In its annual Retirement Confidence Survey of current workers and retirees, the Employee Benefit Research Institute found that workers’ confidence in their ability to fund retirement fell by the largest extent since the financial crisis of 2008, to levels not seen since 2018. Retirees’ confidence also took a substantial hit. Overall, just 20% of respondents … Read more
Financial planning is a vital aspect of life. Often, the financial lessons and advice passed down from generation to generation shape an individual’s approach to finances. In honor of Mother’s Day, we are delighted to have a multi-generational family of Ballast Advisors clients, Jean, Val, and Amanda, who have agreed to share their experiences and … Read more
Business Owners Must Stay Ahead of Daily Events and Keep the End in Mind Building a business is kind of like being a parent. You start with an infant enterprise that needs constant attention and often deprives you of sleep, absorbs a big chunk of your savings, and pushes all of your hobbies to the … Read more
A cost-benefit analysis could help determine whether it would be beneficial to pay taxes on some of your IRA assets now rather than later. One silver lining in the current bear market is that this could be a good time to convert assets from a traditional IRA to a Roth IRA. Converted assets are subject … Read more
The Health of Social Security: Some Good News and Some Bad News With approximately 94% of American workers covered by Social Security and 65 million people currently receiving benefits, keeping Social Security healthy is a major concern.1 Social Security isn’t in danger of going broke — it’s financed primarily through payroll taxes — but its … Read more
5 Reasons to Consult a Financial Planner on New Tax Legislation The new tax legislation proposed will undoubtedly impact the tax responsibilities of those individuals and families who have multi-generational wealth. While the highest impact will be seen generally for our ultra-high-net-worth and highest-earning clients, at Ballast Advisors we … Read more
In general, workers seem to begin preparing for retirement almost as soon as they get their first job. However, according to the 2021 Retirement Confidence Survey by the Employee Benefit Research Institute (EBRI), retirement preparations do vary a bit by age group. Let’s look at Ages 45-54 with our infographic “5 Facts About Planning for Retirement”
By Paul Parnell
“Have you enjoyed your money?” This is a question I often ask my clients. Too often I see investors who work and save diligently for a lifetime and yet never actually enjoy the fruits of their labor.
After a year of life in a pandemic, I’m seeing a shift, and more families are taking time to reevaluate their priorities in terms of how they truly want to spend their time and money. Here are some common questions and points of consideration to reflect on for your personal financial plan.
For example, I have clients say they plan to travel more once things open again. Some desire to move closer to family, to downsize, to retire earlier. Sadly, there have been many stark reminders this year that life is short, and our health is never guaranteed. I see families that are more reflective on leaving a legacy and making significant changes to their trusts to protect their assets.
Any effective financial plan must take these elements into consideration.
Early retirement, a career change, or job loss means impact to employee benefits that are tied to your long-term goals.
Specifically, Cobra was extended again – for at least another 6 months beyond May. This offers the unemployed more time to find new work and maintain their healthcare benefits – an important component of your financial plan. Accordingly, if you’ve lost your job, you may need to evaluate whether or not you can benefit from rolling your 401K over to an individual retirement account.
Volatility in the markets over the last year impacted executive compensation plans. It’s important to reevaluate your stock options, RSUs, or any additional incentives for consequences.
I am also seeing that, for people who have retained their jobs, many have accumulated more cash reserves than normal. If your cash reserve is beyond the recommended 3-6 months of expenses, you should consider shifting some to longer term investments.
Risk tolerance often changes when you go through major life events. I’ve heard clients say, “Life too short and I want to retire early,” and they are willing to buckle down and live on less in retirement.
Meet with your financial planner and evaluate your current risk tolerance. Is it enough to maintain a high probability of your assets lasting? Cash and more conservative investments like CD’s aren’t paying much of anything these days. With interest rates so low, and plans for new economic expansion, historically this is a time to be more aggressive. Ensure that your portfolio is balanced to meet your future goals.
There are likely some big tax law changes coming over the next couple years. This is the time to be looking at tax shelters and maximizing your retirement plans, if you can. At Ballast Advisors, we also have an affiliated CPA practice, so this is a comprehensive service we may offer our clients. We work with our client’s other advisors—including accountants, attorneys, and bankers—to ensure the seamless execution of your plan.
Capital Gains tax are likely to increase to historical levels, and this is something to be planning for earlier than perhaps you had planned. It’s something to be watching very carefully.
Any successful investment strategy requires getting to know our clients- to understand their dreams, goals and create a complete picture of their financial situation.
