Author: SynergiaFinancialGroup

529 plans are tax-advantaged savings vehicles designed to accumulate contributions and help pay for the beneficiary’s qualifying education expenses. Sometimes, 529 plans have unused funds after the beneficiary graduates or decides to discontinue their education. Whatever the reason for having unused 529 plan funds, you have options of what you can do with the monies. Here are five options to consider:

#1- Transfer the 529 plan to another beneficiary. The plan can transfer to another qualifying family member without tax consequences. Qualifying family members include the beneficiary’s blood relatives or relatives by marriage and adoption.

#2- Use the money to make student loan payments. The SECURE Act allows families to take penalty-free and tax-free 529 plan distributions to pay off the beneficiary’s student loans or other family members’ loans. Both principal and interest payments toward a student loan are considered qualified education expenses, but some IRS rules apply. Visit your tax professional to help ensure you fully understand these rules before using your unused funds.

#3- Move 529 plan monies to a Roth IRA. When moving 529 plan monies to a Roth IRA, IRS contribution limits apply, and the beneficiary must have earned income up to the amount converted. In 2024, if the 529 plan has been open for at least 15 years, up to $35,000 of those funds (for the beneficiary of the 529 accounts only) can be contributed to a Roth IRA, regardless of the beneficiary’s earning limit.

Here are other IRS rules that apply to moving 529 plan monies to a Roth IRA:

• The roll over cannot include any contributions or earnings on contributions that were made in the preceding five years.
• Beneficiaries cannot roll over any money from their 529 plan into a Roth IRA without incurring penalties and taxes unless the account has existed for at least 15 years.

Before initiating a 529 plan to Roth IRA conversion, visit your financial and tax professionals to determine if this strategy suits your situation and to help ensure you understand these rules.

#4- Take a non-qualified distribution (Cash it out). While you will pay the penalty and taxes on the accumulation in the 529 plan, your contributions are always penalty and tax-free when you take a non-qualified distribution.

#5- Keep the 529 plan. You can keep the 529 plan for future use for the beneficiary, a grandchild, or other family members. There is a timeline for when to use the funds if the beneficiary dies. Then, the 529 plan can be cashed-out with no tax consequences. 529 plans are a time-tested way to save for education expenses. To avoid overfunding, work with your financial professional to determine an appropriate funding amount or consider which spending options suit your situation.

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As our population ages, discussions about long-term care (LTC) and who pays for it are essential for many families and state governments. LTC is ongoing care in a care facility, nursing home, or at home for those unable to perform a certain number of activities of daily living (ADL) without assistance. ADLs include eating, bathing, dressing, toileting, transferring in and out of bed, continence, or when physical, mental, or cognitive function is impaired, or when a doctor has ordered specific care.

For those with LTC insurance (LTCI), ADLs determine when the policy will start paying for their care. Paying for LTC can be costly until the policy begins to pay after a set time, such as 60 or 90 days. During that time, it is up to the individual to pay depending on their level of care:

• Skilled care- 24/7 care ordered by a physician designed to treat a medical condition and is performed by qualified medical personnel.
• Intermediate care- Rehabilitative care by registered and licensed nursing staff, aids, and other healthcare providers.
• Custodial care- Care provided by someone to assist with ADL, often supervised by a physician.

Many assume that Medicare covers LTC, but in fact it only provides limited coverage for select services, such as physical therapy. For those with little or no assets or income, long-term care (LTC) is covered by Medicaid once all financial assets are gone after several years. Both states and the federal government share financial responsibility for the Medicaid program by matching state costs with federal dollars. The way Medicaid is designed, states are left paying the bill as they work to recoup LTC costs from the federal government, which can take months or years.

Many states are working toward tax legislation to supplement the cost of LTC for their residents. Here are the states that have passed or introduced state-funded LTC bills:

Washington Long-Term Services and Supports (LTSS)

Washington State was the first state to create a publicly funded insurance program providing residents with basic LTC benefits. Starting January 1, 2023, the program will be financed by WA workers through a payroll deduction of a 0.58% mandatory payroll premium assessed against all W-2 wages uncapped. Rates can change and will be evaluated biannually.

WA residents are vested in the program once they’ve paid in for at least ten years without a break of five consecutive years or three of the last six years and worked at least 500 hours per year in each qualifying year.

