Retirement Funding

Determining how much money you need in retirement is a complex process. It shouldn’t be a number we try to guess or even “back into” without some advanced financial planning help.

Why staying to reap what you sow may not be as bad as you think.

“It takes as much energy to wish as it does to plan.” – Eleanor Roosevelt.  Eleanor Roosevelt was as wise as they come. As Eleanor Roosevelt implied, spending time on planning is a MUCH better use of time than wishing. There are many facets to a financial plan that should be fully customized given a person’s situation, below are four of the major areas to address. Each of these areas help to protect a person’s wealth, wishes and legacy.

Open enrollment is most commonly known as a time to revisit your health insurance options but as the employment landscape gets more and more competitive, employers are now adding legal benefits, gym reimbursements, among a slew of other nifty options that employees might want to really consider. Open enrollment is also a crucial time to consider your financial well-being, as employers may offer additional life or disability coverage at a fraction of the cost you would pay otherwise with options to continue the coverage if you ever leave the company. Let’s dig into what you should be on the lookout for from a financial perspective: Health insurance costs: The most associated coverage that comes along with open enrollment, and one of the most important. Make sure to compare monthly premiums, deductible amounts, maximum out of pocket and coinsurance costs for different plans. You’ll want to find one that fits your budget and medical needs. Tax Advantaged Accounts: Health Savings Accounts (HSA) are often associated with “high deductible plans” but with the 2024 contribution limits increasing by 7% up to $4,150 for individuals and $8,300 for families, they are an attractive alternative to the more traditional Flexible Spending Account (FSA) accounts plans. FSA’s are often referred to as “use it or lose it” accounts. HSA contributions are tax deductible and can be invested and grow tax fee. When you take the funds out to pay for qualified medical expenses those distributions are also not taxed. There is no other account that the IRS treats better than this one. The biggest drawback of the HSA plan is that the deductible is often $3,000 and the maximum out of pocket costs are also on the higher end being around $6,000-8,000 annually. Understanding the trade-offs involved when choosing a health insurance plan is essential. Retirement Contributions: ALWAYS review your retirement contributions. 2024 retirement plan contribution limits are $23,000 for employee contributions and those who are 50 years of age and older can make additional catch-up contributions of $7,500. As none of my clients have ever told me “I wish I saved less for retirement”, your employer may also allow additional “after-tax contributions” which do not have a contribution cap. Earning on these contributions grow pre-tax but can be converted to a Roth IRA to be distributed tax-free if certain requirements are met. Often times your employer defaults your investments into a target date fund mutual fund. This option is a “one size fits all solution” and may not be indicative of your personal situation, time horizon or risk tolerance. We often will rebalance our client’s workplace retirement accounts into an asset allocation that is more reflective of their goals and doesn’t follow a herd mentality with the captive investment options offered. The moral of the story is trying to max out your retirement benefits as much as possible, capturing the full match that the company may give and making sure your investment options are reflective of your long-term financial goals and risk tolerance. Life and Disability Insurance: Employers usually cover 1-2 times your salary in the event of your death but as you assess your financial responsibilities and family situation, you may need more coverage. Some employers offer term life insurance policies for a fraction of the cost that you would pay elsewhere with an option for continuing coverage if you were to leave the company, but you would have to pay the fair market value premium. This is a decision to weigh as you discover the amount of coverage you may need to support your family. Things major needs you want to consider with life insurance are replacing your future income to pay for essential and discretionary expenses for any partner or spouse, the cost of childcare (if relevant) and covering funeral expenses. In the same breath, you want to evaluate your disability insurance to make sure you are comfortable with the default coverage your company may or may not give and supplement with internal or external coverage if necessary. Dependent care expenses: Some companies will allow you to put dependent care expenses into an FSA with pre-tax dollars to cover child or adult expenses. Remember if you take advantage of the dependent care FSA and the Child and Dependent Care Tax Credit you cannot claim the same expenses for both benefits. Overall Financial Impact: Make sure that you are calculating the overall cost of each benefit and aligning your financial plan with your budget. The cost of these benefits can add up quickly so make sure you also have adequate emergency savings for unexpected expenses that may arise. We recommend having 3-6 months of expenditures in an emergency fund. Try keeping it in a high yield savings account or money market fund. At the same time, you want to plan for your future financial goals like retirement, purchasing a home or another big-ticket item, saving for education, the list can go on and on. There are a lot of priorities to juggle here, and everyone’s situation is different. Open enrollment is a time to optimize your benefits to help you achieve your financial objectives and protect yourself and your family. Carefully review all options and consider seeking guidance from a trusted financial advisor. Our clients have complex needs and we help them navigate life’s uncertainties, giving them tangible goals and steppingstones to accomplish what they want. Partner with an advisor that gives you the confidence in knowing you are tangibly working towards achieving your definition of financial freedom.  Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website, https://adviserinfo.sec.gov/firm/summary/321097. Past performance is not a guarantee of future results.

