The Informed Investor
COVID-19 has brought the importance of financial planning and retirement planning squarely into the limelight. Now is a perfect time to start making adjustments to help you feel more secure about your future.
To get you started, top Las Vegas financial advisors at the Investment Counsel Company, the first independent, fee-only financial advisor firm in Nevada, offer some ideas. These retirement planning tips are not complicated; they are practical, easy to implement ideas.
Do they replace a full retirement plan? No. Everyone needs a financial plan to ensure a successful retirement regardless of past, present or future obstacles. If you don’t have a formal plan, you may be leaving your future to chance. In the meantime, however, these steps can help you begin moving in the right direction.
Tip #1: Utilize Catch-Up Contributions
“Many people do not take advantage of catch-up contributions, even though they can and should,” according to Randy Garcia, CIMA®, AIFA®, Founder and Chief Investment Officer at ICC. The catch-up contribution is a retirement saving option for people who are 50 years old or older. It enables you to contribute more to your 401(k), IRA or other retirement accounts once you hit a specific age.
For example, in 2019 and 2020, the standard IRA contribution cannot exceed $6,000 a year, but if you qualify for a catch-up contribution, you can make an additional $1,000 in contributions.[i] If you have a Health Savings Account, you can make an additional catch-up contribution once you’re age 55 or older.[ii]
The Internal Revenue Service has extended the deadline for making Individual Retirement Account (IRA) and Health Savings Account (HSA) contributions for the 2019 tax year to July 15, 2020. This extension also applies to filing and paying taxes for the 2019 tax year as COVID-19 continues to impact the United States.
If you are self-employed, you can contribute to a Simplified Employee Pension (SEP) IRA as much as the lesser of 25% of your net earnings or up to $56,000 for 2019 and your contributions may be tax-deductible as a business expense. You can contribute to your SEP IRA until October 15, 2020.[iii]
So check all your retirement accounts and be sure to make those contributions if you are eligible.
Tip #2: Create a Will or Estate Plan
Approximately 55 percent of adults in the United States do not have a will or plan for how their assets will be distributed when they die.[iv] If you are one of them, don’t wait any longer. While you may not think it is a big deal, it could create a headache (or even a nightmare) for your loved ones.
Nicholas Hickly, CFP®, AIFA®, CIMA®, JD from ICC, knows all too well what it’s like when someone dies without a will. He has previously worked with family members who, on top of grieving the often unexpected loss of a loved one, struggled with the aftermath of legal battles for the division of assets. Other families spent weeks trying to recover records and passwords that weren’t properly documented. In his words, “It’s not the legacy you want to leave behind.”
Or Nick sees family members not putting wills together because they are young and think that they don’t have enough assets to justify the time and expense. That’s a false assumption, says Nick. Everyone needs a will. Why? No matter how much or how little you have, you don’t want the courts deciding the fate of your assets — or, more importantly, of your kids. Without a formal plan for their care, the courts will decide where they go if something were to happen to you. Even pet owners should have a plan for the care of their pet if something happens to them.
Yes, it’s an uncomfortable conversation to have; few enjoy planning for a world where they’re not around to take care of their loved ones. But the potential risk of putting it off is too high to ignore.
Tip #3: Rebalance Your Investments
Maya Barnes, CFA, CIMA®, AIF®, Investment Consultant with ICC, recommends learning when it is appropriate to rebalance your investments. “This is especially true if you’re nearing retirement.” In some cases the recent market volatility may have disrupted the positive benefits of a portfolio’s diversification.
What is rebalancing? It’s simply the process of realigning your investments to the amount of risk you should be taking. You probably started with your assets allocated into investments based on an “ideal” allocation. However, as time passes, some of the assets will likely increase in value, while others may decline. If you don’t make periodic adjustments, your allocations may end up quite different from the original target. And that may mean you’re presently taking more risk than you think you are.
At the Investment Counsel Company our process includes periodic rebalancing based on our clients’ individually tailored Investment Policy Statements. Your financial advisor should take care of this for you.
If you manage your own investments, learn how to rebalance properly and make sure you do it on a timely basis. Equally important, is to make sure you’re allocating your investments appropriately in the first place.
Tip #4: Don’t Automatically File for Social Security at Age 62
Michelle Konstantarakis, CFP®, CIMA®, AIFA®, AIF® Chief Compliance Officer with ICC, encourages people to do some research before automatically filing for Social Security when they turn 62. She encourages her clients, instead, to consider waiting until their full retirement age, which is normally age 70. (This age depends on the year you were born, so check this chart to find out what applies to you.)[v]
Why wait? Because if you do, your payment each month will increase as much as 8% per year until you reach 70 years old.[vi] Then, you’ll receive that higher amount, every year, as long as you live.
Where else can you get a safe 8% return? That’s why it’s a good idea to consider waiting.
If you’re concerned about the amount you have saved for retirement, this deferral is an ideal opportunity to improve your situation. That increased amount might help you pay for higher health care costs or other unexpected expenses.
In an ideal world, everyone starts their retirement planning early, so they are as prepared as possible for their later years. Unfortunately, we know that is not always possible, and doesn’t usually happen. That’s where these simple retirement tips can help you get started.
Retirement planning is not too difficult; the hardest part may be avoiding the temptation to procrastinate. You will feel less intimidated or overwhelmed if you take these simple steps. The sooner you start, the more time will be on your side, and the more likely you’ll be to achieve a successful retirement.
[i] “Traditional and Roth IRAs.” IRS.GOV, IRS, 2019, www.irs.gov/retirement-plans/traditional-and-roth-iras.
[iii] “The IRS Says You Have Until July 15 To Make 2019 IRA Or HSA Contributions”
[iv] Armstrong, Carron. “Wills and Estate Planning Resources and Advice.” The Balance, Dotdash, 25 June 2019, www.thebalance.com/wills-4073967.
[v] “Benefits Planner: Retirement.” Social Security Administration, United States Social Security Administration, www.ssa.gov/planners/retire/agereduction.html.
[vi] Orman, Suze. “When It Comes to Social Security, 70 Is the New 65!” AARP, AARP The Magazine, Aug. 2018, www.aarp.org/retirement/planning-for-retirement/info-2018/social-security-suze-orman.html.
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