Once vested, they can use the program benefits starting January 1, 2025, to pay for LTC riders on life insurance and annuity contracts, qualified LTC contracts, LTC riders, or policies purchased in group contracts. The total benefit available to an individual is $100 per day for a yearly benefit of $36,500.

Other states with proposed legislation for state-funded LTC programs

Minnesota- The proposed legislation would create a dedicated fund for LTC services; closing a tax loophole by levying a tax on individuals with income not taxed for Social Security purposes to fund LTC services.

New York- Senate Bill S9082 will authorize a similar plan to Washington. If passed, the law will require that any employed individual who drops their LTCI notify the state. That person will then be required to pay the tax. Payroll deductions would begin two years after the law is adopted. The bill is pending approval by the NY Senate and then must be signed by the Governor of NY to become law. 

California- California is debating several proposals, including offering $144,000 in LTC benefits funded by a payroll tax on both employers and employees.

Michigan- Bill introduced, similar to Washington.

Pennsylvania- Bill introduced, similar to Washington.

Other states beginning the legislative process to help fund LTC through employer and employee payroll taxes include Alaska, Colorado, Hawaii, Illinois, Missouri, North Carolina, Oregon, Pennsylvania, and Utah.

Long-term care insurance can help cover the cost of LTC

You can pay your LTC privately if you have the financial resources. But if you don’t, LTCI can protect you against the risk that LTC will cost more than you can afford. In exchange for your premium payments, the insurance company agrees to pay a daily or monthly LTC rate for services defined in the policy contract. LCTI can help you preserve your assets and help guarantee that part or all of your costs are covered for the remainder of your care. If you have questions about LTCI we can help you determine how the cost of care will impact your retirement savings and assets if you choose to private pay or supplement with LTCI. We can also answer questions about pending state LTC bills and how it may impact your situation.

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529 plans are tax-advantaged education savings accounts where contributions accumulate and grow tax-free as long as withdrawals are used for qualified education expenses. 529 plans may also be part of a wealth transfer strategy because of these additional features:

• If the Donor owns the 529 plan, they retain control of the assets.
• The gift removes the assets from the Donor’s estate, reducing their estate taxes.
• If the Donor revokes the gift, the assets return to the Donor’s estate.

529 plans can help build generational “education” wealth since the plan can pass down from one beneficiary to a beneficiary of the next generation. Here are three 529 plan wealth transfer tax saving strategies to consider:

1. The annual gift tax exclusion- While there isn’t a federal contribution deduction, the gift falls under the annual gift tax exclusion. In 2023, gifts totaling up to $17,000 per individual, or $34,000 per married couple, will qualify for the annual gift tax exclusion. Depending on where the Donor resides and the 529’s state plan, donors may also receive a state tax deduction for their gift.

2. Superfunding 529 plans- Using a strategy referred to as ‘superfunding,’ donors can make a lump sum contribution of up to five times the annual gift tax exclusion to a 529 plan at once. Also, multiple 529 plans can be superfunded, so it’s essential to consult your tax and financial professionals before initiating a super-funding strategy to determine how it will impact your situation.

3. The lifetime gift tax exemption- The federal lifetime gift tax exemption for 2023 is $11.7 million per individual, and $23.4 million per married couple, making 529 plans a strategy to transfer wealth up to this threshold. 529 donors can contribute to multiple plans for beneficiaries (their children or grandchildren) to help lower the value of their estate below the gift tax exemption amount. As long as the contributions remain under the threshold, the Donor or beneficiaries do not pay taxes.

It is important to note that under federal law, contributions to a 529 plan cannot exceed the expected cost of the beneficiary’s qualified higher education expenses. Limits vary by state, so consult your financial and tax professionals regarding your 529 plan’s limit.

The lifetime gift tax exemption will be reduced in 2026 to almost half, making the lifetime limit about $6.8 million per individual and $13.6 million per married couple. Since using a 529 plan as a wealth transfer tool can be complex, you must consult your tax and financial professionals if you intend to use 529 plans as part of your estate plan.

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Recently, Silicon Valley Bank (SVB), a commercial bank headquartered in Santa Clara, California, failed. SVB was the 16th-largest bank in the United States at the time of its failure on March 10, 2023, and was the largest bank by deposits in Silicon Valley. For companies that held assets at SVB, losing access to their deposits meant bills couldn’t be paid, payroll wasn’t made, and money for supplies and other expenditures wasn’t accessible.

