There is good news for retirement accounts! The IRS has increased the contribution limits for the upcoming year. As you can see below, there are many notable changes that will allow investors to save more money.

One important update for 2025 is that under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in eligible retirement plans.

How do these changes impact your savings in the upcoming year? Are there any changes you should be making? Use this link to schedule a time to meet one-on-one with our team. We look forward to working with you in 2025!

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There is good news for retirement accounts! The IRS has increased the contribution limits for the upcoming year. As you can see below, there are many notable changes that will allow investors to save more money. One important update for 2024 is that 401(k) elective deferrals increased from $22,500 to $23,000. That’s not all! Please see below for the applicable updates for the coming year:

How do these changes impact your savings in the upcoming year? Are there any changes you should be making? Use this link to schedule a time to meet one-on-one with our team. We look forward to working with you in 2024!

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There is good news for retirement accounts! The IRS has increased the contribution limits for the upcoming year. As you can see below, an important change for 2022 is that 401(k) elective deferrals increased from $19,500 to $20,500. That’s not all! Please see below for the applicable updates for the coming year:

How do these changes impact your savings in the upcoming year? Are there any changes you should be making? Use this link to schedule a time to meet one-on-one with our team. We look forward to working with you in 2022!

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Transitioning into retirement can be an exciting time. For many it can also be a daunting reality. We hope the following Pre-Retirement Checklist is a helpful tool as you intentionally prepare for your retirement years.

5-10 years out 

• Create a plan to pay down debt.   

• Maintain Emergency Fund – Emergencies still happen in retirement.  

• Familiarize yourself with Social Security, Pension, and/or Defined Benefit options.  

• Consider Long Term Care (LTC) options – LTC Insurance vs Self-insuring using other assets.  

• Maximize all tax-advantaged savings accounts – 2021 Contribution Limits.  

• Review your investment strategy to make sure your retirement accounts are in line with your risk tolerance and timeline.   

• Strategize how to divest from company stock.  

2-4 years out 

• Devise a retirement spending plan:   

  • Identify your retirement spending goals – basic needs, travel, one-time needs, etc.  

  • Take inventory of assets and consolidate as needed.

  • Retrieve Social Security estimates and create a strategy for taking your social security.

  • Determine and clarify your retirement paycheck replacement strategy.  

  • If you are retiring early, figure out how you will bridge spending needs prior to Social Security income, Medicare coverage, and accessing retirement accounts at age 59.5. 

  • Review deferred compensation distribution strategies.  

• Begin developing a plan for a fulfilling retirement (goals, purpose, health).  

• Practice being retired – take a long vacation in the location you plan to retire and live within your retirement budget. 

• Retirement Living Plan:  

  • Evaluate downsizing a home or relocation and the associated tax implications.  

  • If a mortgage is required, relocate while you still have the income to qualify for the mortgage preapproval process. 

• Formulate a plan to exercise your stock options. 

• Review insurance needs – potentially to cancel or lower life/disability insurance.  

< 1 Year out 

• Formulate a health care plan:   

  • Investigate Medicare, Medigap, and Medicare Advantage plans.  

  • Compare Individual Insurance policy or COBRA if you are younger than age 65.  

  • Enroll in Medicare 3 months before age 65.  

• Apply for Social Security benefits 3-4 months before you want benefits to start.  

• Determine how much monthly income you need from your portfolio to cover your expenses.   

• Analyze your retirement income plan.

• Consider a HELOC while you still have the income to qualify.  

• Update estate plan documents with retirement changes.  

• Take advantage of employer medical plans.   

Download this as a printable one-sheeter.

Planning for retirement should be exciting. Please reach out if our team of credentialed experts can help you navigate the road to retirement.

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Saving for retirement can seem straightforward compared to the daunting task of converting your hard-earned savings into retirement income.

When building a retirement income plan knowing what questions to ask will potentially save you money, lower your overall tax bill, and provide you peace of mind. Here are three questions you should ask when building a retirement income plan, as well as some considerations:

Question 1: What sources are available to you?

There are many ways to fund retirement. Thus, no retirement plan looks the same. To begin to understand how you will fund retirement, give yourself a quick assessment. What sources are available to you and how much?

What you should consider: Simplicity in retirement. This can be achieved by consolidating retirement accounts such as your employer-sponsored retirement plans into an IRA. See - Why an IRA makes more sense in retirement than your 401(k)

Question 2: When do you plan on receiving income from your different sources?

There are a lot of unique planning opportunities regarding when to start receiving your sources of income. Knowing when to access these different sources can provide efficiency, lower taxes paid, and increase your retirement income.

