New IRS Changes for Retirement Plans in 2019

The IRS announced last month in November cost-of-living adjustments to limits on contributions to retirement plans for 2019. There hasn’t been an increase in some plan types since 2013, which is why now is a great time to take advantage of maximizing retirement contributions. According to a 2017 FINRA study,10% of American retirement savers are contributing the maximum allowed, are you? Here’s the breakdown of the 2019 IRS changes for retirement plans:

2019 IRS Retirement Plan Changes

401(k)s, 403(b)s, most 457 plans, and the federal government’s Thrift Savings Plan will rise to $19,000 next year, up from $18,500 in 2018.

IRA contributions (Pre-Tax, Roth, or a combo) rose to $6,000 from $5,500, the limit that has been in place since 2013.

Catch-up contribution limits if you’re 50 or older in 2019 remains unchanged at $6,000 for workplace plans and $1,000 for IRAs.

SEP IRA or a solo 401(k) goes up from $55,000 in 2018 to $56,000 in 2019, based on the amount they can contribute as an employer, as a percentage of their salary. The compensation limit used in the savings calculation also goes up from $275,000 in 2018 to $280,000 in 2019.

SIMPLE retirement accounts goes up from $12,500 in 2018 to $13,000 in 2019. The SIMPLE catch-up limit is still $3,000

Defined Benefit Plans goes up from $220,000 in 2018 to $225,000 in 2019.

Deductible IRA Phase-Outs for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $64,000 and $74,000. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $103,000 to $123,000 for 2019.

Roth IRA Phase-Outs for taxpayers making Roth IRA contributions is $193,000 to $203,000 for married couples filing jointly. For singles and heads of household, the income phase-out range is $122,000 to $137,000.

If you aren’t contributing the maximum into these types of retirement accounts you can increase what you’re contributing overall. If you have questions about these increases or want meet regarding your overall saving and investing, now is the time to plan for 2019.

Happy Retirement, LIBOR

There’s a number that is going away soon that has an impact on your life; it’s called LIBOR.  LIBOR (London Interbank Offered Rate) is used to determine the interest rates banks charge each other for overnight, one-month, three-month, six-month, and one-year loans.  LIBOR is a substantial number because it decides, in part, the interest rate you will pay for loans, credit cards, and even your mortgage or refinance.  Banks add their markup (another percentage) to LIBOR to calculate what to charge consumers.  LIBOR has been the benchmark for banks throughout the world since 1969 but will be phased out worldwide by the end of 2021.

LIBOR seemed to work well until the financial crisis when inaccurate bank reporting to LIBOR made way for rate manipulation.  Unlike a stock price which calculates on the buying and selling of the public, LIBOR compiles information from a bank’s observation or reporting of their daily rate, which is voluntary.  By making up false information during the financial crisis, some banks profited illegally.  For this reason, regulators worldwide arephasing out LIBOR.

In the United States, LIBOR is being replaced by SOFR (Secured Overnight Financing Rate), which is already approved for rate calculation.  SOFR has compiled information back to 2014 and began publishing earlier this summer.  SOFR uses the Federal Reserve’s fed funds rateand the yield on the ten-year Treasury note and others, using real data on the previous day’s trading on our currency.

Currently, traders in the United States have already started to see the LIBOR-SOFR rate as we transition toward LIBOR’s retirement.

Calling All Investor Types

Some investors are the do it yourself type and manage their accounts with minimal assistance from a financial advisor.  Other people are eager to have an advisor manage their investments for them.  Whatever type of investor you are, no single investor knows everything about the stock market.  Even from time to time, knowledgeable investors ask for advice.

Working with a financial advisor can benefit both types of investors.  An advisor is a resource for what you may not know about your investments, other types of investments or additional information you may need to make an informed decision.  Working with an advisor doesn’t mean you have to hand over control of your finances.  Always be upfront about you expect from working with an advisor.  Open communication is essential for both parties to understand what the preferred way for you to receive investment advice.

The best way to avoid problems is to understand what type of investor you are through your investor profile.  Your Investor Profile or style is determined by:

Objective Traits – Personal or social traits such as gender, age, income, family, even tax situation

Subjective Attitudes – Part of the emotions and beliefs you have

Balancing Risk vs. