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C.H. Robinson

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The Importance of Saving Money in all 3 “Buckets”

Written by Summit Wealth on .

By “buckets,” we are referring to taxable, tax-deferred and tax-free buckets. The reason we feel it is critical to save money in all three is to maximize your ability to control the amount of taxes you pay in retirement.

For example, let’s say you arrive at retirement with a large, pre-tax bucket of money (and that’s all). While you’ve likely accomplished your goal of minimizing your income taxes all along the way, you will likely have no control over your tax burden moving forward (as you draw from your one-and-only pre-tax bucket of money). You draw out $10,000 pre-tax, just to get $7,000 after-tax.

However, if you build taxable and tax-free (Roth) buckets over time as well, we can better control your tax bill moving forward as we draw your retirement cash flow from all three types of accounts to minimize your overall tax bill.

While we understand that this strategy sounds easy, you may be thinking: Don’t I make too much money to contribute directly to a Roth? However, there are techniques we can consider that will allow you to get dollars into Roth accounts. Those methods are for a future blog.


IRS Increases Retirement Plan Contributions Limits for 2015

Written by Summit Wealth on .

The IRS announced the cost of living adjustments (COLA) for retirement plans for 2015. Here's what they look like:

  • For those less than age 50: $18,000 maximum contribution limit for 401(k)s, 403(b), 457, etc.
  • For those age 50+: In addition to the $18,000 contribution discussed above, a catch up contribution of up to $6,000 can be made as well.

Unfortunately, the annual limits on IRA accounts remains at $5,500 while the additional catch-up contribution for those age 50+ also remains at $1,000 (meaning they can contribute $6,500 to a traditional or Roth IRA).

If you have any questions about how the changes above impact you, please contact us as we are glad to help.


Elder Financial Abuse Is Expected to Get Worse

Written by Summit Wealth on .

A recent study by Allianz entitled, "2014: Safeguarding Our Seniors," indicates that the financial abuse of the elderly is not always reported and is a misunderstood issue that is likely to continue to get worse as our population continues to get older. The study of more than 2,000 Americans age 40+ found that misunderstandings persist about the most likely sources of financial abuse and the financial impact that abuse has on its victims. Allianz defined financial abuse as "the unauthorized or improper use of resources of an elder family member or friend who is +65 years old, for monetary or personal benefit, profit or gain."

Only 5% of elders in the study said they have experienced financial abuse. However, almost 19% of those age 40 – 64 reported that they have an older friend or family member who has been a victim in the past. Of this 19%, 55% said the victims did not report the financial abuse.

The study also highlighted a lack of awareness about the causes of elder financial abuse. The majority of survey respondents indicated telemarketing as the top source of abuse, followed by Internet scams and U.S. mail solicitation. Of those elders reporting financial abuse, 52% said a family member, friend or caregiver was the culprit.

For those of you with senior family members and friends, it's important to get educated as to the types of financial abuse taking place as well as how to keep close tabs on those responsible for the financial care of the elderly you know. You may help prevent someone you care about from losing hundreds of thousands of dollars.


Are You Struggling to Save for Higher Education AND Retirement?

Written by Summit Wealth on .

A recent survey by the Certified Financial Planning board found that costly living expenses are preventing many parents from saving for their children's higher education. The findings also show that one-third of American parents are still repaying their own student loan debt, limiting their ability to save for their children's education.

More than two-thirds of parents surveyed reported that they have not started saving for their children's higher education because their everyday living expenses have left no additional funds to save. 48% say that their own student loan debt has prevented them from saving for any of their priorities including an emergency fund or retirement.

As the parent of a high-school senior and sophomore, it is scary to think how many young people are struggling with their everyday expenses and student loans, let alone saving money. Unfortunately, many kids graduate college with no clue of how finances work and how to make ends meet. It's about learning to live within one's means and not giving into the desire to have everything now. Making the tough choices early in life can have a major impact on one's financial situation in their 30s and 40s. As a client of SWA, if we can help provide counsel to your child as to how to get on the right financial path, please let us know as we would be glad to help.


How Can You Plan For Your Longevity?

Written by Summit Wealth on .

How long will you live? If you could tell us with any precision, we could design the ideal withdrawal strategy for your portfolio. However, given the fact that no one (that we know) has a crystal ball, we have to make the best of what we can control. Here are a few stats for you:

  • The average life expectancy of a 65-year-old female is currently about 85, with a 50% chance she will live past that age.
  • The average life expectancy of a 65-year-old male is 82.5.
  • The joint life expectancy of a 65-year-old couple is about 27 years. That is to say that at least one is expected to live to age 92.

So, what can you do to protect yourself against what might be a 30 to 40 year retirement? Well, there are several options, some of which you might not like:

  • Save more aggressively while you are working. The average savings rate in the US is pitifully low and if you want to protect yourself against outliving your portfolio, save more aggressively earlier on in life. Also, utilizing tax-free savings vehicles (like a Roth IRA or Roth 401(k)) can create a tax-free account for you to draw from in retirement.
  • Work longer. While this is not likely very appealing option, working at least part-time into your 60s can reduce the stress of having your portfolio provide the bulk of your retirement cash flow needs.
  • Spend less in retirement. Again, not a very attractive option but there are ways you can reduce the amount you may need in retirement. Examples include:
    • Downsizing or maintaining only one property versus two
    • Moving to a lower tax state
    • Living with one vehicle instead of two (or three, or four)
  • Maximize your Social Security benefits. There are a considerable number of benefit withdrawal options to choose from. Work with an advisor that can analyze your options and create a strategy customized to your unique circumstances. With proper planning, you could increase the amount of benefits you receive by over $100,000 over your lifetime.

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