New Year’s Resolution Now!
By Steve Gaito
It happens almost every year. A time when you look back and think about what you want to change in the next year. For me, it is a time to reflect on what worked last year and what I want to change in the future. Most people think of improving health by going to the gym or changing diet, but as a CERTIFIED FINANCIAL PLANNER tm practitioner, I look at improving financial health. For almost 30 years I have worked with clients to plan for retirement. Saving in 401(k) plans, cafeteria plans, creating budgets have all been part of the process. Having lived through this past year with all its challenges I must say that my thoughts on what is important has changed. Specifically, in three areas. Saving for retirement, Efficient withdrawal strategies in retirement, and Long-Term Care.
What I have realized is that the way we should save has not changed even though the environment we are in today is much different than it was 10-20 years ago. Other than government employees, corporate pensions are few and far between. This puts the challenge of saving on employees and from what I have seen they are not doing well with this challenge. The second challenge is to employees is that qualified retirement plans such as 401(k) plans are not nearly as attractive as they once were. Employers are not matching as much of employee’s contributions and the tax break is significantly less than it once was. When I started setting up retirement plans in the early 90’s it was easy to show employees that it only cost them $75 to save $100 because of the tax brackets. Now with tax brackets being the lowest in recent memory, it is more like costing $88 to save $100 and for over half of Americans it has no tax break once they file for taxes. The sad part is that with all of our debt this money is likely to be taxed at a higher rate when they start to withdraw the money in retirement. This is why I believe it is a bad deal to save anything above a matched contribution in a traditional 401(k) plan. The other part that is concerning is the restrictions on withdrawals prior to 59 ½ and the penalty that may apply. As we saw this year you never know when you may need access to the money. Loans are available but are they prudent? I help people find better solutions to meet retirement needs that take taxes out of the equation.
I mentioned tax-efficient withdrawals of retirement plans. In today’s current tax environment, it makes financial sense to start to pay what you owe the government in taxes on your retirement plan. Why you may ask would anyone want to do that? If you like me believe that taxes are likely to rise in the future and that 30 trillion in debt will have to be repaid then why not pay the government the least you can over your lifetime. I can show the difference and it is staggering. It also gets the government out of your income plan for the future. I can provide you with a book that shows all of this if you contact my office. Finally, by using some strategies not only will you pay less taxes but have more income for your life. Ask yourself: Why did you save the money in the first place? For most, it was to provide retirement income and I help people get more income out of what they have while paying less taxes. There is a catch. To do this you have to act now. The Trump tax rates sunset in 2026 and revert back to higher brackets so the sooner you act the more you and withdraw at the lower brackets.
Long-Term Care is the third and the closest one to my heart. The reality is that without pensions a significant drain on retirement resources will not only impact your retirement but leave a big hole for surviving spouses. There are lots of ways to address this from self-pay to leveraged insurance policies. Finding which is the best way for you requires an analysis of your unique situation. What I do know is that not having a plan is the worst route. Given what we have just seen in our nursing homes with COVID-19 is a glimpse of what not having a plan looks like. No one goes into a nursing home because they want to. They wind up there as a last resort. Seeing the deaths and lack of contact with family and friends is not an option that anyone would choose. With Long-Term Care, you can choose home care and have those you love around you. I told you this was personal to me and this is why. I hate seeing families torn apart because no one wanted to talk about options when they had a chance. For over 28 years I have incorporated conversations about Long-Term Care in my planning. It used to be just an afterthought, but now it is the primary issue for my clients and one that needs to be discussed today.
I started talking about New Year Resolutions, and mine is to help everyone understand the choices they make and get the most out of what resources they have. I provide a free initial consultation either in person or remotely to see how I can best help you.
Steve is the owner of Faith-Based Health Care and Retirement Resource Management. He is a National Speaker on the topic of Social Security optimization, quoted in national publications like Money Magazine, US News and World Reports and Fox Business. Steve loves to educate and teach on financial topics like taxation of retirement accounts, long term care, healthcare, and efficient savings plans for small businesses. He has provided financial planning for missionaries through the International Mission Board. You can find Steve at 68 South Main St. in Marion, NC by calling 828-559-0299, email firstname.lastname@example.org or visit his website at www.faithbasedhc.com.
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