Many people we speak with find themselves in the sandwich generation, taking care of young people finding their way in the world along with aging parents, family members and even friends where the process can be complicated and requires some discretion. Unfortunately, there is no owner’s manual, universally acclaimed book authored by Dr. Spock, or return policy. This can be a bit overwhelming especially without the fun of milestones to celebrate, like graduations or weddings. As we age, wellness does not begin and end with getting an A+ on your annual physical (or taking your medication on time), it encompasses much more, which is why we put together 6 key considerations so that you and your family can age with ease, autonomy, and dignity.  Physical care: While we may gravitate towards the financial aspects of planning as we get on in years, physical wellbeing is paramount. We often hear about how a little fall can be the start of a decline in health. Continued exercise and diet will go a long way in maintaining your fitness. A short walk twice a day can do wonders; it’s been proven to have a similar positive cardiovascular impact as a much longer run but without the impact on your joints. A walk in nature has a calming effect and has been shown to reduce cortisol levels in the body. As independence becomes more challenging, some people want to age in place, especially given what we witnessed during the pandemic, while others may benefit from the structure and social setting from a live-in facility. To facilitate that decision, means of support come in a variety of forms including home care, assisted living facilities, nursing homes, and memory care units. It may be formal or informal as is often the case with home care. It’s important to understand people’s wishes but also important to be practical about the circumstances. Depending on the specific needs and health condition of your loved one, it can be prudent to have medical practitioners help determine the best option. AARP has done an excellent job of putting together resources for home safety and how to choose an in home care agency . Psychological Care: It’s important to acknowledge and discuss one’s emotional and mental state. We know the tangible toll aging takes on our body, but the less obvious psychological impact can result in real challenges for the elderly and their caretakers. Providing emotional support, companionship, and engaging in activities that promote mental well-being are essential for a fulfilling healthy life for older adults. Vive Health put together a list of 10 activities for engaging aging adults. Try to avoid the feeling of isolation as much as possible by scheduling visits, engaging in community programs, or joining senior centers. Caregivers play a vital role in elder care whether they are family members or professionals. Resources can be found for caregivers here to prevent burnout. Understanding medical coverage options: First, you may want to educate yourselves on the basics of Medicare (or Medicaid), typically the primary insurance coverage for those 65 or older. Approximately 10,000 baby boomers are turning 65 every day. Eligibility for coverage may not be as exciting as attaining the right to drive, vote or drink alcohol, but an important milestone nonetheless. Medicare : This could be an article of its own but we will try to keep it brief. The most popular parts of Medicare are part A, which most people get for free. That covers your hospital insurance and there is a $1600 dollar deductible per benefit period before Medicare starts to pay and there are no limits to the number of benefit periods you can have. Part B is most familiar to people, as it covers doctor’s visits and comes directly out of Social Security benefits. In addition to routine doctor’s visits, it will cover outpatient care, home health care (very limited amount), medical equipment, and preventative services. The monthly amount goes up every year, but depending on your income it starts at $164.90 for 2023. Part B has a deductible of $226 annually before Medicare will start to pay for any services rendered and a 20% coinsurance. Part D covers drug costs. Monthly premiums vary based on which plan you join and your annual income. Make sure you have a plan that covers your drugs and pharmacy. You may end up having a formulary from one insurer who offers more attractive pricing for your medicine than another. For anything that Medicare Parts A, B & D don’t cover, participants usually opt for more coverage through a Medicare Advantage Plan (Part C), or a Medigap plan . We’ll have some more on this topic in a webinar in the Fall before annual enrollment. Medicaid – Medicaid provides health care to millions of low-income adults and children. The program is fully funded by the states and the federal government. Because coverage varies