For bank customers and investors, the news may have left them wondering what they would do if this was their financial institution. Bank customers and investors have some protection through FDIC insurance or SIPC, but understanding what each cover can help them plan for failure risk.

Understanding what FDIC insurance covers

Banks can become a FDIC-member bank and carry insurance on deposits of their customers. However, it is important for people to understand how FDIC insurance works and what it covers.

The Federal Deposit Insurance Corporation (FDIC) was created during the depression of the 1930s to help rebuild Americans’ trust in the banking system. During this period, many banks failed, and depositors lost assets. Today, FDIC insurance protection is available for a fixed fee, paid by FDIC member banks. However, not all banks are FDIC members, which means they don’t carry FDIC insurance on deposits.

In the event of a bank failure, the FDIC uses the insurance fund to guarantee bank customers’ deposits up to applicable limits, which is $250,000 per ownership category. An account ownership category could be an individual account, a joint account, or a business account. An owner can have multiple types of accounts, such as a checking or savings account, but only $250,000 will be covered for each ownership category. It’s important to note that FDIC insurance treats business accounts like personal ones.

For example, a business with a checking, savings, and money market account will be covered up to $250,000. If the combined balances of all accounts equal $400,000, the account holder would not be insured for the additional $150,000 and may not recoup it. Once the bank’s assets are liquidated, the account holder may or may not be paid the $150,000 over the FDIC limit. First, the FDIC fund is made whole; then, the FDIC determines if the remaining assets will be divided among customers that lost assets above the $250,000 threshold.

FDIC insurance covers the following deposit products:

• Checking accounts
• Savings accounts
• Money Market Deposit Accounts (MMDAs)
• Certificates of Deposit (CDs)
• Negotiable Order of Withdrawal (NOW) accounts

FDIC insurance DOES NOT cover Non-deposit products such as:

• Stocks
• Bonds
• Mutual funds
• Annuities
• Insurance products
• Crypto assets

The Securities Investor Protection Corporation (SIPC) covers securities, mutual funds, and bonds. If you have questions about the SIPC’s insurance coverage, visit your financial professional.

How can investors protect their bank deposits?

• Do business only at banks that are FDIC insured
• Have more than one bank
• Use different account ownership categories- individual, joint, or legally titled accounts such as LLCs, S Corps, etc.

Understanding What SIPC Covers

The Securities Investor Protection Corporation (SIPC) protects customers if their brokerage firm fails. Brokerage firm failures are rare. If it happens, SIPC protects the securities in your brokerage account up to $500,000 (of which $250,000 can be for claims for cash awaiting reinvestment). SIPC protection is only available if your brokerage firm fails and SIPC steps in. You must file a claim to receive protection from SIPC.  SIPC’s ability to satisfy your claim is limited by law.

SIPC protects your investments if:

• Your brokerage firm is a SIPC member.
• You have securities at your brokerage firm.
• You have cash at your brokerage firm to buy securities.

SIPC does NOT protect:

• Your investments if the firm is not a SIPC member.
• Against market loss.
• Promises of investment performance.
• Commodities or futures contracts.

Diversifying your assets and where they are held may help you manage the risk of a bank failure or brokerage firm failure. If you have questions about how FDIC insurance works or what SIPC covers, contact our office at any time.

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You may assume that you must rollover your 401(k) when leaving your employer into another retirement savings plan. However, depending on the 401(k) plan document and if a rollover is appropriate for your situation, it may be optional. A rollover is when you direct your 401(k) transfer to a new retirement plan or an IRA when you leave your employer. This transfer process can be done electronically or by check from custodian to custodian, or from one Investment Company to another, without you receiving the check for your 401(k)’s value.

Here are the options available for your 401(k), and you may initiate more than one option depending on your situation:

Option #1- Leave the 401(k) in the former employer’s plan– If permitted by the 401(k) plan documents, a former employee can leave their 401(k) in the employer’s plan when they terminate their employment. Here’s what to check:

Can you leave your 401(k) plan?

Is there paperwork to fill out to initiate a transfer?

Can you rebalance the investment strategies if you leave your 401(k)?

Why would an employee choose this option?

The new employer may have a waiting period before enrollment, and the employee intends to roll over their 401(k) to the new employer’s 401(k) plan.

The fees may cost less

The old 401(k) plan has investments more aligned with the employee’s investing strategy.

