Kim Bolker 3/1/18 Kim Bolker 3/1/18

Good Reasons to Retire Later

Working longer might work out well for you.

Are you in your fifties and unsure if you have enough retirement savings? Then you have two basic financial choices. You could start saving and investing more of your pay than you currently do, or you could work longer so you have fewer years of retirement to fund.

That second choice might be more manageable, and it may also work out better financially.

Research suggests that working longer might be a good way to address this shortfall. Last month, the National Bureau of Economic Research (NBER) published a paper on this very topic, and its conclusions are significant. The four economists writing the report maintain that when you reach your mid-sixties, staying on the job just one more year could help you greatly. Waiting a little longer to file for Social Security also becomes a plus.1

What was the most noteworthy finding? By the time you are 66, staying on the job just an additional three to six months will do as much for your standard of living in retirement as if you had contributed 1% more to your retirement plan for 30 years.1

Here is an example from the report, with an asterisk attached. A 66-year-old who has directed 9% of their earnings into an employee retirement plan during the length of their career retires. Had they simply put 10% of their pay per year into that retirement plan rather than 9%, they would have retired with 11.11% more money in that account.1

If they work for another year, retire at 67 and file for Social Security benefits at 67, they may put themselves in a better financial position. In this simple example, Social Security benefits would constitute the other 81% of their retirement income. They are just slightly past their Full Retirement Age as defined by Social Security, so by retiring at 67, they receive 108% of the monthly Social Security benefit they would have received at 66.1,2

The asterisk in this scenario is the outlook for Social Security. In the future, will Social Security benefits be reduced? That possibility exists.

Working full time until age 67 may be a tall order for some of us. Right now, only about a third of American workers retire after age 65; about a fifth retire at age 60 or younger. Perhaps the ambitious, energetic baby boom generation will alter those percentages.3

Working one or two more years may be worthwhile for several reasons. Your invested assets have one or two more years to compound before potentially being drawn down – and when assets have grown for decades, even a year of compounding is highly significant. If you have $350,000 growing at 6% annually in a retirement fund, waiting just a year will enlarge that sum

by $21,000 and waiting five more years will leave it $118,000 larger – and this is without any inflows.3

Spending another year on the job may help you become fully vested in a pension plan, and it also positions you to receive greater Social Security payments (assuming you are currently 62 or older). Wait until age 65 to retire, and you can leave work without having to worry about buying health insurance – Medicare is right there for you. You also keep your mind active by working longer, and you maintain the friendships you have made through your career or workplace.3

Retire later, and you may do yourself a financial favor. Consider the idea, and be sure to consult with the financial professional you know and trust today regarding your retirement prospects.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - marketwatch.com/story/you-may-want-to-work-longer-heres-why-2018-01-22/ [1/22/18]

2 - bloomberg.com/view/articles/2018-01-23/the-remarkable-financial-benefits-of-delaying-retirement [1/23/18]

3 - fool.com/retirement/2017/04/23/5-benefits-of-delaying-retirement.aspx [4/23/17]

Kim Bolker 2/23/18 Kim Bolker 2/23/18

Keeping This Correction in Perspective

After 20 months of relative calm, this volatility needs to be taken in stride.

Are you upset by what is happening on Wall Street? It may help to see this pullback within a big-picture context. Corrections have become so rare as of late that when one occurs, emotion threatens to influence investment decisions.

So far, February has been a rough month for equities. At the close on February 8, the Dow Jones Industrial Average was officially in correction territory after a slide occurred, which included two 1,000-point descents within four days. Additionally, nearly every U.S. equity index had lost 7% or more in the past five trading sessions.1,2

This drop is troubling, yes – but not as unsettling as it may first seem. The market has been up for so long that it is easy to dismiss the reality of its occasional downs. Last year’s quiet trading climate could legitimately be characterized as “abnormal.”

Prior to this current retreat, the S&P 500 had not fallen 5% from a peak since June 2016. It went more than 400 trading days without such a slump, setting a record. In this same calm stretch, the index also went through its longest period without a dip of 3% or more.3

During a typical year, there are five trading days when equities descend at least 2%, plus one correction of about 14%. On average, equities take roughly a 30% fall every five years.4

This year, the kind of volatility normally seen in the market has returned. It may feel like a shock after so much smooth sailing, but it is the norm – and while the Dow’s recent daily losses are numerically unprecedented, they are also proportionate with the level of the index.

A few things are worth remembering at this juncture. One, Wall Street has had more good years than bad ones, as any casual glance at its history will reveal. This year may turn out well. Two, something similar happened in the mid-1990s – a long, easygoing bull run was suddenly disrupted by major volatility. That bull market kept going, though – it lasted four more years, and the S&P 500 doubled along the way. Three, this market needed to cool off; in the minds of many analysts, valuations had become too expensive. Four, the economy is in excellent shape. Five, earnings are living up to expectations. Last week, Thomson Reuters noted that 78% of the S&P firms that had reported this earnings season had topped profit forecasts.1,3

Wall Street may be turbulent, but you can stay calm. You could even look at this as a buying opportunity. Assuming this is a correction and nothing more, the market may regain its footing more quickly than we think. Typically, the average correction lasts less than 90 days. Consider any moves carefully – and talk with a financial professional if you have concerns or anxieties about this volatile episode for the markets.5

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - cnbc.com/2018/02/08/us-stock-futures-dow-data-earnings-fed-speeches-market-sell-off-and-politics-on-the-agenda.html [2/8/18]

2 - markets.wsj.com/us [2/8/18]

3 - money.cnn.com/2018/01/22/investing/stock-market-today-extreme-calm-pullback/index.html [1/22/18]

4 - marketwatch.com/story/panicked-about-a-stock-market-crash-what-you-need-to-remember-can-fit-on-a-single-notecard-2018-02-08 [2/8/18]

5 - cnbc.com/2018/02/07/the-quicker-the-sell-off-the-faster-we-recover-says-market-watcher.html [2/7/18]

Kim Bolker 2/14/18 Kim Bolker 2/14/18

The Dow Dropped. Do Not Drop Out of the Market.

Last Monday’s plunge was hardly the disaster that some media outlets claimed.

On February 5, the Dow Jones Industrial Average took an unprecedented fall. The benchmark dropped 1,175 points, and it was down 1,500 points at one moment during the trading day.1,2

Monday’s Dow loss was severe, but not as catastrophic as certain headlines trumpeted. The index fell 4.6%, which is today’s equivalent of a 652-point dive back in October 2007 when the Dow reached its pre-recession closing peak of 14,164.43. For some recent perspective, consider that the Dow took a 610-point dive the day after the United Kingdom voted for the Brexit in 2016 – and over the following 20 months, it ascended to record heights.1,2,3

The Dow actually witnessed an intraday correction Monday. At the bottom of the plunge late in the trading session, it was at 23,923.88, which was 10.1% beneath its last record close of 26,616.71 on January 26. It finished Monday’s trading day off 8.5% from that January peak.1,3

As for the S&P 500, it finished Monday at 2,648.94, about 7% below its last record close of 2,872.87.1,2,4

Corrections happen. It has been so long since the last one (early 2016), many investors have forgotten the frequency with which they normally occur. Corrections can counteract irrational exuberance, and bring some rationality back into the market, which can be good for Wall Street’s collective health.2

Fundamental economic data is still strong: as an example, the Institute for Supply Management’s service sector purchasing manager index just came in at 59.9 for January, a 13-year high. This was just one of many recent strong indicators.2

Pullbacks and corrections will always occur on Wall Street, and sometimes the bulls turn tail and run. It is part of the long-term story of the market. This Dow pullback was extraordinary in its four-digit depth, which was to be expected someday with the index above 26,000.

