Just When We Thought We Had It Figured Out…

The government has once again gone and changed the rules regarding retirement plan Required Minimum Distributions (RMDs), and right at the end of 2019 (by passing The SECURE Act)! So, we will be spending this year reviewing the new rules with those whom it impacts (which is a lot of people), namely:

• Those who turn 70 ½ after January 1, 2020. You now have the option of deferring your RMD until the year in which you turn Age 72.

• Those who plan to leave some of their retirement plan balances to their children or grandchildren. The new law has done away with the “Stretch IRA” provision and now requires that retirement plan balances be distributed within 10 years after the IRA owners date of death. (For years, we have preached the power of deferral related to stretching an IRA through the lives of beneficiaries. With this new adjustment, we now should check in to see if how we have things set up still make sense for the overall estate and tax plan.)

There are several other provisions in the law, including eliminating the restrictions on post-70 ½ contributions to IRAs by those still working. 

A link to a brief summary is below:https://www.marketwatch.com/story/with-president-trumps-signature-the-secure-act-is-passed-here-are-the-most-important-things-to-know-2019-12-21

A summary of our market outlook and current portfolio positioning. Please see the following PDFs:

• Litman Gregory
• Van Guard

The first step is to make sure you are on the same financial page and have a common vision.

Hopefully you have already had some fruitful discussions about mutual goals as well as expectations regarding spending/saving before walking down the aisle, but if not then I would encourage you to have these discussions as early in the marriage as possible. Check in with each other and see how you have individually progressed on your goals prior to marriage such as starting an emergency fund, budgeting process, identifying short term saving goals and contributing to a retirement plan.

I would suggest that you try to merge these individual goals and processes as much as possible so you can begin working as a team on your mutual financial goals.

Once you have had the common vision discussion, the next step in any newlyweds’ financial life should be to identify who is going to take ownership regarding the various aspects of your finances.

I think it is important to clearly establish who is going to oversee paying bills, maintaining the budget, and oversee investments and insurance. Be flexible though and willing to switch up roles as life dictates over the years.

The final step to strongly consider as newlyweds is the whole aspect of risk protection.

It is not too early to start thinking about the possibility of adding some additional life and/or disability insurance to protect either spouse in the event of untimely death. This should be especially considered as it seems like more and more young people are getting married later in life now and often already have significant debts from either owning a house or obtaining a college degree. You should also consider drafting a new will or updating one already created as well making sure your have updated beneficiary designations.

Money discussions aren’t always easy for newlyweds.

But, as with any marriage issue, it’s best to approach them with an open mind and as a team. The more thoughtfully you work together on money matters, the more financial harmony you’ll maintain in your life together.

Seems like every retirement conversation we have of late includes the question of whether it makes sense to defer taking Social Security.

Of course, given how long people are now living in retirement, sometimes it is us that is raising the question, and it is definitely something we think people should at least give some thought to as they prepare for that phase of life.

First, the basics: for each year that you choose to delay taking your full Social Security retirement benefit, your monthly benefit is increased by 8%, up until Age 70. After age 70, there is no benefit to defer.

The deferral benefit can be magnified by the fact that, once started, yearly benefits are inflation-adjusted throughout your life. [Also note that Age 65 is still the point at which you are eligible to begin Medicare no matter what you decide on your Social Security retirement benefit.]

There are tools out there that allow us to run some projections, given a variety of assumptions and scenarios, so that is a great place to start. Here are some of the things that, in the end, seem to drive the decision as to whether to defer after full retirement age:

• How long do you anticipate living in retirement? Difficult question, I know, but typically family history and recent health conditions play into this assessment.

• Do you have investment accounts and/or other retirement income that will cover your cost of living during the time you are deferring? An analysis should be done of (1) how much your required monthly income will be; (2) how much will be covered by other income sources, such as pensions; and (3) which other accounts you could most easily use and whether or not they are positioned appropriately.

• Does the security of turning on a guaranteed income source (Social Security) now provide you with more comfort/peace of mind and thus allow you to continue to grow your other assets at higher rates of return? Many of the discussions we have center around the tradeoff between having a solid, base income stream now while allowing other assets to grow/stay invested more aggressively versus having a larger income base later in the retirement years often that can be reinvested each year because it more than covers needs.

It truly is an individual decision, given all the different variables. Having the discussion, though, helps to frame the things that are most important to you as you enjoy your retirement years.

Over the years, we have tried more and more to make financial education a cornerstone of what we do for people.

And as the old adage goes “the earlier the better.” So today I thought I’d spend a few moments speaking to those who are in the early part of their careers and financial lives…or in today’s vernacular, those who are "adulting."

It as actually a pretty timely topic because Connie and I have just launched our eldest daughter, Maddie, into her first full-time job, and we have spent time over the past year or so discussing these same issues (so this post would be for parents of young adults as well =).

The first step in any young adult’s financial life should be to make sure that you have an emergency/savings fund (funds that could be used for unexpected expenses, like dental or medical costs or even unplanned travel expenses).

A general rule of thumb is to try to build up at least 3 months of gross monthly income in this account (e.g if you currently are making $3,000/mo., then you would try to build up $9,000 in this account).

Of course, every situation is a bit different, so you need to consider what debt load you are currently under and the stability of your current job situation…both of those things would impact how much you would want to keep in a primary reserve. [I’m not going to spend time in this post about how to manage debt, although that is obviously a huge topic and challenge that exists for young people today. My encouragement for those that are carrying a high debt load (e.g. $10,000) is to seek individualized advice on how to attack that.]

Tied to this first step is the beginning of some sort of budgeting process.

I think it is important for every young person to have a tracking system, so you know where your money is being spent and then can be mindful of whether your spending is exceeding the money you are bringing in. There are lots of great apps out there nowadays to help with this. I like and use Mint to track our spending, and there are others such as Acorn, etc. that you could check out.

The second step would then be to identify any near-term goals that you want to begin saving for.

House or car down payments or further schooling would fall into this category. I am an advocate of setting up a separate bank or money market account and saving directly into that for these sort of items so you can see how you are doing.

Finally, it would be great if you could start contributing to a retirement account in this phase of your life.

The power of compound interest on early savings means that dollars put away at this stage are the biggest contributor to how much you’ll have in retirement. I can’t tell you how many middle aged/older adults have expressed undying thanks for a co-worker or friend in their life who adamantly encouraged them to begin saving for retirement in those early working year…even if it is just $50 or $100 per month. And if you work for an employer that matches what you put in, then that is a no brainer…starting your retirement plan sooner rather than later is a must do.

Little things done well at this stage can set you up for great success later in life.