Option #2- 401(k) portability- Rolling your old 401(k) into your new employer’s 401(k) plan may be possible if the new plan accepts rollovers. Be sure to evaluate your new employer’s 401(k) plan before making your decision by examining the following:

Compare both 401(k) plans fund options, fees, management expenses, and possibly commissions. Remember that costs may decrease the return over time.

The waiting period to roll over your old 401(k) to your new 401(k)

The cost to roll over your 401(k) to another 401(k) plan.

Ownership- In a qualified retirement plan, you are the participant and not the owner, and the plan administrator determines your distribution options in moving your 401(k) assets to another 401(k).

Option #3- Rollover your 401(k) assets into an IRA- You have a few options with a direct rollover:

401(k) into an IRA- You can roll over your 401(k) into your existing IRA or open a new IRA and initiate transfer paperwork with the help of your former retirement plan administrator, HR department, and financial professional.

401(k) Roth into a Roth IRA- You can roll your 401(k) Roth into an existing Roth IRA or open a new one. No taxes are due when the money moves, and any recent earnings accumulate tax deferred. Earnings are eligible for tax-free withdrawal once the Roth IRA has been open for at least five years and you are at least 59 1/2.

401(k) into a Roth IRA- If your 401(k) plan permits rollovers into a Roth IRA, you can initiate the rollover into your Roth IRA or open a new one. Be aware that you will need to pay taxes at the time of the rollover transfer, so you must consult your tax professional before converting your 401(k) to a Roth IRA.

Earnings on the Roth IRA that accumulate after the rollover will be eligible for tax-free withdrawal when the Roth IRA has been open for at least five years and you are at least 59½.

What to consider before rolling over your 401(k) to an IRA or Roth IRA:

The cost to roll over your 401(k) to an IRA plan.

The IRA fund options, fees, management expenses, and commissions.

Option #4- Rollover your 401(k) to an annuity- An annuity is a contract with an insurance company to provide an income stream during retirement for a specified period or the remainder of the annuitant’s life. Annuities help address the risk of outliving their retirement savings and are purchased with monthly premiums or a lump-sum payment, such as when you roll over your 401(k).

The three types of annuities widely used in financial planning are fixed, indexed, and variable annuities. Like any financial product, each type of annuity has costs, pros, and cons. Annuities are not without risk, and due diligence should take precedence before purchasing one for your retirement portfolio.

Option #5- Cash out the 401(k)- Cashing out a 401(k) becomes a taxable event since the contributions and accumulation are taxable, regardless of the employee’s age. Here’s what you need to consider:

If you are younger than 59 1/2, you will pay a 10% penalty.

Taxes will be immediately due on the 401(k)’s contributions and accumulation.

The IRS allows penalty-free withdrawals from retirement accounts after age 59 1/2 and requires minimum withdrawals (RMDs) after age 73 and 75 starting in 2033.

Some exceptions exist for 401ks and other qualified plans, so you must consult your plan administrator.

Now that you understand your options for your 401(k), you have the decision to make; either keep your 401(k) where it is, roll it over into another 401(k), IRA, Roth IRA, or an Annuity, or cash it out.

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In 2022 The Fed raised interest rates seven times, with the possibility of raising interest rates again in 2023 as they pursue cooling inflation. While a potential interest rate may occur or plateau, raising rates can take a toll on consumers. Here are five signs that may signal an interest rate increase is on the horizon:

Mortgage rates start to increase- The 30-year fixed mortgage interest rate is based on the long-term outlook for interest rates. When rates increase, prospective buyers will see their costs rise. Homeowners with fixed-rate mortgages will be spared, but those with adjustable-rate mortgages may want to consider locking in their loan’s interest rate.

Credit card rates rise- All credit cards have adjustable rates, and when interest rates rise, so do credit card interest rates. There is no federal law that limits the interest rate that a credit card company can charge. Therefore, consumers carrying balances may want to initiate a plan to pay off their debt or look for zero-interest rate balance transfer offers and transfer their debt. But read the fine print, as the offer may charge back interest if the balance isn’t paid in full by the offer’s balance payoff deadline.

Bond markets fall- Bond markets tend to decline as interest rates rise. In May 2022, Fed Chair Jerome Powell announced that the central bank would start to reduce its $9 trillion in Treasury bonds and mortgage-backed securities to reduce market liquidity further. Investors using bond strategies in their portfolio may want to monitor their portfolio and adjust holdings if appropriate as they continue to watch interest rates throughout 2023.