This was a moment in stock market history. Thankfully, it is not the norm in that long history, as any glance at stock market cycles will reveal. At times like these, it is a good idea to avoid making hasty decisions, keep the long term in perspective, and realize that corrections are part and parcel of stock market investing.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 - cnbc.com/quotes/?symbol=.DJI [2/5/18]

2 - marketwatch.com/story/us-stocks-poised-for-fresh-selloff-as-dow-futures-slide-120-points-2018-02-05 [2/5/18]

3 - thebalance.com/dow-jones-closing-history-top-highs-and-lows-since-1929-3306174 [2/5/18]

4 - fedprimerate.com/s-and-p-500-index-history-chart.htm [1/31/18]

Kim Bolker 2/9/18 Kim Bolker 2/9/18

A New Day for 529 Plans

Federal tax reforms lead to new possibilities for these education savings accounts.

Do you have a 529 college savings plan? Have you thought about opening a 529 plan account? If the answer to either question is “yes,” you should know about two major changes that broaden the possibilities for 529 plans. They may give your family some new options.

You may be able to pay K-12 tuition with 529 plan funds. The legislation popularly known as the Tax Cuts & Jobs Act authorized this change: under federal law, up to $10,000 of 529 plan assets can be withdrawn for this purpose annually, for each of the named beneficiaries of a 529 plan account. The funds may be used for tuition at both secular and religious schools. (While 529 plan assets can pay for a variety of “qualified” higher education expenses, tuition is considered the only “qualified” expense at the K-12 level.)1,2

Unfortunately, not all states are on board with this change yet. 529 plans are administered at the state level, and at present, less than half the 50 states (and the District of Columbia) treat 529 plan assets in a way that conforms to federal tax law.1

Some states – such as Utah – have 529 plans ready for K-12 withdrawals. In other states, such as Alabama, laws are on the books specifically barring 529 plan money from being spent on elementary education expenses. Amendments to these types of laws may be years away. Iowa, Maine, and Nebraska have issued notices telling 529 plan participants to refrain from using their accounts for K-12 expenses – for now.1,2

Then there is the matter of state tax revenue. More than 30 states and the District of Columbia offer tax credits or deductions for 529 plan contributions, but those tax breaks are linked to the withdrawals being used for higher education. Offering those perks to additional taxpayers will reduce the money flowing into state coffers.2

Another issue is the treatment of investment gains in 529 plans. If state law does not sync with federal law, do those gains become taxable at the state level? States need to address this.2

Keep in mind that you can save and invest in another state’s 529 plan. If you live in a state where the rules for the 529 plan are inconsistent with the new federal law, you have 49 other possibilities (50 counting the District of Columbia). You might lose out on your home state’s tax deduction for college saving, but you may gain the freedom to withdraw funds for K-12 tuition.3

You can also open multiple 529 plan accounts in multiple states. Plans in other states may offer different investment choices and allow higher account balances.3

Additionally, 529 plan assets may now be transferred to 529 ABLE accounts. If you have a child with special needs, you will be delighted to know that federal tax law now allows you to direct up to $10,000 a year from a standard 529 plan to an ABLE account. The transferred amount counts toward the annual ABLE account contribution.1

Families have been hoping for this development since the Achieving a Better Life Experience Act was passed in 2014. This option is scheduled to expire after 2025, but Congress may extend it or make it permanent before the expiration.1

Explore these possibilities today. Meet with the financial professional you know and trust, and see how you could potentially use 529 plan funds to pay for K-12 tuition or save for a child with special needs.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - forbes.com/sites/brianboswell/2018/01/22/your-529-plan-may-not-follow-new-tax-law/ [1/22/18]

2 - time.com/money/5093099/529-plans-k12-expenses-tax-bill/ [1/9/18]

3 - cnbc.com/2017/05/04/10-hidden-benefits-of-529-plans.html [5/4/17]

Kim Bolker 1/27/18 Kim Bolker 1/27/18

Tax Deductions Gone in 2018

What standbys did tax reforms eliminate?

Are the days of itemizing over? Not quite, but now that H.R. 1 (popularly called the Tax Cuts & Jobs Act) is the law, all kinds of itemized federal tax deductions have vanished.

Early drafts of H.R. 1 left only two itemized deductions in the Internal Revenue Code – one for home loan interest, the other for charitable donations. The final bill left many more standing, but plenty of others fell. Here is a partial list of the itemized deductions unavailable this year.1

Moving expenses. Last year, you could deduct such costs if you made a job-related move that had you resettling at least 50 miles away from your previous address. You could even take this deduction without itemizing. Now, only military servicemembers can take this deduction.2,3

Casualty, disaster, and theft losses. This deduction is not totally gone. If you incur such losses during 2018-25 due to a federally declared disaster (that is, the President declares your area a disaster area), you are still eligible to take a federal tax deduction for these personal losses.4

Home office use. Employee business expense deductions (such as this one) are now gone from the Internal Revenue Code, which is unfortunate for people who work remotely.1

Unreimbursed travel and mileage. Previously, unreimbursed travel expenses related to work started becoming deductible for a taxpayer once his or her total miscellaneous deductions surpassed 2% of adjusted gross income. No more.1

Miscellaneous unreimbursed job expenses. Continuing education costs, union dues, medical tests required by an employer, regulatory and license fees for which an employee was not compensated, out-of-pocket expenses paid by workers for tools, supplies, and uniforms – these were all expenses that were deductible once a taxpayer’s total miscellaneous deductions exceeded 2% of his or her AGI. That does not apply now.2,5

Job search expenses. Unreimbursed expenses related to a job hunt are no longer deductible. That includes payments for classes and courses taken to improve career or professional knowledge or skills as well as and job search services (such as the premium service offered by LinkedIn).5

Subsidized employee parking and transit passes. Last year, there was a corporate deduction for this; a worker could receive as much as $255 monthly from an employer to help pay for bus or rail passes or parking fees linked to a commute. The subsidy did not count as employee income. The absence of the employer deduction could mean such subsidies will be much harder to come by for workers this year.2

Home equity loan interest. While the ceiling on the home mortgage interest deduction fell to $750,000 for mortgages taken out starting December 15, 2017, the deduction for home equity loan interest disappears entirely this year with no such grandfathering.2

Investment fees and expenses. This deduction has been repealed, and it should also be noted that the cost of investment newsletters and safe deposit boxes fees are no longer deductible. In some situations, investors may want to deduct these fees from their account balances (i.e., pre-tax savings) rather than pay them by check (after-tax dollars).5

Tax preparation fees. Individual taxpayers are now unable to deduct payments to CPAs, tax prep firms, and tax software companies.3

Legal fees. This is something of a gray area: while it appears hourly legal fees and contingent, attorney fees may no longer be deductible this year, other legal expenses may be deductible.5

Convenience fees for debit and credit card use for federal tax payments. Have you ever paid your federal taxes this way? If you do this in 2018, such fees cannot be deducted.2

An important note for business owners. All the vanished deductions for unreimbursed employee expenses noted above pertain to Schedule A. If you are a sole proprietor and routinely file a Schedule C with your 1040 form, your business-linked deductions are unaltered by the new tax reforms.1

An important note for teachers. One miscellaneous unreimbursed job expense deduction was retained amid the wave of reforms: classroom teachers who pay for school supplies out-of-pocket can still claim a deduction of up to $250 for such costs.6

The tax reforms aimed to simplify the federal tax code, among other objectives. In addition to eliminating many itemized deductions, the personal exemption is gone. The individual standard deduction, though, has climbed to $12,000. (It is $18,000 for heads of household and $24,000 for married couples filing jointly.) For some taxpayers used to filling out Schedule A, the larger standard deduction may make up for the absence of most itemized deductions.1

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - forbes.com/sites/kellyphillipserb/2017/12/20/what-your-itemized-deductions-on-schedule-a-will-look-like-after-tax-reform/ [12/20/17]

2 - tinyurl.com/y7uqe23l [12/26/17]

3 - bloomberg.com/news/articles/2017-12-18/six-ways-to-make-the-new-tax-bill-work-for-you [12/28/17]

4 - taxfoundation.org/retirement-savings-untouched-tax-reform/ [1/3/18]

5 - tinyurl.com/yacz559c [1/8/18]

6 - vox.com/policy-and-politics/2017/12/19/16783634/gop-tax-plan-provisions [12/19/17]

Kim Bolker 1/16/18 Kim Bolker 1/16/18

A Look at HSAs

Health Savings Accounts may provide you with remarkable tax advantages.