Anytime you have major life change or shift priorities – be they personal or financial –your financial plan needs to reflect those changes. It is equally important to update your estate plan. It’s important to consult with your financial professionals to ensure that you are on track to meet your goals, no matter what life brings.
Whatever your passion is – from travel to grandkids – make sure you build in a plan to enjoy your money.
IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs.
The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.
More women are working and taking charge of their own retirement planning than ever before. What does retirement mean to you? Do you dream of traveling? Pursuing a hobby? Volunteering your time, or starting a new career or business? Simply enjoying more time with your grandchildren? Whatever your goal, you’ll need a retirement income plan that’s designed to support the retirement lifestyle that you envision, and minimize the risk that you’ll outlive your savings.
Establishing a target age is important, because when you retire will significantly affect how much you need to save. For example, if you retire early at age 55 as opposed to waiting until age 67, you’ll shorten the time you have to accumulate funds by 12 years, and you’ll increase the number of years that you’ll be living off of your retirement savings. Also consider:
• The longer you delay retirement, the longer you can build up tax-deferred funds in your IRAs and employer-sponsored plans such as 401(k)s, or accrue benefits in a traditional pension plan if you’re lucky enough to be covered by one.
• Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early? Do you have health insurance coverage through your spouse’s employer? If not, you may have to look into COBRA or a private individual policy — which could be expensive.
• You can begin receiving your Social Security retirement benefit as early as age 62. However, your benefit may be 25% to 30% less than if you waited until full retirement age. Conversely, if you delay retirement past full retirement age, you may be able to increase your Social Security retirement benefit.
• If you work part-time during retirement, you’ll be earning money and relying less on your retirement savings, leaving more of your savings to potentially grow for the future (and you may also have access to affordable health care).
• If you’re married, and you and your spouse are both employed and nearing retirement age, think about staggering your retirements. If one spouse is earning significantly more than the other, then it usually makes sense for that spouse to continue to work in order to maximize current income and ease the financial transition into retirement.
We all hope to live to an old age, but a longer life means that you’ll have even more years of retirement to fund. The problem is particularly acute for women, who generally live longer than men. To guard against the risk of outliving your savings, you’ll need to estimate your life expectancy. You can use government statistics, life insurance tables, or life expectancy calculators to get a reasonable estimate of how long you’ll live. Experts base these estimates on your age, gender, race, health, lifestyle, occupation, and family history. But remember, these are just estimates. There’s no way to predict how long you’ll actually live, but with life expectancies on the rise, it’s probably best to assume you’ll live longer than you expect.
Once you know when your retirement will likely start, how long it may last, and the type of retirement lifestyle you want, it’s time to estimate the amount of money you’ll need to make it all happen. One of the biggest retirement planning mistakes you can make is to underestimate the amount you’ll need to save by the time you retire. It’s often repeated that you’ll need 70% to 80% of your pre-retirement income after you retire. However, the problem with this approach is that it doesn’t account for your specific situation. Focus on your actual expenses today and think about whether they’ll stay the same, increase, decrease, or even disappear by the time you retire. While some expenses may disappear, like a mortgage or costs for commuting to and from work, other expenses, such as health care and insurance, may increase as you age. If travel or hobby activities are going to be part of your retirement, be sure to factor in these costs as well. And don’t forget to take into account the potential impact of inflation and taxes.
Once you have an idea of your retirement income needs, your next step is to assess how prepared you (or you and your spouse) are to meet those needs. In other words, what sources of retirement income will be available to you? Your employer may offer a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide a portion of your retirement income. Other sources of retirement income may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you receive from those sources will depend on the amount you invest, the rate of investment return, and other factors. Finally, if you plan to work during retirement, your earnings will be another source of income.
When you compare your projected expenses to your anticipated sources of retirement income, you may find that you won’t have enough income to meet your needs and goals. Closing this difference, or “gap,” is an important part of your retirement income plan. In general, if you face a shortfall, you’ll have five options: save more now, delay retirement or work during retirement, try to increase the earnings on your retirement assets, find new sources of retirement income, or plan to spend less during retirement.
A 65-year-old woman is expected to live another 20.8 years, compared with 19.6 years for a man. (Source: NCHS Data Brief, Number 395, December 2020) *Generally, annuity contracts have fees and expenses, limitations, exclusions, holding periods, termination provisions, and terms for keeping the annuity in force. Most annuities have surrender charges that are assessed if the contract owner surrenders the annuity
Even after that special day comes, you’ll still have work to do. You’ll need to carefully manage your assets so that your retirement savings will last as long as you need them to.
• Review your portfolio regularly. Traditional wisdom holds that retirees should value the safety of their principal above all else. For this reason, some people shift their investment portfolio to fixed income investments, such as bonds and money market accounts, as they enter retirement. The problem with this approach is that you’ll effectively lose purchasing power if the return on your investments doesn’t keep up with inflation. While it generally makes sense for your portfolio to become progressively more conservative as you grow older, it may be wise to consider maintaining at least a portion in growth investments.
• Spend wisely. You want to be careful not to spend too much too soon. This can be a great temptation, particularly early in retirement. A good guideline is to make sure your annual withdrawal rate isn’t greater than 4% to 6% of your portfolio. (The appropriate percentage for you will depend on a number of factors, including the length of your payout period and your portfolio’s asset allocation.) Remember that if you whittle away your principal too quickly, you may not be able to earn enough on the remaining principal to carry you through the later years.
• Understand your retirement plan distribution options. Most pension plans pay benefits in the form of an annuity. If you’re married, you generally must choose between a higher retirement benefit that ends when your spouse dies, or a smaller benefit that continues in whole or in part to the surviving spouse. A financial professional can help you with this difficult, but important, decision.
• Consider which assets to use first. For many retirees, the answer is simple in theory: withdraw money from taxable accounts first, then tax-deferred accounts, and lastly, tax-free accounts. By using your tax-favored accounts last and avoiding taxes as long as possible, you’ll keep more of your retirement dollars working for you. However, this approach isn’t right for everyone. And don’t forget to plan for required distributions. You must generally begin taking minimum distributions from employer retirement plans and traditional IRAs when you reach age 72, whether you need them or not. Plan to spend these dollars first in retirement.
• Consider purchasing an immediate annuity. Annuities are able to offer something unique — a guaranteed income stream for the rest of your life or for the combined lives of you and your spouse (although that guarantee is subject to the claims-paying ability and financial strength of the issuer). The obvious advantage in the context of retirement income planning is that you can use an annuity to lock in a predictable annual income stream, not subject to investment risk, that you can’t outlive.*
Unfortunately, there’s no one-size-fits-all when it comes to retirement income planning. A financial professional can review your circumstances, help you sort through your options, and help develop a plan that’s right for you.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021
IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.
You will need to think about the disposition of your assets at your death and any tax implications. Statistically speaking, women live longer than men. So if you are married, you’ll also probably have the last word about the final disposition of all of the assets you’ve accumulated during your marriage. You’ll want to consider whether these concepts and strategies apply to your specific circumstances.
When you transfer your property during your lifetime or at your death, your transfers may be subject to federal gift tax, federal estate tax, and federal generation-skipping transfer (GST) tax. (The top estate and gift tax rate is 40%, and the GST tax rate is 40%.) Your transfers may also be subject to state taxes.
Gifts you make during your lifetime may be subject to federal gift tax. Not all gifts are subject to the tax, however. You can make annual tax-free gifts of up to $15,000 per recipient. Married couples can effectively make annual tax-free gifts of up to $30,000 per recipient. You can also make tax-free gifts for qualifying expenses paid directly to educational or medical services providers. And you can also make deductible transfers to your spouse and to charity. There is a basic exclusion amount that protects a total of up to $11,700,000 (in 2021, $11,580,000 in 2020) from gift tax and estate tax.
Property you own at death is subject to federal estate tax. As with the gift tax, you can make deductible transfers to your spouse and to charity, and there is a basic exclusion amount that protects up to $11,700,000 (in 2021, $11,580,000 in 2020) from tax.
The estate of someone who dies in 2011 or later can elect to transfer any unused applicable exclusion amount to his or her surviving spouse (a concept referred to as portability). The surviving spouse can use this deceased spousal unused exclusion amount (DSUEA), along with the surviving spouse’s own basic exclusion amount, for federal gift and estate tax purposes. For example, if someone died in 2011 and the estate elected to transfer $5,000,000 of the unused exclusion to the surviving spouse, the surviving spouse effectively has an applicable exclusion amount of about $16,700,000 ($11,700,000 basic exclusion amount plus $5,000,000 DSUEA) to shelter transfers from federal gift or estate tax in 2021.
The federal GST tax generally applies if you transfer property to a person two or more generations younger than you (for example, a grandchild). The GST tax may apply in addition to any gift or estate tax. Similar to the gift tax provisions above, annual exclusions and exclusions for qualifying educational and medical expenses are available for GST tax. You can protect up to $11,700,000 (in 2021, $11,580,000 in 2020) with the GST tax exemption.
The annual gift tax exclusion, the gift tax and estate tax basic exclusion amount, and the GST tax exemption are all indexed for inflation and may increase in future years.
