Just Enough About RMDs (and a few other acronyms) to Make You Smarter Than Yesterday
I needed to write this now because the end of the year is a critical deadline for Required Minimum Distributions (RMDs). What’s more, there have been so many changes to the tax code over the past five years that there isn’t a financial planner who can keep things straight without a cheat sheet. To top it off, there’s a best practice you should know about, especially if you manage your own IRA/401(k)/403(b) investment accounts.
Apologies to those who would prefer a story. This week I only have cold, hard, financial facts. Let’s start with the basics:
An Update on My Medicare Application
As you know, I applied for Medicare at the beginning of this month. This week, I was going to write on freeing up cash for Required Minimum Distributions for the new year. But we have time on that. This is important. So, here’s an update:
It’s my Turn to Apply for Medicare
Medicare, as you know, is the national health program for seniors created in 1966 by the Lyndon Johnson administration. But did you also know that, in 1912, Teddy Roosevelt’s platform included creating national healthcare insurance? Did you know that Harry Truman tried to put together a national health program in 1945?
The conversation around health care for all Americans is not a new conversation. And I am delighted that I get to receive the benefits of this great program that my and my employers’ 2.9% payroll taxes have funded all these years. That’s right, this isn’t an entitlement. I’ve been paying for this, and now I’m going to collect my benefit. Yay, me! Free Medicare Part A! Whoohoo!
I Love It When A Plan Comes Together
Behind the scenes at Madrina Molly™, we’ve been working our little tails off to create a digital home for Financial and Longevity Planning Education. In fairness, my explorations on the Internet have yielded a few good teachers out there in social media land. But it’s hard to find them.
Currently, the “finfluencers” want to teach you how to trade options, buy tax liens, and purchase their “secret sauce” training.
Newsflash: If you haven’t spent any time learning how to trade up until now, what makes you think you’d be interested in it moving forward? Plus, you don’t have to “trade” to invest successfully.
Do You Want Lifetime Income in Retirement?
A few weeks ago, I met with Tamiko Toland, fellow Woman of a Certain Age(ncy), Principal of Toland Consulting, and Co-Founder and CEO of IncomePath, a new way to visualize retirement income intended to provide “freedom to spend” by enabling advisors and their clients to see how the use of guaranteed income can benefit their retirements.
That’s a mouthful, I know. And it’s complicated if you don’t operate in this space. But Tamiko’s nickname isn’t “The Annuity Yoda” for nothing. And she’s both a 20+ year veteran of TIAA and a sought-after expert in retirement risk mitigation. She is committed to doing a better job of educating the public and helping advisors educate their clients in how to build the lifestyles we all want in later life.
Romancing the Home
I started writing a serious post, but it just wasn’t happening. I took a break to find something amusing on TV and settled on Zombie House Flippers. I have thoughts.
For starters, their math doesn’t “math” for me, and I’ll explain that in a minute. But it made me think about how our DIY economy has grown beyond all measure, courtesy of these types of programs, customer workshops at Home Depot/Lowe’s, and social media. I applaud the industriousness, talent, and personal ambition of these creators.
But ….
What if You Planned a Sabbatical?
Let me cut to the chase: I’m giving you permission to plan a sabbatical. Do I have your attention?
Traditionally, we have divided our lifespans into three unequal stages: growing up, working, and retiring. Of the three, a 30- or 40-year working career usually dwarfs the other two stages. In less than a generation, however, we have seen our retirement stage catching up to our working stage. For some of us, we may live (hopefully in good health and security) another 35+ years beyond age 65. That’s a retirement as long as our working careers.
Family is a Fixed Expense
I just returned from a drive to see Grandchild #1 (Ava) play soccer on her college club team two-and-a-half hours north. A wave. A smile. I stuffed some cash into her hand. She laughed and thanked us because she knows that’s what we do. Then, she headed to Texas Roadhouse with the team, and we headed home, two-and-a-half hours south. We may have paid for her dinner (with a popcorn booster purchase the week prior). I didn’t check what I was funding because she’s a grandchild.
If you want a Successful Financial Plan for Retirement, you need a Longevity Plan Too
As we build out our “successful second half” capabilities, I keep returning to the notion that we have such a long runway from our 50s to the end of life (like, another 50!) that saying we are planning for retirement feels wrong. Rather, I think we should replace the “R-word” with the term “post-work” because none of us is going to be in the state of retirement for 30 or 40 years. Instead, we’re going to be doing and being many different things during that time, all kinds of “non-retirement” things. As a result, much of the financial conversation stops being about investment portfolios and insurance and more about:
· Health and healthspan
· Caregiving and family obligations
· Geography and community
· Philanthropy and legacy
· Consulting, volunteering and encore entrepreneurship
· AND … optimized distribution and retirement income from portfolios and insurance
Retirement is Dead! Long Live Continuous Reinvention!
