A Retirement Crisis in America

For most of those in the workforce today, dreaming about when they can retire and start to enjoy more time for themselves and with their families is a given. The goal to work hard, save and then retire has always been in place – but what the retirement years will look like for many is changing drastically compared to the plans that some of our elders had access to in the past.

In addition to starting to save late in life and access to potentially less federal funding for retirement in the future, we find ourselves in what many experts are calling a “retirement crisis” in the U.S. But what does this really mean and should you actually be concerned?

Let’s take a closer look.

Currently, age 62 is the earliest you can claim Social Security retirement benefits. This is when you would be able to get replacement income based on factors such as your earnings history, the year you’re born, and what age you’ll start to claim Social Security. According to the AARP, the estimated average Social Security retirement benefit in 2021 is $1,543 a month.

In the past, workers had access to additional sources of income to help boost that monthly number. For example employer-sponsored pensions or other retirement savings plans, and personal savings that they accumulated.

Today, most of those defined benefit (DB) pension plans for employees have been replaced. So instead of getting a guaranteed monthly income in exchange for the years of work they’ve put in, they have a defined contribution plan (DC), such as a 401k, 403(b), 457, etc., that allows specific monetary contributions deferred from the employee’s paycheck – and sometimes with an employer match, usually based on a percentage of the employee contributions.

With the move to more self-directed retirement plans, figuring out how much you’ll need to withhold to save enough for retirement is very difficult and salary deferrals always reduce your net spendable income. This may be why an astounding number of employees forego participation in available retirement plans. This is partially where the retirement crisis begins.

Add to this the fact that the current Social Security benefit recipients are “paid” by the Social Security payroll taxes of the current workforce; effectively, a pay-as-you-go system.  There are ominous undertones about the equity and long-term viability of the Social Security system, as we know it today.

Then there are the small businesses and private-sector workers that may not have access to a retirement plan through their employer at all due to them being too costly to manage and fund. This often leaves many failing to have any plans for how they’ll survive financially after retirement.

The reality here is that people are living longer and having fewer kids. That means a longer average duration of Social Security benefit payments but fewer workers paying into the Social Security system. So without having enough saved for their retirement years, individuals are depending much more on Social Security benefits to live – and this likely creates additional public assistance expenditures to further strain federal resources and inevitably leading to the potential for higher taxes and lower benefits.

So what can we do now?

It’s up to us as individuals to think about our retirement years now – before we’re close to the age where we are approaching retiring. Having a broad understanding of your options to efficiently and effectively save for your future can make an immeasurable difference. Our financial professionals can help ensure that you work towards securing your financial future. We understand risks, how to properly allocate assets, and help you determine how much to start saving now. Don’t wait until it’s too late – reach out today.

Tips to Protect Retirement Income

With Americans living longer, healthcare costs rising, and many people beginning to save later in life, it’s possible to enter retirement unprepared. If you’re currently saving or planning to retire in the near future, here are some tips to help you get and stay on track.

Diversify Your Investments

Some financial investments will perform better than others and it can be difficult or impossible to predict how an individual investment will fare over the long term. That’s why it’s important to diversify.

Having a mix of assets in your portfolio can increase the likelihood that your money will grow in the long run and help shield you from the impact of an economic downturn. Of course, it’s impossible to completely insulate yourself from risk, but diversification may provide a greater measure of security than putting all of your retirement savings into one investment type or objective.

Plan to Live a Long Time after You Retire

It’s common for retirees to live well into their 80s or 90s. That means that your retirement savings may have to last for 20 or 30 years. You will have to plan accordingly to make sure that you don’t run out of money.

Factor healthcare costs into your retirement planning. As people age, they tend to require medication, as well as in-home assistance or care in a nursing home or assisted living facility. You may want to think about purchasing a long-term care insurance policy, or educate yourself about other protective strategies so you won’t have to drain your retirement account to cover those expenses.

Think about Inflation

Inflation gradually decreases the purchasing power of money. Each year that you’re retired, your cost of living will likely increase, but your savings may not grow enough to keep pace. Some types of investments, such as stocks, commodities, real estate securities, and Treasury inflation-protected securities (TIPS) may help your retirement savings keep pace with inflation so you don’t run out of money as the years go by.

Be Strict When It Comes to Withdrawals

You may accumulate a sizable nest egg by the time you retire and may be tempted to make a major purchase, such as a new car, or take a long and expensive vacation. It’s important to be disciplined when withdrawing money from your retirement account. The fact is, you don’t know how long you’ll live or whether you’ll need expensive healthcare in the future. If you withdraw too much money early in your retirement, you may come to regret it later.

Get Professional Help to Plan for Retirement

Toomey Investment Management, Inc. can work with you to develop a diversified investment portfolio to attempt to optimize performance and minimize risk. Our team can develop an integrated plan that also considers insurance and taxes. Contact us today to learn more.

Wealth Transfer? Here’s What You Need to Know

When it comes to planning the distribution of your estate, there are many questions clients are often asking themselves. Are my heirs responsible? How can I avoid the probate court? How can I make sure my grandchildren are taken care of? Then after considering the moving pieces associated with these complex decisions, clients seldom know where to start. Our answer often starts with one thing: taxes.

