Happy Friday! It's Casey from Howard Bailey Financial! Each week, I'll send you my commentary on four financial-related resources that I think will be beneficial for you — plus a preview of my latest podcast episode.
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#1
The Problem with Precision in Financial Planning
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Forbes — Benjamin Franklin was once quoted saying, “…In this world, nothing can be said to be certain, except death and taxes”, and the same belief can certainly be applied to the world of financial planning.
Expect the unexpected: You can take as many scientific approaches to portfolio management as possible, but as the article states, it all boils down to relying on “imperfect knowledge.” Life changes, economic climate adapts and above all, YOU evolve, so modernizing the way you plan for your financial future and retirement must follow suit.
This is why we at Howard Bailey prioritize preparing your L.I.F.E. Plan, and also why we believe leaving room for flexibility and those unexpected occurrences is key. You plan as best you can with the resources you have available to you now, but as mentioned here, also recognize that there are only three guarantees when it comes to financial planning:
📌Surprises are accommodated with margin
📌Change is navigated elegantly with flexibility
📌Failure is transformed by grace
Glass half-full mentality: You might struggle with the “guarantee of failure” in retirement, but I would encourage you to look at one of its core definitions from the dictionary: “A situation or occurrence in which something does not work as it should”. Life will happen and it doesn’t mean total retirement failure. We can always guarantee that something – anything – might not go the way we planned.
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The financial planning puzzle goes beyond projections and extensive assumptions. While these factors are important, flexibility also needs to be a part of your process to ensure you can adapt to the unknown. Find out how to make room for contingencies in your retirement plan in today's podcast episode.
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#2
12 Questions Retirees Often Get Wrong
About Taxes in Retirement
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Kiplinger — Taxes can pose one of the biggest threats to your lifelong savings, especially if you’re not apprised of exactly how and when Uncle Sam claims his cuts. Thankfully, checklists such as this exist, so be sure to brush up your knowledge on retirement tax planning, including in areas such as:
📌Tax rates in retirement – Many pre-retirees believe they will fall in a lower tax rate once retired. While that is true for some, others might find they owe more in taxes due to no longer having certain tax deductions, greater expenses from travel and hobbies, or – the simple reality that tax rates are on the rise.
📌Taxation of Social Security benefits – Based on your “provisional income”, up to 85 percent of your Social Security benefits can be taxed. This is why creating a Social Security filing strategy and understanding how taxation could affect your retirement income plan is key.
📌Withdrawals from Roth IRAs – Because taxes on Roth contributions are paid upfront, these retirement savings vehicles offer long-term tax advantages, as withdrawals are tax-free once you retiree.
📌Estate tax threshold – In order to face federal estate taxes in 2021, your estate worth at death must have been at minimum $12.06 million (at least $24.12 million for married individuals filing jointly). However, the 2017 tax reform law is scheduled to drop these amounts, and additionally, some states also implement their own estate taxes.
Two heads are better than one: There’s a lot for you to know when it comes to taxes. If you overlooked just one of these, it may illustrate the importance of a team approach when it comes to your retirement plan.
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#3
The Hidden Hazards of
Taking a Social Security Lump Sum
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Think Advisor — When it comes to deciding whether you should claim Social Security benefits at Full Retirement Age (FRA), or delay and receive credit, several factors come into play which you should be aware of.
Delayed benefits: Above all, the biggest upside to delaying benefits every year past your FRA results in an eight percent annual increase. However, if you change your mind and no longer want to delay benefits, you also have the option to file for a retroactive lump sum payment up to six months past your FRA. Unknown to many, taking this lump sum can also come along with consequences, including:
📌A potentially higher tax payment: Taking the lump sum payout versus collecting doled-out payments could push you into a higher tax bracket
📌Impact to your Income-Related Monthly Adjusted Amount (IRMAA): Monthly premiums for Medicare Parts A and B are determined by your income, and increasing that income with a lump sum could result in a higher IRMAA, thus higher healthcare expenses
📌Impact to survivor benefits: If you’re married and take the lump sum payment, your spouse will then receive a smaller survivor benefit upon your passing
Make mindful decisions: The bottom line is, don’t seek claiming advice from the Social Security Administration. They aren’t fiduciaries and they aren’t privy to the big picture.
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Ready to seriously start thinking about retirement? My best-selling book, Job Optional*, is a good jump-off point — it will teach you how to secure your financial future so you can focus on what matters most to you now.
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#4
Twenty Rules for Life: Morgan Housel's
Antidote to Financial Chaos
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Advisor Perspectives — I am always interested in learning more from experts who specialize in psychology and the interconnection between wealth, happiness and financial peace of mind. Often times, I find their insight spans far beyond simply shifting your mindset toward better financial decisions, and that’s exactly the case here.
📌“No one’s crazy” – In the case of your financial decisions, the unique experiences of your past shape the manner in which you handle money today, however crazy it might be. At the same time, the author here notes there may be exceptions to that notion.
📌Warren Buffett made 96.5 percent of his fortune after his 65th birthday – This is true, albeit slightly off-put by the compounded annual rate of return between his 65th and 90th birthdays. However, it serves good advice in showing the power of “getting rich slowly”, and building your wealth early.
📌Wealth is what you don’t see – Sure, the neighbor down the road might have a big, fancy house, but now that’s $2 million they no longer have in their pocket. As the article states, “Wealth is the part of your cumulative income that is not consumed.”
📌History doesn’t repeat itself – It can be similar (or rhyme), though, which is why carefully studying the past and taking it into consideration in the grand scheme of your financial plan is still helpful.
Broaden your baseline: It is beneficial for you to collect insights and consultation from multiple sources when it comes to retirement planning, and that doesn’t just mean from financial advice practitioners.
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Advisory services may be offered through Howard Bailey Securities, LLC, a Registered Investment Adviser. Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.*Reached #5 on the Wall Street Journal eBook Bestseller List on 8/9/19. *Reached #1 on the Amazon Retirement Planning Bestseller List on 7/2/19. ©2021 HOWARD BAILEY FINANCIAL, INC.
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