According to the American Heritage Dictionary, retirement is the “withdrawal from one's occupation or position, especially upon reaching a certain age.” Note that the definition uses the word “withdrawal” and not “end.” The definition of “withdrawal” uses the words “retreat” and “removal.” Again, not the word “end.” That should be instructive for us in the 21st Century.
Retirement is not an end. We do not expire. Ageism in society notwithstanding, we have choices:
· Fund retirement in our 50s to support ourselves in our 80s and 90s. Or don’t.
· Be curious and embrace lifelong learning to nourish our brains. Or don’t.
· Invest in our health so that our bodies will stand a chance of taking us the distance under our own steam. Or don’t.
Okay, okay… This is It (I Promise)
I’ve probably bored you to tears over the past few blogs, but I can’t help trying to be more complete. (This is in response to some finfluencer posts I found that only give the sexy part of any story.)
Somewhat tangential to my recent Taxes Matter posts, I want to offer two more tax ideas for diversification, but first a word on Required Minimum Distributions (RMDs).
Do I Need a Diversified Portfolio? And Other Risk/Reward Questions
“Wide diversification is only required when investors do not understand what they are doing.”
These are strong words from Warren Buffet, the CEO of Berkshire Hathaway, which arguably is its own diversified investment. Buffet has been known to say that concentration builds wealth and diversification protects wealth; that diversification is a hedge for when you are not knowledgeable.
That said, what should you do with your nest egg: build wealth or protect it?
Taxes Matter In Retirement (Part II)
Last week, I discussed why tax diversification matters in retirement. In it, I described how we tend not to think of tax treatment in distribution as we build our wealth. Instead, we place most of our wealth in accounts that are taxable as income (IRAs, 401(k)s) and in our homes (equity.)
But in retirement, we may want to finesse how much income we show year-over-year in order to take advantage of the tax code; because having assets with different tax treatments (capital gains, Roth, deferred) provides more choices, which lead to (potentially) paying less tax out of your savings.
Taxes Matter In Retirement (Part I)
It’s Tax Day! Welcome back to the surface, all my CPA friends. Well done on this year’s efforts. Get all the extensions filed and head out on your well-earned spring vacations! When you come back, let’s do coffee.
As for the rest of us, we tend to think of taxes as a necessary evil, which of course, they are. It’s hard to love tax information. Now, before I lay some on you (tax love, that is) in honor of this auspicious annual event, I’d like to address something truly important in grammatical constructs. And while my reach is not far (yet), I will be gratified if just one person learns this and uses it properly going forward:
The Max Match, The Max Contribution and the Max After Tax
Prospective clients would regularly tell me they are “maxing” their 401(k)s. Upon closer inspection, I’d discover that they were not maxing their 401(k)s. What were they doing? They were maxing their employer match. This happens often enough that I think it bears explaining. When financial planners say you should “max your contribution to your 401(k),” I don’t think it means what you think it means. (See The Princess Bride.)
How Can You Say No To Guaranteed(!) Lifetime Income?
There are some crazy and absolutely true metrics about the percentage of clients who, when offered guaranteed lifetime income by their financial advisors, refuse to take the advice. And it’s a high percentage. Since I pride myself on clear communication, I don’t think the challenge, for my own clients, was my failure to describe what it is, what it isn’t, why it’s a good thing, and what are any potential gotchas. I think it’s fear.
Saving For a Fabulous 4th Quarter Harvest
I’m going to take a cue from Avivah Wittenberg-Cox and refer to our lives in quarters. She describes our 3rd quarter as one of becoming and our 4th quarter as one of harvesting. Her goal is to enable us to understand that we are likely going to live to 100, and we need to be conscious that the shape we’re in when we get there is up to us.
Losing The Conventional Wisdom, Part II
I recently read a post by a young finfluencer about something called the “family opportunity mortgage.” No doubt searching for fresh content, she rightfully made the point that it’s possible to use this tool to help your retired parents own a home. The challenge, however, is that the Family Opportunity Mortgage Program has been discontinued, so you can’t go to a lender and ask for one.
Losing The Conventional Wisdom Part 1:
Among the more pernicious myths of the 20th century is the notion that it’s good to defer taxes because, in retirement, we’ll all be in a lower tax bracket. This is treated as gospel by CPAs and mere mortals alike. We believe that, when the piper demands his due, we’ll be enjoying our financial freedom—retirement—at a discount.
We Are Informed By Our Parents ...
I confess that I remained haunted by Hurricane Jackie’s (mom’s) retirement. Dad was seven years her senior, and when they retired to Florida, she was 63, my current age. For three decades, she spent her days in the Sunshine State walking, playing golf, aerobicizing and socializing.