Why do higher-income households inquire about Health Savings Accounts? They have heard about what an HSA can potentially offer them: a pool of tax-exempt dollars for health care, a path to tax savings, even a possible source of retirement income after age 65. You may want to look at this option yourself.

About 26 million Americans now have HSAs. You must enroll in a high-deductible health plan (HDHP) to have one, a health insurance option that is not ideal for everybody. In 2018, this deductible must be $1,350 or higher for individuals or $2,650 or higher for a family. In exchange for accepting the high deductible, you may pay relatively low premiums for the coverage.1,2

You fund an HSA with tax-free contributions. This year, an individual can direct as much as $3,450 into an HSA, while a family can contribute up to $6,900. (These contribution caps are $1,000 higher if you are 55 or older in 2018.) Some employers will even provide a matching contribution on your behalf.1,2

HSAs offer you three potential opportunities for tax savings. Your account contributions are tax free (that is, tax deductible), the earnings in your account grow tax free, and you can withdraw funds from your HSA, tax free, so long as they are used to pay for qualified health care expenses, such as deductibles, co-payments, and hospitalization costs. (HSA funds may not be used to pay health insurance premiums.)1,3

At age 65, you can even turn to your HSA for retirement income. Currently, federal tax law allows an HSA owner 65 or older to withdraw HSA funds for any purpose, tax free. Yes, any purpose. You can use the money to pad your retirement income; you can use it to pay Medicare premiums or long-term care insurance premiums. No Required Minimum Distributions (RMDs) are ever required of HSA owners. (Prior to age 65, an HSA withdrawal not used for qualified medical expenses is assessed a 20% I.R.S. penalty.)3

Why is an HSA less attractive for some people? Well, the first thing to mention is the related high-deductible health plan. When you enroll in one of these plans, you agree to pay all (or nearly all) of the cost of medicines, hospital stays, and doctor and dentist visits out of your pocket until that high insurance deductible is reached.1

The other hurdle is just saving the money. If you pay for your own health insurance, just meeting the monthly premiums can be a challenge, especially if your household contends with other significant financial pressures. There may not be enough money left over to fund an HSA. Also, if you are a senior (or a younger adult) with a chronic condition or illnesses, you may end up spending all of your annual HSA contribution and reducing your HSA balance to zero year after year. That works against one of the objectives of the HSA – the goal of accumulation, of growing a tax-advantaged health care fund over time.

If you would like to explore opening an HSA, your first step is to consult an insurance professional to see if you can enroll in a qualified HDHP, unless your employer already sponsors such a plan. Finding an HSA provider is next.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - tinyurl.com/y9lbk7s7 [2/2/17]

2 - trustetc.com/resources/investor-awareness/contribution-limits [1/3/18]

3 - thebalance.com/hsa-vs-ira-you-might-be-surprised-2388481 [8/13/17]

Kim Bolker 1/8/18 Kim Bolker 1/8/18

How the Tax Reforms Will Take Effect

Some of the impact of the Tax Cuts & Jobs Act will be felt later than January 1.

President Donald Trump signed the Tax Cuts & Jobs Act into law on December 22, and on January 1, some key details of the Internal Revenue Code will abruptly change.1

There will be night-and-day change, both figuratively and literally. On January 1, the federal estate tax exemption will double; the standard federal income tax deduction will nearly double. The top corporate income tax rate will fall from 35% to 21%. Most business owners who make pass-through income will be able to deduct the first 20% of that income tax-free.2,3

Workers may not see changes to their paychecks until February. This is because the Internal Revenue Service needs to release new withholding tables. Those tables are slated to appear in January.2

Two provisions of the TCJA may also apply retroactively for some taxpayers. A larger federal tax deduction for out-of-pocket medical expenses is allowed not just for 2018, but also for 2017. Taxpayers who itemize may write off qualifying medical expenses exceeding 7.5% of income in 2017, instead of 10% of income. Businesses that bought new capital equipment after September 27, 2017 will be permitted to fully and immediately expense those purchases for the 2017 tax year.2

Two other changes will not happen until January 1, 2019. On that day, the individual health insurance mandate is scheduled to be repealed; no taxpayer will face a penalty for not having health coverage. Another delayed change pertains to divorcing couples. Taxpayers who divorce in 2019 and succeeding years will not able to deduct alimony payments.2

Many of the changes authorized by the passage of the TCJA could expire after 2025. Congress may or may not renew them at the end of that year. The reduction of the corporate tax rate to 21% is a notable exception – that change is permanent.2,3

This is a good time to plan your 2018 tax strategy. Talk to your CPA or tax preparer soon, to see how you might take advantage of the adjustments to federal tax law.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - cnn.com/2017/12/22/politics/trump-sign-tax-bill-mar-a-lago/index.html [12/22/17]

2 - nytimes.com/interactive/2017/12/21/us/politics/will-tax-plan-affect-my-2017-taxes.html [12/21/17]

3 - cbsnews.com/news/gop-tax-bill-how-the-new-tax-plan-will-affect-you/ [12/17/17]

Kim Bolker 12/22/17 Kim Bolker 12/22/17

Talking to Your Heirs About Your Estate Plan

They should not be left ill-informed or unaware.

Talking about “the end” is not the easiest thing to do, and this is one reason why some people never adequately plan for the transfer of their wealth. Those who do create estate plans with help from financial and legal professionals sometimes leave their heirs out of the conversation.

Have you let your loved ones know a little about your estate plan? This is decidedly a matter of personal preference: you may want to share a great deal of information with them, or you may want to keep most of the details to yourself. Either way, they should know some basics.

Having this talk can become easier when it is a values conversation, not a money conversation.

Values driven estate planning. You can let your heirs know that your values are at the core of the decisions you have made. You need not tell them how much they will inherit. You may let them know about the planning steps you have taken to make a difficult time a bit easier.

For example, you can tell your loved ones that you have a will and/or a revocable living trust. In all probability, your executor or successor trustee has been informed of his or her future responsibilities – but other heirs may not know who the executor or successor trustee will be.

You can tell them that you have an advance health care directive in place and inform them who you have named as an agent to make health care decisions on your behalf if you cannot do so. You can provide the contact information for your estate planner, your CPA, your retirement planner, and any insurance, legal, and medical professionals you consult. Have your heirs ever met these people? Tell your heirs the role they have played for you, your family, or your company and why the judgment of these professionals should be trusted.

Do people beyond your household need to know any of this? Think about it for a second. If you have grandchildren, nieces, or nephews, do they figure into your estate plan? Is it appropriate to let them know that you have made an estate-planning decision or two on their behalf? How about charities or non-profits you have supported – have you notified them of your intent to make a gift from your estate and could knowledge of your decision better facilitate the process? How about your business partner(s)? Do they need to be informed of particular estate-planning intentions you have?

