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Category Archives: Retirement Planning

Three Account Types and Contribution Caps You Should Know

Many of our clients utilize qualified accounts to fund their long-term accumulation goals. To take full advantage of these accounts, it is important to know the contribution limits and deadlines to fund the accounts and plan accordingly each year. This is something you should review with your financial advisor annually, and for many this is best done in the final planning meeting of the current year for the upcoming year. This planning process will help you budget appropriately and not miss out on any of the benefits offered by the plans. The IRS will periodically adjust the contribution limits to certain qualified accounts for inflation; however, the contribution deadlines do remain static and generally align with the calendar year or a tax filing deadline. While some accounts allow you to make contributions up to your filing deadline including extensions, this is not the case for all qualified accounts. Here’s a short list of some of the more common accounts:
  • IRA/Roth IRA: The current contribution limit to an IRA or Roth IRA is $6,000 per year, with an additional $1,000 catch-up contribution for those 50 and over. The deadline to make these contributions is your personal tax filing deadline, on or about April 15 of the following calendar year. The IRS does not allow an individual to make their IRA/Roth IRA contribution later if they file a personal extension.
  • 403b/401k: The current employee deferral limit is $19,000 per year, with a $6,000 catch-up contribution for those 50 and over. In most cases, the employee deferral is withheld from W2 earnings and contributed to the respective account on a calendar year basis. If you are starting in practice after the first withholding of deferrals in a given year and want to maximize your contribution that year, you will need to make the full contribution in the remaining months prior to December 31. For those doctors who are both the employee and employer, an additional $37,000 may be contributed for a combined contribution of $56,000—or $62,000 for those 50 and over. The employer profit sharing contribution may be contributed up to the tax filing deadline including extensions.
  • 457b: The current employee deferral limit is $19,000 per year, with a $6,000 catch-up contribution for those 50 and over. If you choose to contribute, the deferrals will be withheld from your earnings and must be done in the calendar year.
These are just a few of the common qualified plans, including current contribution limits and deadlines. For doctors who have more complex plans, there are various other qualified plans available with much higher contribution limits and flexibility in funding to tax filing deadlines including extensions. Regardless of your employment situation, I highly recommend you budget for the options available to you and learn more about the plan offerings from your employer or offerings you can provide to yourself and your employees.[/vc_column_text][/vc_column][/vc_row]

Are you hitting the contribution caps on your retirement accounts?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.
Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services.  Please consult the appropriate professional regarding your legal or tax planning needs.
The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.
More information can be found regarding contribution cap limits and increases on the IRS website here.

Americans Lose Trillions in Social Security

by Elaine Floyd, CFP®

According to a recent study, retirees will collectively lose $3.4 trillion in potential income that they could spend during their retirement because they claimed Social Security at a sub-optimal time.

The graph above says it all. The age at which most people claim Social Security (green line) is opposite to the age at which they SHOULD claim Social Security (purple line). In a report from United Income, “The Retirement Solution Hiding in Plain Sight: How Much Retirees Would Gain by Improving Social Security Decisions,” the researchers state, “retirees will collectively lose $3.4 trillion in potential income that they could spend during their retirement because they claimed Social Security at a financially sub-optimal time, or an average of $111,000 per household.”

Nearly all of this income is lost because one or more retirees in a household claim Social Security too early, which means their Social Security benefit is lower than it would be if they had waited. For instance, a person that would receive a $725 monthly benefit if they claimed Social Security at 62 would see that benefit increase to $1,280 if they had delayed until their 70th birthday, an increase of 77%. Spread out across the population of individuals that are claiming Social Security sub-optimally, those extra dollars add up to a substantial amount of money.

Only 4% of retirees make the optimal claiming decision! The study found that a claiming age of 62-64 is optimal for only about 8% of adults (primarily those with short life expectancies or the spouses of breadwinners)—yet about 79% of eligible adults in the sample claimed at those ages. A claiming age of 70 is optimal for 71% of primary wage earners—yet only 4% of the adults in the sample claimed at that age. The comprehensive study observed 2,024 households, considering each household’s outside resources, spending, health, and longevity to determine how much income and wealth they would have if they had taken Social Security at the various ages of eligibility.

This appears to be the first study of its kind to consider the impact of claiming age on not just the Social Security income, but other assets and income as well, as optimal Social Security claiming can lead to higher account balances, which in turn generate more income.

Although later claiming typically caused wealth to drop during retirees’ 60s as they drew down their personal retirement accounts, this wealth drop was more than made up for by the late 70s when Social Security income was higher. In order to isolate the effect of claiming age, the study did not consider the effect of working longer, but in real life, a person who decides to maximize benefits by claiming at 70 might choose to work a few years longer, and this would mitigate some or all of the wealth drop in their 60s.