 The IRS and Social Security Administration have imposed rules that coincide with specific ages. Familiarizing yourself with these key rules and ages associated with accessing popular income sources can help you begin to answer the question of “When?”. Here are some key ages to consider when building a retirement income plan around these popular sources -

Tax-deferred accounts (401(k)/403(b)/IRAs):

• Age 59.5 - you can’t access tax-deferred dollars without a 10% early withdrawal penalty before age 59.5. The IRS does highlight some exceptions to the 10% penalty for premature withdrawals.

• Age 72 (or age 70.5 if you were born before 1951) – The IRS requires that an individual withdraws a minimum amount of their retirement plans (i.e. an IRA) each year starting in the year they reach age 72. This requirement is known as a required minimum distribution or an RMD. Account-holders that do not take their full RMD will be faced with a stiff excise tax equal to 50% of the RMD not withdrawn.

Social Security:

Most Americans can begin claiming Social Security retirement benefits as early as age 62, or as late as age 70. Once you stop working, it can be tempting to claim Social Security as soon as possible to subsidize your income. However, it’s often strategic to delay Social Security as long as possible. The longer you delay claiming your Social Security benefit the greater your guaranteed inflation-adjusted monthly benefit will grow (up to age 70). Factors that should be considered when creating a plan around Social Security are life expectancy, other sources of retirement income, and spousal benefits.

What you should consider:

• Which sources you will draw first?

• Should you delay social security as long as possible?

• How long each source will last?

Question 3: What are the tax implications of accessing your retirement income sources?

Not all income sources are taxed at the same rate. Take the time to understand your applicable taxes and build a tax-sensitive retirement income plan to prevent paying unnecessary amounts to the government.

What you should consider:

• The tax implications of the aforementioned RMD’s. RMD’s can unknowingly force you to pay a higher than necessary tax bill once you are forced to take required withdrawals.

• A tax bracket optimization strategy that provides savings on your overall retirement tax bill. This can be especially beneficial in the early years of retirement. Learn more about Tax Bracket Optimization here.

The misfortune of not having a retirement income strategy.

Heading into retirement without an income strategy is financially precarious. To illustrate the benefit of creating an effective plan, we are sharing a hypothetical example.  Meet Charlie and Frankie:

• Charlie (age 61) and Frankie (age 60) live in Oregon and each plan to retire when they turn age 62.

• Charlie has $1,000,000 in a 401k/traditional IRA.

• Frankie has $250,000 in a 401k/traditional IRA.

• They have $150,000 in joint accounts.

• At age 67 Charlie and Frankie are eligible to receive $2,990/month and $2,376/month, respectively.

• Their annual income goal during retirement is $90,000.

In the following charts, we compare the impact of an efficient retirement income strategy to one that is not. The only thing that is different in the two scenarios is the consideration of when to draw specific sources and the associated tax implications. Unfortunately, when managed inefficiently the couple is only able to maintain their target annual income for 26 years. Additionally, the inefficient strategy forces the couple to pay an additional $129,000 tax over 30 years when compared to a more efficient strategy.

Assumptions: 4% investment rate of return on all accounts. No additional contributions are made to investment accounts. Taxes include both Federal and Oregon State income tax.

This is one of the most important financial decisions you can make.

Taking the time to thoroughly answer these questions can provide long-term value.

Engaging with a financial planning firm can be helpful if you are not fully confident in making a retirement income plan. Working with the right financial planning firm for your unique situation can be the difference between a carefree retirement and a stressful one. To learn more about how we think about serving clients through comprehensive financial planning, check out our services here.

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We are now crossing a zone of turbulence. The Captain has turned on the fasten seat belt sign. Please remain seated. Thank you.

Human Investing serves as a fiduciary on a variety of employer-sponsored retirement plans. We get the opportunity to meet with individuals with different vocations, interests, and life goals.  This is because we advise retirement plans ranging across different industries, different ownership structures, and different geographic locations. We have also established on-site client visits at different points in the year.

Over the years, we have provided advice throughout different market highs and lows.

That’s a lot of differences.

Despite these differences, we have a similar conversation with each retirement plan participant. We remind participants that it’s the decades and not the days that are important for building one’s retirement savings. Given the current market volatility, it’s not surprising that we have been receiving more phone calls than usual. And these calls are welcomed! It is our job to ensure that participants feel equipped and empowered to survive this turbulence.

Both financially and emotionally, one of the best ways to thrive in market volatility is to ensure that you have created a sound strategy for your 401k account.