Obviously, you must keep certain details close to the vest. Keeping everything to yourself, however, can be problematic. Are your heirs aware of the location of a copy of your health care proxy? Might they discover that you have planned for some of your estate to transfer to charity only after your death? Dilemmas and surprises like these may be avoided through communication – the type of communication that anyone planning an estate should make a priority.

Not every couple or individual does, though. BMO Wealth Management asked the high net worth clients it advises if they had disclosed the location of their wills and power of attorney forms with their heirs. Thirteen percent of respondents said their heirs had no clue; 25% said “only my spouse and I” knew the location of the documents.1

A 2017 Caring.com poll determined that just 42% of Americans had gone so far as to draw up a will, let alone an estate plan. So, if you have planned for the transfer of your wealth, you are ahead of many of your peers. Just see that your intentions, and some specific details, are effectively communicated.1

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - cnbc.com/2017/11/15/12-financial-planning-documents-to-handle-health-end-of-life-care.html [11/15/17]

Kim Bolker 12/12/17 Kim Bolker 12/12/17

Year-End Charitable Gifting

What should you keep in mind as you donate?

Are you making charitable donations this holiday season? If so, you should know about some of the financial “fine print” involved, as the right moves could potentially bring more of a benefit to the charity and to you.

To deduct charitable donations, you must itemize them on I.R.S. Schedule A. So, you need to document each donation you make. Ideally, the charity uses a form it has on hand to provide you with proof of your contribution. If the charity does not have such a form handy (and some charities do not), then a receipt, a credit or debit card statement, a bank statement, or a cancelled check will have to suffice. The I.R.S. needs to know three things: the name of the charity, the gifted amount, and the date of your gift.1

From a tax planning standpoint, itemized deductions are only worthwhile when they exceed the standard income tax deduction. The 2017 standard deduction for a single filer is $6,350. If you file as a head of household, your standard deduction is $9,350. Joint filers and surviving spouses have a 2017 standard deduction of $12,700. (All these amounts rise in 2018.)2

Make sure your gift goes to a qualified charity with 501(c)(3) non-profit status. Also, visit CharityNavigator.org, CharityWatch.org, or GiveWell.org to evaluate a charity and learn how effectively it utilizes donations. If you are considering a large donation, ask the charity involved how it will use your gift.

If you donated money this year to a crowdsourcing campaign organized by a 501(c)(3) charity, the donation should be tax deductible. If you donated to a crowdsourcing campaign that was created by an individual or a group lacking 501(c)(3) status, the donation is not deductible.3

How can you make your gifts have more impact? You may find a way to do this immediately, thanks to your employer. Some companies match charitable contributions made by their employees. This opportunity is too often overlooked.

Thoughtful estate planning may also help your gifts go further. A charitable remainder trust or a contract between you and a charity could allow you to give away an asset to a 501(c)(3) organization while retaining a lifetime interest. You could also support a charity with a gift of life insurance. Or, you could simply leave cash or appreciated property to a non-profit organization as a final contribution in your will.1

Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move.

You may wish to explore a gift of highly appreciated securities. If you are in a higher income tax bracket, selling securities you have owned for more than a year can lead to capital gains taxes. Instead, you or a financial professional can write a letter of instruction to a bank or brokerage authorizing a transfer of shares to a charity. This transfer can accomplish three things: you can avoid paying the capital gains tax you would normally pay upon selling the shares, you can take a current-year tax deduction for their full fair market value, and the charity gets the full value of the shares, not their after-tax net value.4

You could make a charitable IRA gift. If you are wealthy and view the annual Required Minimum Distribution (RMD) from your traditional IRA as a bother, think about a qualified charitable distribution (QCD) from your IRA. Traditional IRA owners age 70½ and older can arrange direct transfers of up to $100,000 from an IRA to a qualified charity. (Married couples have a yearly limit of $200,000.) The gift can satisfy some or all of your RMD; the amount gifted is excluded from your adjusted gross income for the year. (You can also make a qualified charity a sole beneficiary of an IRA, should you wish.)4,5

Do you have an unneeded life insurance policy? If you make an irrevocable gift of that policy to a qualified charity, you can get a current-year income tax deduction. If you keep paying the policy premiums, each payment becomes a deductible charitable donation. (Deduction limits can apply.) If you pay premiums for at least three years after the gift, that could reduce the size of your taxable estate. The death benefit will be out of your taxable estate in any case.6

Should you donate a vehicle to charity? This can be worthwhile, but you probably will not get fair market value for the donation; if that bothers you, you could always try to sell the vehicle at fair market value yourself and gift the cash. As organizations that coordinate these gifts are notorious for taking big cuts, you may want to think twice about this idea.7

You may also want to make cash gifts to individuals before the end of the year. In 2017, any taxpayer may gift up to $14,000 in cash to as many individuals as desired. If you have two grandkids, you can give them each up to $14,000 this year. (You can also make individual gifts through 529 education savings plans.) At this moment, every taxpayer can gift up to $5.49 million during his or her lifetime without triggering the federal estate and gift tax exemption.8

Be sure to give wisely, with input from a tax or financial professional, as 2017 ends.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - tinyurl.com/y8dkleed [8/23/17]

2 - forbes.com/sites/kellyphillipserb/2017/10/19/irs-announces-2018-tax-brackets-standard-deduction-amounts-and-more/ [10/19/17]

3 - legalzoom.com/articles/cash-and-kickstarter-the-tax-implications-of-crowd-funding [3/17]

4 - irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals [8/17/17]

5 - pe.com/2017/11/04/its-not-that-hard-to-give-cash-or-stock-to-charity/ [11/4/17]

6 - kiplinger.com/article/taxes/T021-C032-S014-gifting-a-life-insurance-policy-to-a-charity.html [11/17]

7 - foxbusiness.com/features/2017/10/18/edmunds-what-to-know-about-donating-your-car-to-charity.html [10/18/17]

8 - law.com/thelegalintelligencer/sites/thelegalintelligencer/2017/11/02/with-2018-fast-approaching-its-time-for-some-year-end-tax-planning-tips [11/2/17]

Kim Bolker 12/5/17 Kim Bolker 12/5/17

Should We Reconsider What “Retirement” Means?

The notion that we separate from work in our sixties may have to go.

An executive transitions into a consulting role at age 62 and stops working altogether at 65; then, he becomes a buyer for a church network at 69. A corporate IT professional decides to conclude her career at age 58; she serves as a city council member in her sixties, then opens an art studio at 70.

Are these people retired? Not by the old definition of the word. Our definition of “retirement” is changing. Retirement is now a time of activity and opportunity.

Generations ago, Americans never retired – at least not voluntarily. American life was either agrarian or industrialized, and people toiled until they died or physically broke down. Their “social security” was their children. Society had a low opinion of able-bodied adults who preferred leisure to work.

German Chancellor Otto von Bismarck often gets credit for “inventing” the idea of retirement. In the late 1800s, the German government set up the first pension plan for those 65 and older. (Life expectancy was around 45 at the time.) When our Social Security program began in 1935, it defined 65 as the U.S. retirement age; back then, the average American lived about 62 years. Social Security was perceived as a reward given to seniors during the final years of their lives, a financial compliment for their hard work.1

After World War II, the concept of retirement changed. The model American worker was now the “organization man” destined to spend decades at one large company, taken care of by his (or her) employer in a way many people would welcome today. Americans began to associate retirement with pleasure and leisure.

By the 1970s, the definition of retirement had become rigid. You retired in your early sixties, because your best years were behind you and it was time to go. You died at about 72 or 75 (depending on your gender). In between, you relaxed. You lived comfortably on an employee pension and Social Security checks, and the risk of outliving your money was low. If you lived to 81 or 82, that was a good run. Turning 90 was remarkable.