In fact, not many people think about the tax treatment of different accounts for their heirs, but it is one of the most important estate planning topics that should be considered. If you’re leaving an inheritance, or are an heir yourself, the tax code can have a substantial effect on the how the assets are to be distributed. Here are some of the basics you should consider as you’re planning your estate.

Consider Individual Tax Liabilities

Do you have a large amount of your estate in an IRA? Well, whenever there is a pretax account granted to someone, they also inherit a tax liability. Do you own a non-qualified annuity? People seldom realize that all of the gains in that annuity are taxable to their heirs upon distribution. And the tax they will pay on that inheritance will be based on; you guessed it, that individual’s own marginal income tax rate. So even if you are intent on dividing your estate equally amongst siblings, the actual net inheritance can change drastically due to personal tax circumstances. Understanding the rules for distributions after life will help you make more prudent choices that best suit you and your family.

Understand Other Tax Liabilities

If the inheritance being passed to someone is in the form of property or an estate there may also be taxes to consider that could also significantly change the inheritance amounts. For example, in some circumstances, a state estate tax will be levied on any property left to heirs. In many cases, this tax may be taken from the value of the estate before the assets are distributed. A capital gains tax may also come into play if a property that’s inherited is sold for a profit after the date of death. It’s important to understand the state and federal tax laws that will apply to your inheritance.

Tax Mitigation Strategies

There are many ways we can plan your wealth transfer in a more tax efficient manner.  Utilizing life insurance, converting a portion of your pretax assets during life, or creating a comprehensive gifting program to your family members are all viable strategies. There are also ways to define how and when assets can be inherited with private trusts. It’s always important that prior to taking any meaningful steps, you have a firm grasp on all of the options available. This will ensure you are making decisions with conviction.

Speak with a Trusted Financial Adviser

Meeting with a financial advisor to discuss your future financial plans is critical if you want to create a tax-efficient inheritance strategy. Optimizing in this way requires strategic insight, advice, and planning. Call Toomey today!

The Importance of Simultaneous Investment & Tax Planning

Planning for your future is a big deal. Whether you’re just starting out in your career, building your family and want to develop your retirement still years away or you’re at the age when retirement is finally coming closer, it’s always the right time to get serious about your finances.  We cannot stress enough the importance of working with an experienced and qualified team of financial experts to come up with a plan that works. 

Tax Planning

One thing we speak about often with our clients is the importance of tax planning while you’re assembling plans and establishing goals for the future. Doing this at the same time will help to ensure that you’re choosing accounts that will work for you and that won’t likely generate exorbitant tax bills when it’s time to retire. 

A wise investment plan will incorporate tax liability strategies alongside investment planning. 

When might your plans break down? This is a complicated question, but a common situation which can impact future financial gains may occur if a vast majority of your net worth is sitting in a 401(k) or IRA.  Suddenly when retirement comes, your distributions are treated as ordinary income on the tax return which means higher taxation, per-dollar.*

Tax Loss Harvesting

With assets in a taxable account, a qualified, tactful adviser may help you structure a plan to offset taxes you’ll face on both gains and income so you have optimal asset allocation and minimal surprises.

A better plan could be to contribute to a ROTH IRA and a taxable brokerage account. This may provide ample flexibility to source funds during retirement without a large tax burden. (* per current, general tax law)

This planning should also include a design for inheritance and passing on a financial legacy in a tax-efficient way. All of the parts of the puzzle are interconnected and should be treated that way when coming up with a solid financial plan that will work for you. 

Remember, having diversity across the tax registration of accounts is often overlooked and it’s something you should focus on now. 

If you want to talk to someone who can help you create a healthy financial plan for your future, call Toomey Investment Management, Inc., today. 

Capital Gains Tax in Mutual Funds – What You Should Know

Investing in mutual funds is something you may have heard about before. Those looking for a solid way to invest their assets will often choose these types of investments because they can offer the chance to invest in a more diversified portfolio.

Even if you’ve never looked into options for managing your finances before, there are some important things you’ll want to keep in mind as you pursue Mutual Funds.

Understanding Capital Gains Taxes

Capital Gains Taxes, which you may be responsible for, are something many dismiss when they’re first getting started but there are many reasons to factor this in as you plan for your future.

Both long-term and short-term capital gains should be considered. When these are in a taxable account, and depending on how much you’ve earned for the year, your tax bill could come as a surprise.

Currently, there are some benefits to keeping the investments for longer than one year as it may provide greater tax savings versus selling quickly.

Understanding these different working parts may require working with a trusted investment management firm. At Toomey, we can help our clients create tax-efficient portfolios. That means using more than actively managed mutual funds – like ETFs, individual stocks/bonds, and index funds – that may minimize unfortunate tax surprises at the end of the year.

Planning for the Future

Of course, we can’t talk about Capital Gains Tax without also talking about the hot topic issue in the press right now that many investors are keeping an eye on. And that is the emerging threat of taxation of long-term capital gains which the current administration has hinted at possibly enacting.

If this were to pass and become reality, there are a number of different things that could occur in the larger market you would want to be aware of.  For example, substantially higher rates could spark mass selling in 2021 and impact the market as many become leery and take money off the table before 2022. And that’s only the start.

So what should you do? Work with a team that understands all of the parts working together and that can implement strategies that will mitigate your tax burdens for the long term.

Talk to Toomey Today!