What do we think is a sound strategy?

When we meet with 401k participants, we discuss their expected retirement age and then check these three boxes:

1. Savings Rate

2. Tax Advantages

3. Investment Strategy

Your retirement horizon is a key driver for the synchronization of tax advantages, a contribution amount, and an investment strategy geared for your retirement age. If we have spoken before, then we would have checked these boxes. Note that market volatility in and of itself does not uncheck boxes, but it often prompts us to review our account setup. 

If you are not expecting to access your dollars soon, then my gentle reminder to you is as follows: by doing nothing, you are doing something. If you sustain your contribution rate and remain invested in the stock market, your account will grow over time. To illustrate this concept, see the chart our team created to show the importance of being invested today.

Total values (assuming a 7% annual rate of return and an inflation rate of 3.22%). Actual results will vary.

Lastly, and most importantly, we recognize that today is stressful. We feel it, too. Quite frankly, there is something for everyone to worry about. Please take precautions and be mindful that your mental and physical health is of utmost importance during this time.

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@emilegt

We have all been told to save for retirement.  We need the “Magic Number” before we can retire.  What about having debt during retirement?  Most retirement planning calculators ignore debt and debt payments can limit the amount of future income and can wreak havoc on retirement.  A comprehensive financial plan considers debt in the retirement equation providing a tool and process to fully answer the retirement questions.

Studies Show Debt is Increasing for those Entering Retirement

More of us than ever before have debt going into retirement.  A study by Lusardi, Mitchell and Oggero entitled “Debt Close to Retirement and Its Implications for Retirement Well-being,” quotes numerous findings demonstrating that those nearing retirement have increased borrowing at all economic levels.  Based on a 2015 NFCS survey of persons from age 56 to 61, 37% had mortgages, 11% had home equity loans, 14.6% still had student loan debt, 29.6% carried auto loan debt and, 36.4% had credit card debt with a balance paying interest.  And more concerning, 23% had what they called, “expensive credit card behavior” meaning, “paying the minimum only, paying late or over-the-limit fees, or using credit cards for cash advances.”  

Debt is a Presumption of the Future

When we take out debt, we presume that we will have future income that will both cover living expenses and the additional payments we promise to make.  We effectively reduce our future income.  For the retiree with adequate income and assets, debt might be okay.  The retiree that has cash in an account to purchase a car that takes a no interest loan might come out ahead.  And at any time, they have the power to pay off that debt.  However, often debt is a decision that can cripple future living.

Debt in Retirement Limits Lifestyle

Of course, a debt payment means higher total expenses, but it doesn’t stop there.  Debt usually means more expense due to the added interest.  Additional debt and interest require higher retirement distributions.  Higher distributions from IRA accounts increase taxable income and can increase the likelihood Social Security income will also be taxed.  And for many, the result of the compounding expenses due to debt eventually lead to the need for a cut to lifestyle and live on less. To the 23% with “expensive” debt behavior in the study, even more expenses come due to late payments and higher interest costs which further the cycle of limits on lifestyle.

Financial Planning Answers the Questions

While some debt might be considered “okay”, most we know is not.  How do we know?  The answer comes in a financial plan.  It pulls together all the other pieces of the story and provides a structure to answer the question.  A financial plan provides possible options, strategies and answers.  It is a tool and process that fully answers the retirement equation.  Do I have enough for retirement, including debt?

Want to create your financial plan today?

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This article was originally published on Forbes.

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The Employee Retirement Income Security Act (ERISA) was established in 1974 to give employees retirement income security. Why, then, after 40-plus years, are Americans so underprepared for retirement?

According to a 2015 study from the Government Accountability Office, "About half of households age 55 and older have no retirement savings (such as in a 401(k) plan or an IRA)." Even those who have saved have saved poorly. Among those households of residents ages 55 to 64 with some retirement savings, the median amount saved is $104,000. For those 65 to 74, the amount is roughly $148,000 per household. And, with 70% of the civilian population having access to a retirement plan and 91% access for government employees, it’s a wonder there is such a lack of retirement readiness.

There is no shortage of financial and intellectual capital being spent on a solution for retirement readiness. But most solutions have fallen short of narrowing the gap between the retirement haves and have-nots. So, what is the solution? My thoughts follow:

Government Plus Employer Plus Employee

First, the government is already involved in the regulation of retirement plans, as well as allowing for employers to deduct the expenses of having a plan, so why not go all in? Why not tell employers, “If you are going to get the deduction, you need to meet certain requirements that are great for employees, great for your business and great for our country”?

