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Tag: Retirement planning

A Bucket Plan for Your Bucket List

The baby boomers redefined everything they touched, from music to marriage to parenting and even what “old” means – 60 is the new 50! Longer, healthier living, however, can put greater stress on the sustainability of retirement assets.

 

There is no easy answer to this challenge, but let’s begin by discussing one idea – a bucket approach to building your retirement income plan.

 

The Bucket Strategy can take two forms.

 

The Expenses Bucket Strategy: With this approach, you segment your retirement expenses into three buckets:

 

*Basic Living Expenses – food, rent, utilities, etc.

 

*Discretionary Expenses – vacations, dining out, etc.

 

*Legacy Expenses – assets for heirs and charities

 

This strategy pairs appropriate investments to each bucket. For instance, Social Security might be assigned to the Basic Living Expenses bucket. If this source of income falls short, you might consider whether a fixed annuity can help fill the gap. With this approach, you are attempting to match income sources to essential expenses.[i]

 

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are usually taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

 

For the Discretionary Expenses bucket, you might consider investing in bonds and large-cap stocks that offer the potential for growth and have a long-term history of paying a steady dividend. The market value of a bond will fluctuate with changes in interest rates. If an investor sells a bond before maturity, it may be worth more or less than the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due, plus their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Dividends on common stock are not fixed and can be decreased or eliminated on short notice.

 

Finally, if you have assets you expect to pass on, you might position some of them in more aggressive investments, such as small-cap stocks and international equity. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.

 

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

 

The Timeframe Bucket Strategy: This approach creates buckets based on different timeframes and assigns investments to each. For example:

 

  • 1 to 5 Years: This bucket funds your near-term expenses. It may be filled with cash and cash alternatives, such as money market accounts. Money market funds are considered low-risk securities but they are not backed by any government institution, so it’s possible to lose money. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
  • 6 to 10 Years: This bucket is designed to help replenish the funds in the 1-to-5-Years bucket. Investments might include a diversified, intermediate bond portfolio. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
  • Over 10 Years: This bucket may be primarily filled with longer term investments such as U.S. and international stocks.

 

Each bucket is set up to be replenished by the next longer-term bucket. This approach can offer flexibility to provide replenishment at more opportune times. For example, if stock prices move higher, you might consider replenishing the 6-to-10-Years bucket, even though it’s not quite time.

 

A bucket approach to pursue your income needs is not the only way to build an income strategy, but it’s one strategy to consider as you prepare for retirement.  To speak to a CapSouth advisor about retirement planning call 800.929.1001 or visit our website at www.capsouthwm.com to learn more about the services we provide.

 

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.kiplinger.com/article/retirement/T037-C000-S002-how-to-implement-the-bucket-system-in-retirement.html

Where Will Your Retirement Money Come From

For many people, retirement income may come from a variety of sources. Here’s a quick review of six primary sources:

 

Social Security

Social Security is the government-administered retirement income program. Workers become eligible after paying Social Security taxes for 10 years. Benefits are based on each worker’s 35 highest earning years. (If there are fewer than 35 years of earnings, non-earning years may be counted in the calculation.) In mid-2018, the average monthly benefit was $1,413.[i],[ii]

 

Personal Savings and Investments

These resources can also provide income during retirement. Depending on your risk tolerance, time horizon and goals, you may want investments that offer steady monthly income over vehicles giving you the potential for double-digit returns. A quick chat with a financial professional can help you understand your risk tolerance as you approach retirement.