Personal loan rates increase- Personal loan rates may increase as the Fed Funds rate rises as banks borrow at a higher rate and pass that rate along with their markup to consumers. It will become more expensive to finance a car, college education, or consolidate debt. Home equity loan rates also increase as interest rates rise. 

Bank deposit product rates increase- Money market accounts, savings and checking accounts, and CD rates rise. Banks often raise interest rates on these products to attract new customers or bring in more money. Consumers with lower-rate CDs or money market accounts may want to consider laddering- staging CDs to come due at different times to help accumulate more interest during rising rates versus being locked in at a lower rate. Also, determine if cashing out a CD, paying the penalty, and reinvesting in a new CD is appropriate for their situation.

While there is uncertainty if and when interest rates will go up, there are things you can do to help lessen the effect, such as:

Paying off debt

Refinancing debt now versus waiting

Add inflation risk products such as fixed-indexed annuities to your portfolio.

Consider strategies that may provide accumulation based on a guaranteed rate and an index.

Contact our office for a portfolio review today if you have concerns about rising interest rates and your portfolio.

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Springtime is a great time to review your finances so you can work toward financial independence. While many are organizing their closets and cleaning out drawers and garages, instead, clean up your finances using these ten tips:

1. Freshen up your budget- Your monthly budget may help you work toward your financial goals and can be revised as your expenses change so you can track your spending. However, your budget shouldn’t be so restrictive that it doesn’t bring you joy; remember to budget for things you desire too!

2. Review your debt- Take inventory of your debts this spring, so you understand how much you owe. Write down each account, the unpaid balance, and the monthly payment required. Don’t forget to include overdue small bills, as any unpaid debt obligation can hinder your finances. Once you have your debt inventory, consider using one of these debt reduction strategies:

Debt Snowball method- This debt reduction strategy has you pay off your debts by starting with the smallest to the largest regardless of the interest rate. This strategy also helps change spending habits because you use all your additional money toward debt reduction. You’ll make minimum payments on the rest as you work toward snowballing the smallest debt. Start by paying off one debt first, then move to the next lowest balance debt. Pay off your smallest debts first. Focus all the additional money you put toward debt reduction on your lowest debt balance while paying minimums on the remaining debts.

Debt Avalanche Method- This debt reduction strategy involves making the minimum payment on all your debt and then using any remaining money earmarked for your obligations to pay the bill with the highest interest rate. Using the debt avalanche method will save you the most in interest payments.

Debt consolidation method: Pay down high-interest debts by consolidating them into one or more lower-interest debts. This method may increase the interest you pay, so make sure you have all of the facts before deciding on this method.

3. Revisit your financial plan- Spring is a great time to schedule an annual investment strategy review or update your financial plan. If it’s been more than a year, reach out to your financial professional to get your review on the calendar.

4. Increase your retirement savings contributions– Increasing or maximizing your pre-tax and after-tax retirement savings contributions helps in two ways. First, it helps you accumulate more retirement savings over time. Second, contributions into pre-tax retirement savings accounts help to lower your taxable income in the year the contributions are made.

5. Boost your emergency fund- An emergency fund is an account used during financial stress to help improve economic security. An emergency fund differs from a savings fund because it provides cash for emergencies, whereas a savings fund is a nest egg for a specific purpose. If you haven’t set up an emergency fund, you should do so this spring. If you have an emergency fund, increase your monthly contribution to save 6-12 months of expenses.

6. Check your credit report- It’s important to check your credit report at least once per year to check for inaccurate information or accounts that may not be yours. Your credit report impacts how much you will pay to borrow or for renewals on contracts such as car insurance. Federal law allows you to access your credit report from a credit reporting agency once per year at no cost.

7. Sign up for paperless statements and bills- Enrolling in electronic delivery of your statements and bills helps reduce clutter and paper waste while providing secured access to your account information.

8. Use mobile apps- Mobile apps help you stay connected to your accounts to monitor your spending and savings. Many banking apps provide budgeting features that categorize your spending and can inform you of your budget progress. Alert features can also inform you about charges and debits to help ensure it was you versus account fraud.

9. Sign up for automatic bill payments- Automatic bill payments help ensure that you are never late or forget to pay a bill, which can cost you more money. If you haven’t signed up for automatic bill payments for utilities, etc., consider signing up this spring.