Those requirements could include auto-enrollment (as this has been a home-run for participation), auto-increase (as individuals get raises, they add a little more to their retirement) and an eligible age-based default option (eligibility for a great default option would be low-cost and diversified as you get from the likes of popular mutual fund providers with their index retirement glide path funds).

In order to qualify for a business deduction or incentive from the government, an employer would be required to match a certain amount. I’d propose 5%, with the employee required to commit 5% to get that amount. Why these amounts? Because if someone has a job for 40 years and invests in a basket of mutual funds growing at or around 8%, with both the employee and employer contributing at 5% each, they end up a millionaire (assuming a $36,000 annual salary, or $300 per month contributions, compounded monthly for 40 years.)

The Industry

In a recent Society for Human Resource Management (SHRM) study, more than 70% of HR professionals surveyed emphasized the importance a retirement savings plan. So, at a minimum, employees are aware of the need to save and desire to do so. While there is definitely a need amongst employees to save for retirement, there are several barriers that impact participants interest and willingness to save. First, trust among advisors is low. Second, many plans have a dizzying array of options, which negatively impacts deferral rates. Finally, not all employers offer to match contributions, which minimizes the incentive for employees to contribute to the 401(k) versus less automated choices, like an IRA.

So, what can the industry do to partner with employers and their workforce? There are two things in my view:

1. Understand the heart of ERISA. Advisors and their firms are to put the interests of the employee and their income security at the center of everything they are doing. If, somehow, the advice we are giving in any way conflicts with the employee and their security, then we should reassess what we are doing and meet the stated purpose of ERISA -- it doesn’t need to be any more complex.

2. In order to minimize the potential for anything but the fiduciary standard, any firm operating in the retirement space should be required to be a fiduciary and have no ability to be dually registered or receive commissions, kickbacks, trips or any other super-secret benefit.

Join the small percentage of firms that are truly fee-only and have no way of receiving any form of compensation other than from the client. Disclosing away conflicts is not the answer for the clients, as few read the disclosures they are provided. If we are going to serve clients well, eliminating the ability for the conflict to exist is the only reasonable route to go.

In conclusion, the government is already involved in both rule-making and incentives for companies and their employees to offer and invest in retirement plans. A model for offering a retirement plan that meets certain criteria in order to fully receive the incentive should be outlined and adhered to by companies and their employees. In partnership with the government, employers and employees, the financial services community should be held to a higher standard to eliminate the conflicts that keep retirement plans for becoming all they could be, which is for employee retirement income security.

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  Over 50% of us take Social Security before “Full Retirement Age”… and over 90% take Social Security by “Full Retirement Age”.

What age are we taking Social Security?

Munnell, A and Chen, A, “Trends in Social Security Claiming”, May 2015, Center for Retirement Research at Boston College, from http://crr.bc.edu/briefs/trends-in-social-security-claiming/

What is “Full Retirement Age” and are 90% of people right?

Full Retirement Age or FRA is the age an individual can take their full Social Security retirement benefit without a deduction.  Depending on your age this is between 65 and 67.

While the FRA to take Social Security is between 65 and 67, we can take Social Security as early as 62 with a reduction in benefits.  48% of women and 42% of men take their benefit at age 62.  Is this a good idea?  If your FRA is 67, by taking your benefit at 62 there is about a 30% reduction in your benefit for your lifetime.  If you were normally to receive $2,000 a month, by taking it at 62 you would receive about $1,400 a month for life not including cost of living increases.  Over time, this is significant.

Consider these 4 reasons for delaying Social Security:

Higher Income

If you wait until 70, your monthly benefit is significantly higher. If your FRA benefit at 66 is $2,000, then waiting until 70 will provide a benefit of $2,640.  You will receive an additional $640 each month for the rest of your life plus the cost of living increases.  If the $2,000 covers basic expenses, the additional $640 per month of discretionary income can be significant to an enjoyable retirement.

Survivor Benefit

If you are married, this applies to you.  When one spouse passes away the survivor gets the higher of the two benefits and loses the lower benefit. Having the spouse with the highest Social Security benefit wait until 70 can drastically improve the life of the surviving partner.  If you both take Social Security at FRA with one at $2,000 and the other at $1,200, when one passes the remaining spouse will lose $1,200 a month and be left with only the $2,000 benefit.  Waiting until 70 for the spouse with the higher benefit of $2,640 may significantly improve the life of the remaining spouse.