from state to state, we encourage everyone to look at their specific coverage and eligibility by clicking here . Medicaid is the primary payer of long-term care services in the United States, in fact in 2015 long-term care made up 20 percent of the Medicaid budget. If your loved one has a Long-Term Care policy, it’s helpful to know exactly what their policy covers and what it doesn’t. Long-term care helps with medical and basic personal tasks of everyday life and covers a range of needs. Most coverage options help with “activities of daily living” like dressing, bathing and using the bathroom but may also include home-delivered meals, adult day care and other services for longer periods of time. It can be provided at home or in a facility. Medicare part A provides care for a long-term hospital stay for 60 days in a row in a skilled nursing facility for the same benefit period. There are daily copayment costs depending on your length of stay and after 90 days within the same benefit period you are responsible for all inpatient costs. Medicare gives each beneficiary 60 “lifetime reserve” days that can be used to extend coverage in any benefit period. Once you use these days, you pay 100% off all costs. The National Institute on Aging has compiled a comprehensive guide to paying for long term care that includes a cost of care calculator . 4.Formal Planning/Documentation: There are plenty of legal and financial considerations along with advanced care planning techniques to make sure they are implemented. Elder care may involve managing legal and financial matters, such as estate planning, healthcare directives, power of attorney, and understanding what their long-term insurance policy covers. At the very least make sure you can work with an attorney to establish a will that sets forth your wishes regarding the distribution of assets and an executor to carry out these wishes, a living will that details preferences for medical care and who should carry out those decisions if you cannot make them for yourself, a power of attorney for someone to make legal decision for you when you are unable to do so, and updated beneficiary designations for recipient of benefits from your insurance, pension, 401k, IRA’s and other assets not covered by your will. Some advanced techniques include setting up a life estate for a residence in which the aging adult shifts assets out of their name while still maintaining the right to use for the property for the duration of their lifetime. This person is called the “tenant,” and shares ownership of the property with another person. That person is referred to as the remainderman and automatically receives the title to the property upon the “tenant’s” death. This avoids probate and removes it as an asset for Medicaid recovery purposes. 5.Elder abuse awareness: 1 in 10 Americans over the age of 60 experience some form of mistreatment or exploitation. It may be a stranger calling to scam them out of funds or a loved one taking advantage of their generosity. Understanding the signs of abuse, neglect, or financial exploitation is important to protect older adults from harm. If abuse is suspected, appropriate steps should be taken to report and address the situation. The National Adult Protective Services (NAPSA) has created a resource to share information, solve problems, and improve the quality of services for victims of elder and vulnerable adult mistreatment depending on your residency. 6.The whole is greater than the sum of the parts: Above all else, we suggest you approach the challenges and opportunities of aging holistically. When physical, emotional, social, and spiritual support coalesces around the individual themselves, they are bound to feel valued and this provides improved quality of life. It’s important to respect the dignity and autonomy of older adults and involve them in decision-making processes to the extent possible. Remember that elder care is a complex and individualized process. It is recommended to consult with healthcare professionals, elder law attorneys, and other experts in the field to ensure the best care for older adults. If you would like to schedule an appointment with us to discuss in more detail, please do not hesitate to reach out! The enclosed content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained within constitutes a solicitation, recommendation, endorsement, or offer by Breakwater Capital to buy or sell any securities or other financial instruments or offering in this or in in any other jurisdiction. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of any information contained within before making any decisions based on such information. Additional information, including management fees and expenses, is provided on our Form ADV Part 2, available upon request or at the SEC’s Investment Adviser Public Disclosure website.