Today, baby boomers cannot settle for these kinds of retirement assumptions. This is partly due to economic uncertainty and partly due to ambition. Retirement planning today is all about self-reliance, and to die at 65 today is to die young with the potential of one’s “second act” unfulfilled.

One factor has altered our view of retirement more than any other. That factor is the increase in longevity. When Social Security started, retirement was seen as the quiet final years of life; by the 1960s, it was seen as an extended vacation lasting 10-15 years; and now, it is seen as a decades-long window of opportunity.

Working past 70 may soon become common. Some baby boomers will need to do it, but others will simply want to do it. Whether by choice or chance, some will retire briefly and work again; others will rotate between periods of leisure and work for as long as they can. Working full time or part time not only generates income, it also helps to preserve invested retirement assets, giving them more years to potentially compound. Another year on the job also means one less year of retirement to fund.

Perhaps we should see retirement foremost as a time of change – a time of changing what we want to do with our lives. According to the actuaries at the Social Security Administration, the average 65-year-old has about 20 years to pursue his or her interests. Planning for change may be the most responsive move we can make for the future.2

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - dailynews.com/2017/03/24/successful-aging-im-65-and-ok-with-it/ [3/24/17]

2 - ssa.gov/planners/lifeexpectancy.html [11/21/17]

Kim Bolker 11/21/17 Kim Bolker 11/21/17

Year-End Charitable Gifting

What should you keep in mind as you donate?

Many charities welcome non-cash donations. In fact, donating an appreciated asset can be a tax-savvy move.

Be sure to give wisely, with input from a tax or financial professional, as 2017 ends.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - tinyurl.com/y8dkleed [8/23/17]

2 - forbes.com/sites/kellyphillipserb/2017/10/19/irs-announces-2018-tax-brackets-standard-deduction-amounts-and-more/ [10/19/17]

3 - legalzoom.com/articles/cash-and-kickstarter-the-tax-implications-of-crowd-funding [3/17]

4 - irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras-distributions-withdrawals [8/17/17]

5 - pe.com/2017/11/04/its-not-that-hard-to-give-cash-or-stock-to-charity/ [11/4/17]

6 - kiplinger.com/article/taxes/T021-C032-S014-gifting-a-life-insurance-policy-to-a-charity.html [11/17]

7 - foxbusiness.com/features/2017/10/18/edmunds-what-to-know-about-donating-your-car-to-charity.html [10/18/17]

8 - law.com/thelegalintelligencer/sites/thelegalintelligencer/2017/11/02/with-2018-fast-approaching-its-time-for-some-year-end-tax-planning-tips [11/2/17]

Kim Bolker 11/17/17 Kim Bolker 11/17/17

Refrain from Tapping Your Retirement Funds

Resist the temptation. Your future self will thank you.

Retirement accounts are not bank accounts. Nor should they be treated as such. When retirement funds are drawn down, they impede the progress of retirement planning, even if the money is later restored.

In a financial crush, a retirement account may seem like a great source of funds. It is often much larger than a savings account; it is technically not a liquid asset, but it can easily be mistaken for one.

The central problem is this: when you take a loan or an early distribution from an IRA or a workplace retirement plan, you are borrowing from your future self. In fact, you may effectively be borrowing more money from your future than you think. Even if you put every dollar you take out back into the account, you are robbing those dollars you removed of the tax-deferred growth and compounding they could have realized while invested.

An early withdrawal will commonly come with a 10% penalty. The Internal Revenue Service does not want you to cash out your retirement account prior to age 59½, so it puts an additional tax on withdrawals from traditional IRAs and employer-sponsored retirement plans that occur before then. (This applies even to withdrawals defined as “hardship distributions,” where the account holder has demonstrated a severe financial dilemma and a lack of other financial sources to address the problem.)1,2

The money exiting the plan is considered a distribution of ordinary, taxable income. So, you will pay regular income tax on the money you take out, plus a penalty equal to 10% of the amount withdrawn.1,3

In the case of a workplace retirement plan, you will not even receive 100% of what you take out. The plan must withhold 20% of the withdrawn funds from you to cover income taxes.2

There is one asterisk worth noting here. The I.R.S. will let you withdraw your contributions to a Roth IRA at any point during your life, tax free and penalty free. Roth IRA earnings, however, are a different story – if you begin to withdraw those earnings before you reach age 59½ and have owned the Roth IRA for at least five years, then regular income taxes and the 10% penalty apply to the distribution.1

Loans come with their own set of issues. Most employer-sponsored retirement plans allow them once you are vested. You can usually withdraw up to $50,000 or 50% of your account balance, whichever is less; the term of repayment is typically five years.1,3

All that may appear very convenient, but you are still borrowing money that could be growing and compounding in the account – with taxes deferred, no less. Moreover, the loan comes with interest and cuts into your take-home pay.3

In some cases, you may feel like you have no choice but to borrow from your employee retirement plan: your back is against the wall financially due to hospital bills, high-interest debts, or other pressures; you lack other financial means to address these pressures; and you certainly do not want to turn to a predatory lender.

If you do take a loan from your workplace retirement plan account, remember two things. One, the loan should not be so large that your monthly household debt approaches 35-40% of your gross income. Two, you should avoid taking a loan if it appears you may leave the company in the coming months. If you quit or are fired, you may need to repay the whole loan balance in as little as 60 days. Any money you fail to repay will be considered a distribution of taxable income to you otherwise.3

All this underscores the need to build an emergency fund. If you have adequate cash on hand for sudden financial crises, you can refrain from taking what should be thought of as a withdrawal or loan of last resort.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - tinyurl.com/ya42no9v [9/13/17]

2 - forbes.com/sites/financialfinesse/2017/03/16/the-401k-distribution-opportunity-you-need-to-think-twice-about/ [3/16/17]

3 - cnbc.com/2017/04/13/never-pull-money-from-your-401k--except-in-these-3-cases.html [4/13/17]

Kim Bolker 11/7/17 Kim Bolker 11/7/17

Are Too Many Baby Boomers Too Indebted?

Financial burdens could alter their retirement prospects.

Imagine retiring with $50,000 of debt. Some new retirees owe more than that. Outstanding home loans, education debt, small business loans, and lingering credit card balances threaten to compromise their retirement plans.

How serious is the problem? A study from the University of Michigan’s Retirement Research Center illustrates how bad it has become. Back in 1998, 37% of Americans aged 56-61 shouldered recurring debt; the average such household owed $3,634 each month (in 2012 dollars). Today, 42% of such households do – and the mean debt load is now $17,623.1

Are increased mortgage costs to blame? Partly, but not fully. Quite a few homeowners do trade up or refinance after age 50. The Consumer Financial Protection Bureau notes that between 2001-2011, the percentage of homeowners 65 and older carrying a mortgage went from 22% to 30%. The data for homeowners 75 and older was more alarming. While 8.4% of this demographic had outstanding home loans in 2001, 21.2% did by 2011.2

Education debt is weighing on boomer households. According to the Motley Fool, the average recent college graduate has $30,000-$35,000 in outstanding student loans. It would take monthly payments of $300-$400 over a decade to eradicate that kind of debt.3

As good debts have risen, bad debts have also grown. MagnifyMoney, a financial analytics website, pored over the most recent round of UMRRC data and determined that 32% of older consumers now contend with revolving debt each month. The average recurring non-mortgage debt for these seniors: $12,490, of which $4,786 is attributed to credit cards. A staggering 22% of older Americans have more than $10,000 in revolving credit card debt – pretty painful when you consider that the average credit card carries 14% interest.1

One school of thought says that retiring with a mortgage is okay. Interest rates on home loans are rising, but they are still not far from historic lows, and homeowners who have bought or refinanced recently could be carrying loans at less than 4% interest. While carrying mortgage debt into retirement may be bearable, owning a home free and clear is better.