 

Individual Retirement Accounts

Traditional IRAs have been around since 1974. Contributions you make to a traditional IRA are commonly deductible. Distributions from a traditional IRA are taxed as ordinary income, and if taken before age 59½, may be subject to a federal income tax penalty. Once you reach age 70½, these accounts require mandatory withdrawals.[iii]

 

Roth IRAs were created in 1997. Contributions you make to a Roth IRA are non-deductible, as they are made using money that has already been taxed. Sometimes, only partial Roth IRA contributions can be made by taxpayers with six-figure incomes; some especially high-earning individuals and couples cannot direct money into Roth IRAs at all. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Roth IRAs do not have any required minimum distribution rules.3

 

Defined Contribution Plans

Many workers are eligible to participate in a defined-contribution plan such as a 401(k), 403(b), or 457 plan. Eligible workers can set aside a portion of their pre-tax income into an account, and the invested assets may accumulate with taxes deferred, year after year. Generally, once you reach age 70½, you must begin taking required minimum distributions from these workplace plans.[iv] Some plans may also include an option to contribute after tax income.

 

Defined Benefit Plans

Defined benefit plans are “traditional” pensions – employer-sponsored plans under which benefits, rather than contributions, are defined. Benefits are normally based on specific factors, such as salary history and duration of employment. Relatively few employers offer these kinds of plans today.[v]

 

Continued Employment

In a recent survey, 68% of workers stated that they planned to keep working in retirement. In contrast, only 26% of retirees reported that continued employment was a major or minor source of retirement income. Many retirees choose to continue working as a way to stay active and socially engaged. Choosing to work during retirement, however, is a personal decision that should be made after considering your finances and personal goals.[vi]

 

To speak to a CapSouth advisor about retirement planning contact our office at 800.929.1101 or visit our website at http://capsouthwm.com/services/financial-estate-planning/

 

Utilize our free financial calculator at https://capsouthwm.com/resources-guides/financial-calculators/

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security

 

[ii] https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

 

[iii] https://www.cnbc.com/2018/07/30/roth-vs-traditional-iras-how-to-decide-where-to-put-your-money.html

 

[iv] https://www.fool.com/retirement/2018/11/21/the-most-important-401k-rules-for-maximizing-your.aspx

 

[v] https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp

 

[vi] https://www.investopedia.com/articles/personal-finance/101515/planning-retiring-later-think-again.asp

 

Social Security: By the Numbers

Social Security has been a pillar of retirement life for several decades, but how much do you really know about it? Here are a handful of facts that might surprise you:

 

The Social Security trust fund exceeds the gross domestic product of every country in the world except: China, the United States, India, Japan, Germany, Russia, Indonesia, and Brazil.[i]

 

For 61% of retirees, Social Security is a major source of income.1

 

Benefits are subject to federal income taxes, but it wasn’t always so. Amendments to the Social Security Act made benefits potentially taxable beginning in 1984.1

 

Benefits are determined by your average earnings during a lifetime of work, based on your 35 highest-earning years.1

 

If you receive Social Security, you no doubt welcome cost-of-living-adjustments (COLAs) to your benefits. Did you know that Social Security COLAs once required an act of Congress? That was the case before 1975, when they were finally pegged to advances in the Consumer Price Index.1

 

In the middle of 2018, more than 1 in 6 Americans were collecting Social Security benefits. Older Americans constitute about 80% of Social Security recipients, and their average monthly benefit in June 2018 was $1,413.[ii]

 

When should you begin taking Social Security? That may depend on several factors, but many people choose to claim benefits as soon as they are eligible. You can receive benefits beginning at age 62, but if you take them before reaching Social Security’s Full Retirement Age (67 for those born in 1960 or later), your monthly benefit will be fractionally reduced. You can wait until age 70 to claim your maximum potential benefit.

There are many factors to consider when determining the age at which you should begin taking benefits. We believe this decision should be made in conjunction with your overall financial planning process.

 

We would welcome the opportunity to discuss this further or to begin a conversation regarding your financial plan and how Social Security benefits fit into the plan.  Contact CapSouth at 800.929.1001.  For more information about CapSouth visit our website at www.capsouthwm.com 

 

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

 

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[i] https://www.waddell.com/explore-insights/market-news-and-guidance/planning/9-facts-about-social-security

 

[ii] https://www.cbpp.org/research/social-security/policy-basics-top-ten-facts-about-social-security

 

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