Less Taxes

Social Security is not subject to tax the same way as your earned income. How much tax is paid on Social Security dollars depends on total combined income and differs from an individual to a married couple filing jointly. Whichever your situation may be, Social Security benefits are taxed either up to 50% or up to 85%. In any case, it is never taxed at 100% of the benefit. And waiting to receive your benefits until 70 may benefit the overall tax you pay. Always check with a CPA to confirm your specific numbers.

More Money

Most people will receive more Social Security dollars by waiting until 70 (If they live beyond 83.) Or if married and one of you live beyond 83, you will likely have more total dollars by waiting until 70. Additionally, if you live a long life, you will receive significantly more total dollars in retirement. This is due to the significantly higher Social Security benefit amount received by waiting, coupled with potentially lower income taxes.

Personally-saved retirement income is the base for many people’s retirement budget.  If portfolio assets run out or are greatly reduced, a higher Social Security benefit can drastically impact later years of retirement to fill the gap.

Higher income, survivor benefit, lower taxes, and more money… 4 good reasons to consider waiting past full retirement age to take your Social Security benefit.

Each person, each couple is unique

There is no one size fits all in retirement planning and the ramifications of the decisions made here are significant.  The questions you ask as you invest and then begin to plan towards retirement may be some of the most important, such as: what are you investing in and what are you taking your Social Security for? It's worth your time and finding trusted partners to help you navigate. At Human Investing these are the very questions we help people work through everyday for their "today's" and their "tomorrow's."

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A transplant to the Northwest, I recently developed a penchant for hiking. It’s necessary to point out the fact that I’m not a native of the Pacific Northwest, if only to highlight the amount of wonder that I experience every time I venture beyond the city limits. For me, every step reveals something new and exciting that I never encountered in the Midwest. Hiking in Ohio is quite literally a walk in the park compared to the trails out here, and I’ve learned the importance of being organized and prepared. Not long ago, I was packing for a trip to Mount St. Helens, going through my checklist, and my thoughts turned to retirement planning. In part because I knew that I had this blog to write once I returned, but also because I’m actually passionate about the subject. Much like hiking, planning for retirement requires some forethought and strategy. With that in mind, here are my top three hiking/retirement planning tips!

Don’t lose sight of the trail while hunting for Sasquatch...

We’re often asked, “what is the best investment?” This is a simple question that warrants a complicated answer because factors like age, risk tolerance, and estimated retirement date can all influence an individual’s investment strategy.

The Putnam Institute completed a study in 2012 that showed the impact of selecting the top performing investments quarter over quarter (labeled the “crystal ball strategy”) vs. increasing your savings rate. The study revealed that while the crystal ball strategy yielded a higher account balance than the base case, a 1% increase in savings rate “had a wealth accumulation impact 30% larger than the crystal ball fund selection strategy”. In other words, we can’t always control selecting the “best” fund, but we can control how much we save.

I’m not saying that we should stop trying to invest well, (or that we should stop hunting for Sasquatch for that matter). I am suggesting that focusing too much on finding the best investments, can distract from other facets of retirement planning that are just as important.

Quality gear is worth the extra expense...

The retirement planning side of this tip is that saving more now, will greatly impact your savings in the long run. This is something that we all know, but it can be difficult to commit to increasing your savings rate until you see the actual numbers. For example, saving in your 20’s and 30’s has a greater impact on your lifetime savings than saving later in life. Due to, compounding returns, someone who saves $4,000 a year from age 30 to age 40 will end up with a greater balance at 65 than someone saving $4,000 a year from 40- 65, assuming a 7% rate of return. I know that statistic seems hard to believe, but check it out, it’s true!

There’s always another mountain...

It’s important to remember that the day you retire isn’t the end of your journey. A 2012 CDC study reported that life expectancy is 78.8 years, which is up from 70.8 in 1970. The point being, often times when transitioning into retirement, retirees feel the need to preserve their “nest egg”. When in reality taxes, inflation, and health care expenses are eating away at their savings. By recognizing the dual purpose of retirement accounts; providing cash flow and growing for the future, you can climb the mountain right in front of you while also planing for the ones on the horizon.

Have questions about the transition from retirement savings to retirement income? We can help with that!

As far as the hiking goes, it’s going to take a long time for me to see all there is to see around the Pacific Northwest. Personally, Dog Mountain (seen on the right) is one of my favorites.

You should also note that if you’re hiking in the rain, “windbreaker” does not equal “rain jacket.” I may or may not have made that mistake.

Call or email us at 503-905-3100 or 401k@humaninvesting.com

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