Among those at the highest wealth levels, 99% make suboptimal claiming decisions. Yes, you read that right. 99% of higher-wealth households make suboptimal claiming decisions. While wealthy individuals can perhaps afford to leave Social Security benefits on the table, very few people want to get less than they are entitled to.

Sadly, financially suboptimal decisions add up to a loss of $2.1 trillion in wealth and a loss of $3.4 trillion in income. In its conclusion the report mentions a few ways to deal with this, including:

  • Make early claiming an exception, reserved for those who have a demonstrable need to claim benefits before full retirement age.
  • Change the way we refer to early or delayed claiming, labeling a claiming age of 62 as the “minimum benefit age” and 70 as the “maximum benefit age.”
  • Provide the Social Security Administration with more resources, perhaps in partnership with third-party fiduciaries, to help households determine their optimal claiming age. The authors note, “That limited investment could help recapture some of the $5.5 trillion lost in wealth and income to retirees and the U.S. economy because of the struggles retirees currently face making the right decision.”

We believe that households contemplating Social Security strategies can benefit from a customized analysis that shows the lifetime impact of the various claiming options. With the help and advice of an advisor, you have a shot at being one of the 4% who end up making optimal Social Security claiming decisions. Not only will this increase your Social Security income, it may lead to higher income and wealth from other sources as well.

More nonretired Americans expect comfortable retirement

Meanwhile, a recent Gallup poll found that 57% of nonretired Americans expect they will live comfortably in retirement, a six-point increase in positivity since last year and the highest reading since 2004.

Only 33% of non-retirees see Social Security as a major source of income in retirement (compared to 57% of retirees). Eighteen percent of non-retirees aren’t counting on it at all. Instead, they tend to focus on 401(k)s, IRAs, and other retirement savings accounts as being a major source of income.

While it is likely that Social Security benefits will turn out to be a more important source of income than current non-retirees think, most people will be better off financially in retirement if they work on getting other sources of income together. It is possible some of the 57% of current retirees who see Social Security as a major source of income didn’t feel that way when they were working. But circumstances—the financial crisis of 2008, forced early retirement, lack of savings, disappearing pensions—have turned it into a lifeline.

Have Questions?

Copyright © 2019 by Horsesmouth, LLC. All rights reserved. For customized help, visit a financial advisor who has the tools necessary to analyze Social Security claiming strategies and can put together a retirement income plan that makes sense for your individual situation.
Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.
Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.
Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services.  Please consult the appropriate professional regarding your legal or tax planning needs.
The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.

Four Ways to Supplement Your Retirement Savings

You’ve maximized your contribution to a 401k or 403b through employee deferral for 2019 (and employer deferral if you have your own plan) and find yourself with excess funds available to invest. Assuming you already have an emergency/opportunity fund, what else can you fund? What options do you have? Fortunately, there are numerous other products you can use to supplement your savings after your employee deferral. Here are some accounts you may want to consider:
  • Deferred Compensation Plan – Many doctors are employed by institutions that offer a type of plan that allows an employee to put away additional dollars annually. While there a variety of deferred compensation plans, the 457b plan is common for physicians at public or non-profit institutions. This plan allows a physician to contribute additional dollars from income on a tax-deferred basis.
  • Roth IRA – For physicians in practice, their income typically won’t not allow a direct contribution into a Roth IRA. However, because the IRS allows anyone to contribute to an IRA and there is no income cap for converting traditional IRA accounts to a Roth IRA, it is possible for anyone without other existing IRAs and with sufficient earned income to contribute to a non-deductible IRA and convert to a Roth IRA annually.
  • Health Savings Account – If your employer offers a health savings account (HSA), this is another place to put away monies on a pre-tax basis. Unlike health reimbursement or flexible spending accounts, the balance of the account can roll over from year to year and can be used later in life for large healthcare expenditures and other goals depending on your situation. The one caveat: An HSA is typically attached to a high-deductible health plan, so your out-of-pocket expenses will be higher annually.
  • Brokerage Account – While it is important to set aside monies for an emergency, retirement and other goals, for many doctors it can also be important to invest in an account that can be accessed without penalty at any point in the future. A brokerage account will experience volatility unlike a cash account so there is more risk involved. If you utilize a brokerage account, it is important to determine when and if you will need the money so you choose a portfolio with the appropriate level of risk.
Financial planning and investment management should be managed based on your specific situation. It is important to coordinate the two together, preferably with one professional who can assess your overall situation, including income, time horizon, risk tolerance, etc., as well as short-, mid- and long-term goals. Again, there is no cookie cutter approach to planning or investing. Be sure your financial professional understands you, your family and your goals.[/vc_column_text][/vc_column][/vc_row]

Do you find yourself with excess investible funds? We’ll work with you to develop a plan.

