a stable stream of income through regular payments of principal and interest from the bonds while maintaining access to your savings.  

Target Date Fund with Systematic Spending

Increasingly popular Target Date Funds (TDFs) adjust the mix of stocks, bonds, and cash over time from more-risky to less-risky as you approach your retirement date. A TDF with a systematic withdrawal plan provides an income stream while keeping assets liquid and invested, and creates the potential to generate higher returns.

Managed Payout Fund

For the benefits of a simple TDF with less risk, retirees could consider managed payout funds. This option invests in both stocks and bonds while reducing the downside potential by providing monthly withdrawals equal to a fixed percentage of the account balance.

And another Forbes: 8 Sources of Retirement Income in a Low-Yield World

Dividend stocks

Most mature companies pay a recurring dividend to shareholders. In the majority of cases, these dividends are paid quarterly to shareholders who owned the stock on the date of record. Typical yields for most dividend focused ETFs are 2-3%.

Investment grade corporate bond fund

Has bond holdings from highly-rated companies in a proportion that is meant to mimic the indices they track.

Municipal bonds

Debt obligations issued by states or other municipalities to fund projects. Some, but not all, municipal bonds are exempt from federal tax for all investors and exempt from state tax if the investor lives in the state of the municipality issuing the bond.

REIT

Real estate investment trusts own a portfolio of real estate, the purchase of which is financed by debt and the issuance of securities to investors. A REIT can be public or private and open-end or closed-end.

Reverse mortgages

The bank pays you, you keep your home, and it remains part of your estate. Essentially, you are putting your home equity to work for you.

Commercial/residential/multi-unit real estate

Buying a rental property is a rather straightforward proposition, especially if you know the local market well that you’re investing in.

Annuities

Insurance products that pay out over your lifetime, no matter how long you live. And these products have come a long way over the last few decades.

If you want to go into depth about using DIVIDEND STOCKS to protect against sequence of returns risk, click HERE.

And don’t forget about SOCIAL SECURITY

Social security is one your most important sources of income. You can’t outlive it, and it’s protected from market fluctuations, and inflation (COLA).

Even if you’ve earned a modest income throughout your career, your Social Security benefits could add up to 6-figures in retirement. If you’ve earned an average income, it could be worth a few hundred thousand dollars. And if you’ve earned an above-average income, your benefits could be several hundred thousand dollars in retirement. This is enough money to get Warren Buffet’s attention.

Most Americans take their social security benefits at face value. And they wind up leaving tens of thousands, if not hundreds of thousands of dollars on the table. According to new research featured in Bloomberg … 96% of HARDWORKING Americans lose an average of $111,000 in social security benefits. And it’s all due to critical timing mistakes.

Everyone’s situation is unique. The only way to get the most out of your benefits is with a customized Social Security analysis.

So what?

Successful retirements are not built on how much money you’ve saved for retirement.

They’re not built on how many assets you have either. They’re built on your ability to generate INCOME in retirement.

If you don’t have a carefully thought out plan to generate income from different sources, it’s the fastest way you could run through your entire life savings far too soon.