How about you? Can you retire debt-free? It may seem improbable, but if small steps are taken, that goal may come within reach.

Every year you delay retirement is another year you have full financial power to attack debt. Working longer may not be ideal, but it can give you the potential to start retirement owing less. Cutting off financial support for young adult children can also free up money to pay down debt. They have many more years to pay off what they owe than you do. You could also think about moving to a cheaper home, driving a cheaper car, or living in a cheaper state; any linked short-term financial expenses might pale in comparison to the potential savings.

Whether you pay off your smallest debts first or your highest-interest ones, you are subtracting burdens from your financial life. The fewer financial burdens you have in retirement, the better.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - forbes.com/sites/nextavenue/2017/09/20/how-debt-is-threatening-retirement-dreams/ [9/20/17]

2 - cbsnews.com/news/mortgage-tips-for-retirees-and-near-retirees/ [10/20/17]

3 - tinyurl.com/ybgvt7po [9/29/17]

Kim Bolker 10/31/17 Kim Bolker 10/31/17

Enjoy the Rally, But Prepare for the Retreat

Investors may be lulled into a false sense of security by this market.

Will the current bull market run for another year? How about another two or three years? Some investors will confidently say “yes” to both questions. Optimism abounds on Wall Street: the major indices climb more than they retreat, and they have attained new peaks. On average, the S&P 500 has gained nearly 15% a year for the past eight years.1

Stocks will correct at some point. A bear market could even emerge. Is your investment portfolio ready for either kind of event?

It may not be. Your portfolio could be overweighted in stocks – that is, a higher percentage of your invested assets may be held in equities than what your investment strategy outlines. As your stock market exposure grows greater and greater, the less diversified your portfolio becomes, and the more stock market risk you assume.

You know diversification is important, especially when one investment sector that has done well for you suddenly turns sideways or plummets. When a bull market becomes as celebratory as this one, that lesson risks being lost.

How do bear markets begin? They seldom arrive abruptly, but some telltale signs may hint that one is ahead. Notable declines or disappointments in corporate profits and quickly rising interest rates are but two potential indicators. If the pace of tightening speeds up at the Federal Reserve, borrowing costs will climb not only for households, but also for big businesses. A pervasive bullishness – irrational exuberance, by some definitions – that helps to send the CBOE VIX down to unusual lows could be seen as another indicator.

How long could the next bear market last? It is impossible to say, but we do know that the longest bear market on record lasted 929 days (calendar days, not trading days). That was the 2000-02 bear. A typical bear market lasts 9-14 months.1,2

Enjoy this record-setting Wall Street run, but be pragmatic. Equities do have bad years, and bears do come out of hibernation from time to time. Patience and adequate diversification may make a downturn more tolerable for you. You certainly do not want the value of your portfolio to fall drastically in the years preceding your retirement, when you will have a narrow window of time to try and recoup that loss. Remember, the market does not always advance.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - cnbc.com/2017/09/19/what-investors-should-do-before-the-bull-market-gets-gored.html [9/19/17]

2 - investopedia.com/news/how-do-bear-markets-start/ [10/14/16]

Kim Bolker 10/27/17 Kim Bolker 10/27/17

Understanding Inherited IRAs

What beneficiaries need to know and consider.

At first glance, the rules surrounding inherited IRAs are complex. Here are some questions (and potential answers) to consider if you have inherited one or may in the future.

Who was the original IRA owner? If the original owner was your spouse, you have a fundamental choice to make. You can roll over your late spouse’s IRA into an IRA you own, or you can treat it as an inherited IRA. If the original owner was not your spouse, you must treat the IRA for which you are named beneficiary as an inherited IRA.1,2

What kind of IRA is it? It will either be a traditional IRA funded with pre-tax contributions or a Roth IRA funded with post-tax contributions.

Do you want to let the money grow and take RMDs or cash it all out now? In the case of a small IRA, many heirs just want to cash out – it seems bothersome to schedule tiny withdrawals out of the IRA across the remainder of their lifetimes. Money coming out of an inherited traditional IRA is taxable income, however – and if a lump sum is taken, the tax impact could be notable.1

If the IRA is substantial, there is real merit in scheduling Required Minimum Distributions (RMDs) instead. This gives some of the still-invested IRA balance additional years to grow and compound. Any future growth will be tax deferred (traditional IRA) or tax free (Roth IRA).1

Internal Revenue Service rules say that RMDs from inherited IRAs must begin by the end of the year following the year in which the original IRA owner died. These RMDs are required even for inherited Roth IRAs. Each RMD is considered regular, taxable income.1,2

One asterisk is worth noting regarding inherited traditional IRAs. If the original IRA owner died on or after the date at which RMDs are required for that IRA, then you can schedule RMDs during the remainder of your lifetime using tables in I.R.S. Publication 590 as a guide. If the original IRA owner died before that date, you have a choice of scheduling RMDs over a lifetime or withdrawing the whole IRA balance by the end of the 5th year following the year of the original owner’s death.2,3

What is the IRA’s basis? In other words, what is the amount on which the original IRA owner paid taxes? For an inherited traditional IRA, the basis equals the amount of all non-deductible contributions that the original IRA owner made. For an inherited Roth IRA, the basis equals the amount of total contributions made by the original owner.4

When you know the basis, you can figure out the percentage of an RMD from an inherited traditional IRA that is subject to tax. RMDs out of inherited Roth IRAs are not normally taxed, but if the inherited Roth IRA is less than five years old, you must determine the basis. The Roth IRA’s basis will be distributed to you first, then the Roth IRA’s earnings, and only the earnings will be taxed. Earnings can be withdrawn tax free from an inherited Roth IRA starting on the first day of the fifth taxable year after the year the Roth IRA was first created.1,4

Can you withdraw more than the RMD amount from an inherited IRA each year? Certainly, but keep in mind that a large, lump-sum payout could leave you in a higher tax bracket.1

What happens when you inherit an inherited IRA? As a secondary beneficiary to that IRA, you assume the RMD schedule of the person who was the primary beneficiary.1

Can you convert an inherited traditional IRA into a Roth IRA? The I.R.S. forbids this – with one exception. A spousal IRA heir who rolls over an inherited IRA balance into their own traditional IRA can arrange a Roth conversion.3

If you have inherited an IRA, talk with a financial professional. That conversation may help you determine a tax-efficient way to manage and withdraw these assets.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - forbes.com/sites/ashleaebeling/2017/07/10/what-to-do-if-you-inherit-an-ira/ [7/10/17]

2 - irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries [8/17/17]

3 - fool.com/retirement/iras/2017/06/01/5-inherited-ira-rules-you-should-know-by-heart.aspx [6/1/17]

4 - finance.zacks.com/basis-inherited-iras-2711.html [10/12/17]

Kim Bolker 10/10/17 Kim Bolker 10/10/17

Will Debt Spoil Too Many Retirements?

What pre-retirees owe could compromise their future quality of life.

The key points of retirement planning are easily stated. Start saving and investing early in life. Save and invest consistently. Avoid drawing down your savings along the way. Another possible point for that list: pay off as much debt as you can before your “second act” begins.

Some baby boomers risk paying themselves last. Thanks to lingering mortgage, credit card, and student loan debt, they are challenged to make financial progress in the years before and after retiring.