10. Close unused credit accounts– Consider closing accounts you rarely use since you may forget about them or risk losing the card. Credit card companies often close accounts not used as a security measure.

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The Old Age and Survivors Insurance (OASI) benefits, known as Social Security, pay retirement and survivors benefits through The Social Security Trust Fund. The U.S. Social Security Administration oversees this fund. Social Security (SS) taxes and other income are deposited into the trust fund accounts, and SS benefits payout from them. The only purpose for which these trust funds are used is to pay benefits and program administrative costs.

The Trust Fund’s Problem

The fund faces insolvency with fewer SS payroll taxes collected due to a declining workforce and longer life expectancy. With less collected, The Social Security Administration has been spending more on benefits than bringing in from payroll taxes.

Initially designed for retired workers and survivors, the program’s funds depletion date is 2035. For Americans that will retire after 2035, the future of receiving their projected full retirement monthly benefit looks bleak. The Social Security Administration estimates the ability to pay 77% of promised benefits at that time. Here is Social Security’s present situation:

$2.6 Trillion in the fund earning 2.3% in Special Treasuries (redeemable at face value like cash)

Currently Supports 50 Million beneficiaries through 150 Million workers paying social security payroll tax.

Inability to borrow funds to pay obligations. Benefits only payable out of reserves and current payroll tax inflows (UNDER CURRENT LAW)

By 2032 – 2037 (without changes), the Reserve is estimated to be exhausted.

The Social Security Administration continues to sell Treasury bonds to keep the fund afloat. However, the fund will significantly deplete in the next twelve years. Some proposed solutions from the fund’s board of trustees include:

Increasing payroll taxes to help fund the Social Security program.

Reducing or eliminating annual increases in Social Security payments

Increasing the full retirement age from 67 to 69.

Increasing the required number of years participants must work before receiving Social Security retirement benefits.

The 2023 OASDI tax rate is 6.2% each for employers and employees; self-employed individuals pay the full 12.4% themselves. The tax is collected on wages up to $160,200.

A poll conducted by Gallup found that 38 percent of working U.S. adults thought Social Security would be a significant source of their income. Today, 57 percent of retirees rely on Social Security as their primary source of income. Here are additional strategies to help you get the most out of your Social Security Retirement Benefits:

Work 35 or more years and earn a higher salary year after year.

Do not claim Social Security retirement benefits until your full retirement age.

Use a Social Security spousal benefits strategy.

Maximize Social Security survivor benefits and claim survivor benefits for your children.

Estimate your longevity before taking Social Security Retirement benefits.

Those retiring after 2035 must rely more on other retirement savings and less on their Social Security retirement benefits. Here are some ways to help you save for retirement:

Participate in your employer’s retirement savings plan and contribute enough to receive the match.

Automate your retirement savings contributions to increase yearly to maximize your savings.

Contribute to a Traditional or Roth IRA and invest in stocks, bonds, real estate, mutual funds, and other strategies in addition to your employer’s retirement savings plan.

Work with a financial professional to help you plan for retirement and evaluate your current retirement savings, goals, and timeline.

Whether Social Security retirement benefits are available at the current levels or not, planning for your future is essential.

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The feeling we get from money, and investing, has deep roots inside our emotions, although we may not understand why. Behavioral science explains why we make our investment decisions and how we emotionally react to them. Behavioral science is the science of ‘choice’ that explores emotional decisions, and behavioral finance studies why investors make the decisions they do.

Even when investors have information that should lead them toward good investment decisions, they don’t always make the appropriate choice for their situation. That’s where emotions come in; our feelings about our investment decisions or lack of decision-making and how we feel. For example:

• Risk tolerance- Risk tolerance measures of the degree of loss an investor is willing to endure within their portfolio. Market volatility, economic or political events, and regulatory or interest rate changes may affect an investor’s portfolio and produce an emotional response, either positive or negative, in the investor.
• Market volatility- Periods of market volatility are normal occurrences that may impact an investor emotionally regardless of the impact on their portfolio’s performance. Risk tolerance assessments measure the investor’s tolerance which aids in constructing a portfolio of strategies that may produce positive returns with less volatility and appropriate emotional responses for the investor.