Generally, if you give property during your life, your basis (generally, what you paid for the property, with certain up or down adjustments) in the property for federal income tax purposes is carried over to the person who receives the gift. So, if you give your $1 million home that you purchased for $50,000 to your brother, your $50,000 basis carries over to your brother — if he sells the house immediately, income tax will be due on the resulting gain.
In contrast, if you leave property to your heirs at death, they get a “stepped-up” (or “stepped-down”) basis in the property equal to the property’s fair market value at the time of your death. So, if the home that you purchased for $50,000 is worth $1 million when you die, your heirs get the property with a basis of $1 million. If they then sell the home for $1 million, they pay no federal income tax.
Making gifts during one’s life is a common estate planning strategy that can also serve to minimize transfer taxes. One way to do this is to take advantage of the annual gift tax exclusion, which lets you give up to $15,000 (in 2020 and 2021) to as many individuals as you want gift tax free. As noted above, there are several other gift tax exclusions and deductions that you can take advantage of. In addition, when you gift property that is expected to appreciate in value, you remove the future appreciation from your taxable estate. In some cases, it may even make sense to make taxable gifts to remove the gift tax from your taxable estate as well.
Women live an average of 5.1 years longer than men.* That’s important because it means that there’s a greater chance that you’ll need your assets to last for a longer period of time. Keep this in mind when you consider making lifetime gifts. Property you give away is no longer available to you. *NCHS Data Brief, No. 395, December 2020.
There are a number of trusts that are often used in estate planning. Here is a quick look at a few of them.
• Revocable trust.
You retain the right to change or revoke a revocable trust. A revocable trust can allow you to try out a trust, provide for management of your property in case of your incapacity, and avoid probate at your death.
• Marital trusts.
A marital trust is designed to qualify for the marital deduction. Typically, one spouse gives the other spouse an income interest for life, the right to access principal in certain circumstances, and the right to designate who receives the trust property at his or her death. In a QTIP variation, the spouse who created the trust can retain the right to control who ultimately receives the trust property when the other spouse dies. A marital trust is included in the gross estate of the spouse with the income interest for life.
• Credit shelter bypass trust.
The first spouse to die creates a trust that is sheltered by his or her applicable exclusion amount. The surviving spouse may be given interests in the trust, but the interests are limited enough that the trust is not included in his or her gross estate.
• Grantor retained annuity trust (GRAT).
You retain a right to a fixed stream of annuity payments for a number of years, after which the remainder passes to your beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.
• Charitable remainder unitrust (CRUT).
You retain a stream of payments for a number of years (or for life), after which the remainder passes to charity. You receive a current charitable deduction for the gift of the remainder interest.
• Charitable lead annuity trust (CLAT).
A fixed stream of annuity payments benefits a charity for a number of years, after which the remainder passes to your noncharitable beneficiaries, such as your children. Your gift of a remainder interest is discounted for gift tax purposes.
Life insurance plays a part in many estate plans. In a small estate, life insurance may actually create the estate and be the primary financial resource for your surviving family members. Life insurance can also be used to provide liquidity for your estate, for example, by providing the cash to pay final expenses, outstanding debts, and taxes, so that other assets don’t have to be liquidated to pay these expenses. Life insurance proceeds can generally be received income tax free. Life insurance that you own on your own life will generally be included in your gross estate for federal estate tax purposes. However, it is possible to use an irrevocable life insurance trust (ILIT) to keep the life insurance proceeds out of your gross estate. With an ILIT, you create an irrevocable trust that buys and owns the life insurance policy. You make cash gifts to the trust, which the trust uses to pay the policy premiums. (The trust beneficiaries are offered a limited period of time to withdraw the cash gifts.) If structured properly, the trust receives the life insurance proceeds when you die, tax free, and distributes the funds according to the terms of the trust.
Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2021
IMPORTANT DISCLOSURES The opinions expressed herein are those of Ballast Advisors, LLC and are subject to change without notice. The third-party material presented is derived from sources Ballast Advisors consider to be reliable, but the accuracy and completeness cannot be guaranteed. Past performance is not indicative of future results. Nothing contained herein is an offer to purchase or sell any product. This material is for informational purposes only and should not be considered investment advice. Ballast Advisors reserve the right to modify its current investment strategies and techniques based on changing market dynamics or client needs. Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Ballast Advisors, LLC is a registered investment advisor under the Investment Advisers Act of 1940, as amended. Registration does not imply a certain level of skill or training. More information about the firm, including its services, strategies, and fees can be found in our ADV Part 2, which is available without charge upon request.