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor. Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC. Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services.  Please consult the appropriate professional regarding your legal or tax planning needs. The views and opinions expressed in this article are those of the author, are for educational purposes only and do not necessarily reflect the official policy or position of Larson Financial Group, LLC or any of its affiliates.

Living in Retirement: The Second Leg of the Retirement Journey

We talk a lot about retirement goals, and for good reason. If you have a plan in place, it’s much easier to retire at the age you want. But simply reaching retirement age and retiring is only the first half of it. Living comfortably in retirement is the end goal of saving, and your plan should ensure you reach that goal.

There’s no magic rule for retirement savings, as you may need to save above and beyond the standard 401k/403b and Roth IRA funding. Each individual will have different goals and time horizon, but a good rule of thumb is to plan to save 15-20 percent of your gross income per year to comfortably live in retirement without worry. Again, everyone is different.

It can be beneficial to have a target age in mind when you’re crafting your retirement strategy. Some doctors want to retire as soon as they can; others may enjoy their work and plan to work longer. When you’re choosing a target age, you can then determine the action you need to take now.

If you’re a doctor starting your career, it can benefit your retirement strategy to understand what your monthly cash flow will look like as you’re starting out. It can be quite a shift going from resident to in-practice. If you understand the dollars flowing in and out of your account, you can properly budget for things like loan repayment, risk management costs, and paying off other debts.

If you’re later in your career and you’ve found that your retirement plan isn’t where you’d like it to be, or maybe you got a late start, there are ways to recover. Getting a second opinion from your financial advisor can be key to making corrections to your strategy, including assessing your risk allocation, properly diversifying your investments and reviewing your goals annually.

Regardless of where you’re at with your plan, it’s important to consult with your advisor. Oftentimes, we’ll read financial articles and they could inspire us with false confidence or an overwhelming sense of dread, depending on market shifts. Your advisor can help keep you grounded and sticking to your plan is almost always the best course of action.

Are you on track to live comfortably in retirement?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.
Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services.  Please consult the appropriate professional regarding your legal or tax planning needs.

Retirement Fundamentals: How Do I Stay on Track?

We’re all aware of the importance of saving for retirement. If you don’t want to work for the rest of your life, you save money so that you can comfortably live in retirement and don’t need to work in old age. The problem is that, for doctors, retirement planning takes a different shape and comes along with some unique pitfalls to avoid.

For one thing, doctors typically tend to have less time to plan and save for retirement. You’re usually starting your high-earning years later than most other career paths, limiting the amount of time you have to actually save. If a “standard” timeframe for retirement savings is between 35-40 years, a doctor may only have 25 or 30 years. Those five or ten years can make a huge difference in amount of money you can put away.

Doctors may also have substantial student loans to pay back, putting retirement savings on the backburner.

And, believe it or not, social pressures can negatively affect doctors. Our advisors have encountered situations where clients had plans in place to save during their early working years, only to give in to social pressures and begin making purchasing decisions that put their savings at risk.

You could be viewed as very wealthy and “set for life” by society, which can lead to the feeling that you need that new high-dollar car or house. Don’t give in to the pressure of keeping up with the Joneses! Living outside your means is a surefire way to end up in trouble when it comes time for retirement.

So what can physicians and dentists do? How can you avoid the pitfalls and keep your retirement goals on track?

Keeping a budget is a great start. There are many different apps and solutions available to help you create a budget, or you can go the “old-fashioned” way and create an Excel spreadsheet to track your spending. Whether you’re starting your career, or you’ve established your practice, sticking to a budget is a good fundamental to master.

We also recommend having a plan for money before it comes in. If you’re about to graduate and enter your career, or you’re about to get a promotion or a bonus, have an idea of how to distribute that money before it comes in. It can be much easier to save if you plan to do it before the money is in your hand.

Typically, we recommend paying down higher-interest debt and then contributing to basic savings. Once your most pressing expenses are taken care of and you put some toward savings, you can spend guilt-free because you know your obligations are taken care of.

Lastly, we always recommend coming in to chat with us. We can help you with your plan, budget and goals to keep you on track.

Ready to chat about your goals?

Advisory services offered through Larson Financial Group, LLC, a Registered Investment Advisor.

Securities offered through Larson Financial Securities, LLC, member FINRA/SIPC.

Larson Financial Group, LLC, Larson Financial Securities, LLC and their representatives do not provide legal or tax advice or services. Please consult the appropriate professional regarding your legal or tax planning needs.

The information provided is for informational purposes only and should not be construed as a recommendation or advice. Further, this is not an offer to buy or sell securities or other products and services of Larson Financial Group or its affiliates. Please consult an appropriate investment professional regarding your specific needs.

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