More than 40% of households headed by people 65-74 shoulder home loan debt. That figure comes from the Federal Reserve’s Survey of Consumer Finances; the 2013 edition is the latest available. In 1992, less than 20% of Americans in this age group owed money on a mortgage. Some seniors see no real disadvantage in assuming and retiring with a mortgage; tax breaks are available, interest rates are low, and rather than pay cash for a home, they can arrange a loan and use their savings on other things. Money owed is still money owed, though, and owning a home free and clear in retirement is a great feeling.1

Paying with plastic too often can also exert a drag on retirement. Personal finance website ValuePenguin notes that the average U.S. household headed by 55- to 64-year-olds now carries $8,158 in credit card debt. As for households headed by those aged 65-69, they owe an average of $6,876 on credit cards.2

According to the latest Weekly Rate Report at CreditCards.com, the average APR on a credit card right now is 16.15%. How many investments regularly return 16% a year? What bank account earns that kind of interest? If a retiree’s consumer debt is increasing at a rate that his or her investments and deposit accounts cannot match, financial pain could be in the cards.3

Education debt is increasing. Older Americans are dealing with student loans – their own and those of their adult children – to alarming degree. In all 50 states, the population of people 60 and older with student debt has grown by at least 20% since 2012. That finding from the Consumer Financial Protection Bureau may be understating the depth of the crisis, which may have its roots in the Great Recession. Fair Isaac Corporation (FICO) says that between 2006-16, the number of Americans aged 65 and older with outstanding education loans has tripled.4,5

Just what kind of financial burden are these loans imposing? According to FICO, the average 65-or-older student loan borrower is dealing with a balance of $28,268. That is up 40% from the average balance in 2006.5

How can pre-retirees and retirees address such debts? One way might be to reduce household expenses and apply the money not spent to debt. Financial assistance for adult children may need to end. Retiring later could also be a good move – income is the primary resource for fighting debt, and the more income earned, the more financial power a senior has to pay debts off.

Servicing debt in retirement can become very difficult. Large recurring debts can drain off a retiree’s cash flow and increase overall household financial risk. Retiring without major debt is a comparative relief.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - nytimes.com/2017/06/02/business/retirement/mortgages-for-older-people-retirement.html [6/2/17]

2 - valuepenguin.com/average-credit-card-debt [9/28/17]

3 - creditcards.com/credit-card-news/interest-rate-report-92717-unchanged-2121.php [9/27/17]

4 - consumerfinance.gov/about-us/blog/nationwide-look-how-student-debt-impacts-older-adults/ [8/18/17]

5 - newsday.com/business/65-plus-crowd-facing-growing-burden-from-student-loan-debt-1.14124052 [9/10/17]

Kim Bolker 10/3/17 Kim Bolker 10/3/17

How Much Should You Save By Age 30, 40, 50, or 60?

What number should you strive to reach?

It is agreed that the earlier you start saving for retirement, the better. The big question on the minds of many savers, however, is: “How am I doing?” This article will show you some rough milestones to try and reach. (Keep in mind that you may need to save more or less than these amounts based on your objectives and lifestyle and income needs.)

At age 30, can you have the equivalent of a year’s salary saved? Some 30-year-olds have the equivalent of a year’s salary in debt, it is true; the thing is, you can probably manage debt and save and invest to build wealth simultaneously. One way to plan to reach this goal is to save (and invest) about a fifth of your after-tax income beginning at age 25. That assumes you start at 25 with no savings; if you start saving and investing earlier, the goal may be easier to attain.1

At age 40, will your savings be triple that of your yearly earnings? The average American currently saves about 3.5% of his or her income. Can you save 3.5% of what you earn at 25 or 30 and build a six-figure retirement fund by your 40th birthday? Perhaps, if you are an absolute investing wizard or start your career with a salary north of $100,000. Otherwise, saving and investing 10-15% of what you earn annually will be crucial in planning to reach this goal.1,2

When you are 50, will your savings be about six times your salary? Slow and steady saving and investing could get you there, but building up $250,000 or more in retirement money can be a challenge given factors like child-rearing, divorce, periodic unemployment, or health concerns. One response is to adjust your discretionary spending habits, if life allows.1

At 60, will your savings equal eight or nine times what you earn annually? Amassing $500,000 or more in retirement assets should be a priority. Even if you have not managed this, other resources can help you generate retirement income in the years ahead: you will have Social Security benefits coming your way and possibly home equity or executive compensation or business proceeds to make your financial future more promising.1

Saving and investing 10-15% of your annual pay merits serious consideration. Through recurring contributions to tax-deferred retirement savings accounts, you can make saving and investing a regular process. Your future self may thank you.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - cheatsheet.com/money-career/how-much-money-should-have-based-on-age.html/ [9/20/17]

2 - businessinsider.com/how-much-you-should-have-saved-every-age-2017-9 [9/18/17]

Kim Bolker 9/26/17 Kim Bolker 9/26/17

Retiring Before 60

If that is your dream, explore whether these steps could be useful to take.

How could you retire in your fifties by choice? You will need abundant retirement savings and ways to access your retirement assets that lessen or avoid early withdrawal penalties. You may also need to have other, sometimes overlooked, components of retirement planning in place.

There are ways to tap retirement savings accounts before 60. True, the I.R.S. discourages this with 10% penalties on traditional IRA withdrawals prior to age 59½ and withdrawals from many employee retirement plans before age 55½ – but those penalties may be skirted.1

An IRA or workplace retirement account funded with pre-tax dollars can be converted to a Roth IRA funded with post-tax dollars. While the conversion is a taxable event, it allows a pre-retiree more potential to retrieve retirement savings early. Before age 59½, you are permitted to make tax-free, penalty-free withdrawals of the amount you have contributed to a Roth IRA (as opposed to the Roth IRA’s earnings). After age 59½, you can withdraw contributions and earnings tax free provided you have owned the Roth IRA for five years. For Roth IRA conversions, the 5-year period begins on January 1 of the year in which the conversion happens. Roth conversions may be a good move for some, but a bad move for those who live in high-tax states with plans to retire to a state with lower income taxes.1,2

Under I.R.S. Rule 72(t), you have the option of taking “substantially equal periodic payments” (SEPPs) for five years from an IRA in your fifties. The schedule of payments must end after five years or when you turn 59½, whichever is later. Such withdrawals are taxed as ordinary income, and the distribution schedule cannot be altered once distributions have begun.1

A life insurance policy could assist you. For most pre-retirees, buying life insurance comes down to the pursuit of the largest death benefit for the lowest cost. If you have enough net worth to potentially retire before 60, you may have additional objectives. A sizable death benefit could help your heirs pay estate taxes. A whole life policy might provide a consistent return akin to a fixed-income investment in retirement, but without the usual interest rate risk.3

An HSA might help with upcoming health care expenses. If you retire prior to 60, you must acknowledge that you could live another 35-40 years. Fidelity believes that a retiring 65-year-old couple will need $275,000 for future health care costs. It bases its forecast on Social Security life expectancy projections, which have the average 65-year-old retiree living to about age 85. If your retirement turns out to be twice that long, you could need to set aside much more.4,5

A Health Savings Account offers a potential triple tax advantage. Your contributions are exempt from tax, the money saved or invested within the account benefits from tax-free growth, and withdrawals are untaxed if the money pays for health care costs. This is why many people are looking at the combination of HSA-plus-HDHCP (that last acronym stands for high-deductible health care plan).6

Retiring in your fifties may present you with greater financial challenges than if you retire later. While you may retire in better health, you will have to wait to collect Social Security and Medicare coverage. If early retirement is on your mind, consult a financial professional to see if your savings, your potential income streams, your insurance situation, and your ability to work part time correspond to your objective.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - cnbc.com/2017/07/05/three-retirement-savings-strategies-to-use-if-you-plan-to-retire-early.html [7/5/17]

2 - bankrate.com/investing/ira/roth-ira-5-year-rule-the-tax-free-earnings-clock-starts-ticking-at-different-times/ [3/25/16]

3 - forbes.com/sites/jamiehopkins/2017/04/27/why-life-insurance-is-essential-for-retirement-planning/ [4/27/17]

4 - fidelity.com/about-fidelity/employer-services/health-care-costs-for-retirees-rise [8/24/17]

5 - ssa.gov/planners/lifeexpectancy.html [9/14/17]

6 - cbsnews.com/news/how-to-cope-with-health-care-costs-in-retirement/ [9/12/17]

Kim Bolker 9/19/17 Kim Bolker 9/19/17

Avoiding the Cybercrooks

How can you protect yourself against ransomware, phishing, and other tactics?