Behavioral barriers are decisions we make due to what we observe in others, cultural beliefs, or an acceptance of our current financial situation and well-being. For example:

Herd investing- We see others’ success or hear what they invest in and ‘mimic’ what they do. Herd investing can be both emotional and behavioral. Consider these examples:

• Our employer retirement plan is enough because we see the older generation that retired from the same job we have and think they are financially confident.  
• We invest in a ‘hot stock’ because we watch TV or listen to a journalist, aka ‘expert,’ tell us we should.
• We invest in the same strategies our friends and co-workers use because they’re financially secure.

Cultural barriers- Due to their beliefs, an investor may not accept professional advice, is mistrusting, doesn’t believe in investing, or the investor’s sex may determine the role they have in investment decisions and managing the household money. All these relate to cultural barriers if the investor follows their culture’s teaching about money, finances, and investing.

Emotional gap- The emotional gap refers to investing decisions based on emotions such as anxiety, anger, fear, or excitement. Emotions are a key reason people do not make rational choices when investing or the investment strategies they choose.

Making impulsive decisions during market volatility- Thoughtful planning can help investors feel more confident during market volatility and help circumvent impulsive decisions that may impact their portfolio negatively.

For example, selling and reinvesting or pulling out of the market during periods of volatility may result in losses that can’t be recouped. Instead, wait for a market correction and reallocate, rebalance, continue investing, and follow your financial plan.

These barriers are typical and part of what makes each investor and their situation unique. Financial professionals work to convince investors to make rational investment decisions and coach them away from destructive investing behaviors that may impact their financial independence now or in the future.

If you have concerns about the economy, stock market conditions, or your portfolio allocations, now is a great time for us to meet and review your portfolio.

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You must consider a few things before making your decision to work once you retire. As you get older, the question of when to collect Social Security retirement benefits and how your monthly payment may be impacted by working is essential. Here are three things to consider before making your decision:

#1- How much of your income will you replace with retirement savings in retirement? Aim to replace 80% of your income in retirement as a starting point for your retirement savings so that you can maintain the same lifestyle you have today. Account for all sources of retirement savings income in your calculation:

• 401(k)
• IRA
• Roth IRA
• Annuities
• Pension
• Social Security
• Other retirement savings

Once you have a financial plan with your retirement savings information, you’ll know how much income you can replace in retirement with your savings. A monthly budget can help you determine your monthly expenses and where you can trim them, and how long your retirement savings may last.

#2- The reason you want to work in retirement– Perhaps you enjoy working and want to continue part time. Or, you may be in a position of additional income in retirement. Examining your retirement savings and having a comprehensive financial plan that outlines shortfalls or if you’re on track are the first steps towards knowing if you should work during your retirement. Ask yourself these questions as part of your decision-making process:

• Do you save money to cover unforeseen emergencies?
• Do you follow a monthly budget?
• Is your saving and spending in balance?
• Do you discuss significant financial decisions with others before making them?
• Do you have a financial plan that you monitor and adjust?
• Do you give yourself an annual money checkup?
• Do you work with a financial professional?

#3- The impact of working on your monthly Social Security benefit- If you have not saved enough money for retirement, you may be more dependent on your Social Security retirement benefits and need to take them earlier. On the contrary, if you have substantial retirement savings or income from other sources, you may benefit by postponing your initial Social Security benefits starting date. 

You can get Social Security retirement benefits and work at the same time. Keep in mind that if you file for Social Security and continue to work before your full retirement age, your earnings will exceed certain limits, and a portion of monthly benefit will be withheld temporarily. 

However, if you are younger than full retirement age and make more than the yearly earnings limit, your benefits will be reduced. Starting with the month you reach full retirement age, your benefits will not be reduced no matter how much you earn.

The Social Security Administration uses the following earnings limits to reduce your benefits:

• If you are under full retirement age for the entire year, we deduct $1 from your benefit payments for every $2 you earn above the annual limit. For 2023 the limit is $21,240.

• In the year you reach full retirement age, Social Security will deduct $1 in benefits for every $3 you earn above a different limit, but they only count earnings before the month you reach your full retirement age. If you will reach full retirement age in 2023, the limit on your earnings for the months before full retirement age is $56,520.
• Starting with the month you reach full retirement age, you can get your benefits with no limit on your earnings.

Source: What Happens if I work and get Social Security retirement benefits? SSA.gov

Once you have made your decision, I can help you determine specific retirement income goals, strategies, and actions to achieve them. In deciding if you should work during retirement, a comprehensive financial plan will consider your future expenses, liabilities, and life expectancy. Once you have the information, you can make an informed decision about working in retirement.

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