Certain people in the money management industry benefit from making finances look too complicated for anyone who isn’t “numbers-oriented.” They’re the ones who just want you to hand your money over to them and let them do what they want. Fortunately, that’s not how money management has to work. And it’s increasingly important, especially for women, that it doesn’t work that way. You need to know how to handle your finances yourself. No matter whether you’re currently single, married, divorced, or widowed. It’s a critical part of modern life. If there’s someone else in your household who deals with the money now, what happens when they’re no longer in the picture or become incapacitated? Maybe you’ve recently come into money, through an inheritance or divorce proceedings, and you want to make sure it lasts. You might be wondering how you can create a savings plan so you have a solid nest egg when it’s time to retire.  No one is born knowing how to handle their cash and everyone who seems to know what they’re doing have had to learn it. And so can you.

As the cost of everything from groceries to gas goes up, many Americans are feeling the pressure of rising inflation. But there’s good news. You may be able to profit from rising inflation in the following three ways:

It’s no secret that a majority of retirement account balances in this country are modest at best and are not going to meet the needs of most retirees. This bill sets to address Americans working longer, incentivizing younger people to save more and provide more access to retirement plans. According to the Bureau of Labor Statistics by 2030, the number of people age 75 years and older who will be working or looking for work is expected to grow by 96.5% . This is not too surprising given data released by Vanguard puts the median balance in a 401k for Americans age 65 and up at $87,700. Quite frankly, the numbers are startling. Catch-up contributions In order to hopefully boost these numbers, the bill increases the “catch up contribution” for those who are age 50 and older to $7,500 annually towards their defined contribution plans in 2023 and starting in 2025 that limit increases to $10,000. The special catch-up contribution provision for ages 60-63 begins in 2025 and is the greater of $10,000 or 50% more than the regular catch-up amount. This figure may increase by 2025 for inflation. Regular contributions and catch-up contributions for SIMPLE IRA plans will also be increasing by as much as 10% in 2024. Currently, IRA’s have a catch-up provision of $1,000 annually for those ages 50 and above which is going to be indexed for inflation starting in 2024. There is one new caveat to allowing extra money being stashed away. In 2024, if your compensation is over $145,000 during the previous year, the act requires all catch-up contributions for individuals to be deposited into a Roth account. RMD In addition, the bill also raises the Required Minimum Distribution age from 72 to 73 on January 1 2023 and to age 75 in 2033. To break that down even more, if you were born between 1951-1959 your RMD age is now 73 and for those born in 1960 and later your RMD age is now 75. If your spouse dies before reaching RMD age starting in 2024, the surviving spouse is now able to delay RMD distributions from the inherited account until they reach RMD age instead of taking them when the deceased spouse turned RMD age. The penalty for missing an RMD is also being reduced from 50% to 25% and possibly down to 10% if you address it in a timely fashion and the IRS is in a good mood. In 2024, employees who have a Roth 401k will not have to take RMDs. Qualified charitable distributions also known as QCD’s will be indexed for inflation beginning in 2024 and will increase from the current limit of $100,000. Savings Incentives According to PricewaterhouseCoopers, 1/3 of Americans do not have access to a private retirement plan like a 401k . If you own a small business the legislation expands tax incentives to start a company 401k plan by simplifying the requirements. Beginning in 2025, employees at companies who are starting a new savings plan will be automatically enrolled, unless they opt out, and would see their contribution amount being increased automatically on an annual basis. Plans will start at a 3% contribution rate and be increased by 1% annually. If you are a part time worker, you will no longer be required to work three consecutive years to be eligible for your company’s savings plan. Instead you need to work between 500-999 hours for two consecutive years to be eligible to participate. Low-income workers may qualify for a “savers match” from the federal government of up to 50% of $2,000 in contributions for a maximum match of $1,000 per individual. The phase out starts at $41,000 – $71,000 for couples MFJ and $20,500-$35,500 for single filers. If you are making student loan payments, your employer can start matching your payments in 2024 as a contribution into your retirement plan. Your student loan payments would count towards your annual contribution limit. If you cannot make retirement contributions because your student loan payments are too high, this is a way to save for retirement while you pay down your loans. Currently federal student loan payments are on pause until June 2023 as the debt forgiveness is currently on hold battling court challenges. In addition to retirement savings, employers will be allowed to auto enroll employees (unless they opt out) into a “rainy day” fund. Employees can save up to $2,500 per year on an after-tax basis and withdrawals would be tax free. Think of this as a Roth savings account without the retirement restrictions! Retirement withdrawals According to a consumer financial services company called Bankrate, currently 51% of Americans can’t pay for more than 3 months of expenses through an emergency fund and 25% say they do not have an emergency fund at all . Emergencies happen, and retirement withdrawals for “unforeseeable or immediate financial needs” are going to get a bit easier. In 2024, if you can take a distribution of up to $1,000 annually from your retirement savings account without being subjected to the usual 10% early withdrawal penalty. If you do not pay the distribution back within a certain amount of time, you will not be able to take another one for 3 years. Victims of domestic abuse can withdraw up to $10,000 penalty free and individuals affected by federally declared disasters can take up to $22,000. 529 Plan Updates One of the biggest changes in the Secure act also begins in 2024 with a provision to existing and future 529 plans. Once a 529 plan has been opened for at least 15 years in the name of a student beneficiary, you can rollover up to $35,000 into a Roth IRA in the student’s name. The $35,000 is a lifetime amount and annual limits for the rollover must be within annual Roth IRA contribution maximums. The new Secure Act contained more than 100 provisions that impacted retirement and savings accounts. We are only discussing the ones that we think affect clients most. If you have questions on how this relates to your specific situation, please do not hesitate to schedule an appointment with us by booking a call below.