Imagine finding out that your computer has been hacked. The hackers leave you a message: if you want your data back, you must pay them $300 in bitcoin. This was what happened to hundreds of thousands of PC users in May 2017 when they were attacked by the WannaCry malware, which exploited security flaws in Windows.

How can you plan to avoid cyberattacks and other attempts to take your money over the Internet? Be wary, and if attacked, respond quickly.

Phishing. This is when a cybercriminal throws you a hook, line, and sinker in the form of a fake, but convincing, email from a bank, law enforcement agency, or corporation, complete with accurate logos and graphics. The goal is to get you to disclose your personal information – the crooks will either use it or sell it. The best way to avoid phishing emails: stick to a virtual private network (VPN) or extremely reliable Wi-Fi networks when you are online.1

Ransomware. In this scam, online thieves create a mock virus, with an announcement that freezes your monitor. Their message: your files have been kidnapped, and you will need a decryption key to get them back, which you will pay handsomely to receive. In 2016, the FBI fielded 2,673 ransomware attack complaints, by companies and individuals who lost a total of $2.4 million. How can you avoid joining their ranks? Keep your security software and operating system as state of the art as you can. Your anti-virus programs should have the latest set of virus definitions. Your Internet browser and its plug-ins should also be up to date.2

Advance fee scams. A crook contacts you via text message or email, posing as a charity, a handyman, an adult education provider, or even a tax preparer ready to serve you. Oh, wait – before any service can be provided, you need to pay an “authorization fee” or an “application fee.” The crook takes the money and disappears. Common sense is your friend here; avoid succumbing to something that seems too good to be true.

I.R.S. impersonations. Cybergangs send out emails to households and small businesses with a warning: you owe money. That money must be paid now to the Internal Revenue Service through a pre-paid debit card or a money transfer. These scams often prey on immigrants, some of whom may not have a great understanding of U.S. tax law or the way the I.R.S. does business. The I.R.S. never emails a taxpayer out of the blue demanding payment; if unpaid taxes are a problem, the agency first sends a bill and an explanation of why the taxes need to be collected. It does not bully businesses or taxpayers with extortionist emails.1

Three statistics might convince you to obtain cyberinsurance for your business. One, roughly two-thirds of all cyberattacks target small and medium-sized companies. About 4,000 of these attacks occur per day, according to IBM. Two, the average cost of a cyberattack for a small business is around $690,000. This factoid comes from the Ponemon Institute, a research firm that conducted IBM’s 2017 Cost of Data Breach Study. That $690,000 encompasses not only lost business, but litigation, ransoms, and the money and time spent restoring data. Three, about 60% of small companies hit by an effective cyberattack are forced out of business within six months, notes the U.S. National Cyber Security Alliance.3

Most online money threats can be avoided with good security software, the latest operating system, and some healthy skepticism. Here is where a little suspicion may save you a lot of financial pain. If you do end up suffering that pain, the right insurance coverage may help to lessen it.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - gobankingrates.com/personal-finance/avoid-12-scary-money-scams/ [8/28/17]

2 - eweek.com/security/the-true-cost-of-ransomware-is-much-more-than-just-the-ransom [8/18/17]

3 - sfchronicle.com/business/article/Interest-in-cyberinsurance-grows-as-cybercrime-12043082.php [8/28/17]

Kim Bolker 9/11/17 Kim Bolker 9/11/17

Before You Claim Social Security

A few things you may want to think about before filing for benefits.

Whether you want to leave work at 62, 67, or 70, claiming the retirement benefits you are entitled to by federal law is no casual decision. You will want to consider a few key factors first.

How long do you think you will live? If you have a feeling you will live into your nineties, for example, it may be better to claim later. If you start receiving Social Security benefits at or after age 67 (Full Retirement Age), your monthly benefit will be larger than if you had claimed at 62. If you file for benefits at 67 or later, chances are you probably a) worked into your mid-sixties, b) are in fairly good health, c) have sizable retirement savings.

If you sense you might not live into your eighties or you really, really need retirement income, then claiming at or close to 62 might make more sense. If you have an average lifespan, you will, theoretically, receive the average amount of lifetime benefits regardless of when you claim them; the choice comes down to more lifetime payments that are smaller or fewer lifetime payments that are larger. For the record, Social Security’s actuaries project the average 65-year-old man living 84.3 years and the average 65-year-old woman living 86.6 years.1

Will you keep working? You might not want to work too much, for earning too much income can result in your Social Security being withheld or taxed.

Prior to age 66, your benefits may be lessened if your income tops certain limits. In 2017, if you are 62-65 and receive Social Security, $1 of your benefits will be withheld for every $2 that you earn above $16,920. If you receive Social Security and turn 66 this year, then $1 of your benefits will be withheld for every $3 that you earn above $44,880.2

Social Security income may also be taxed above the program’s “combined income” threshold. (“Combined income” = adjusted gross income + non-taxable interest + 50% of Social Security benefits.) Single filers who have combined incomes from $25,000-34,000 may have to pay federal income tax on up to 50% of their Social Security benefits, and that also applies to joint filers with combined incomes of $32,000-44,000. Single filers with combined incomes above $34,000 and joint filers whose combined incomes surpass $44,000 may have to pay federal income tax on up to 85% of their Social Security benefits.2

When does your spouse want to file? Timing does matter. For some couples, having the lower-earning spouse collect first may result in greater lifetime benefits for the household.3

Finally, how much in benefits might be coming your way? Visit ssa.gov to find out, and keep in mind that Social Security calculates your monthly benefit using a formula based on your 35 highest-earning years. If you have worked for less than 35 years, Social Security fills in the “blank years” with zeros. If you have, say, just 33 years of work experience, working another couple of years might translate to slightly higher Social Security income.3

Your claiming decision may be one of the major financial decisions of your life. Your choices should be evaluated years in advance, with insight from the financial professional who has helped you plan for retirement.

Rep disclosures: Kim Bolker may be reached at kbolker@sigmarep.com or 616-942-8600.

Citations.

1 - ssa.gov/planners/lifeexpectancy.html [7/27/17]

2 - newsok.com/article/5546356 [5/8/17]

3 - fool.com/retirement/2016/07/16/about-to-take-social-security-read-this-first.aspx [12/15/16]

Good Reasons to Retire Later

Keeping This Correction in Perspective

The Dow Dropped. Do Not Drop Out of the Market.

A New Day for 529 Plans

Tax Deductions Gone in 2018

A Look at HSAs

How the Tax Reforms Will Take Effect

Talking to Your Heirs About Your Estate Plan

Year-End Charitable Gifting

Should We Reconsider What “Retirement” Means?

Year-End Charitable Gifting

Refrain from Tapping Your Retirement Funds

Are Too Many Baby Boomers Too Indebted?

Enjoy the Rally, But Prepare for the Retreat

Understanding Inherited IRAs

Will Debt Spoil Too Many Retirements?

How Much Should You Save By Age 30, 40, 50, or 60?

Retiring Before 60

Avoiding the Cybercrooks

Before You Claim Social Security

Contact

Securities and Advisory Services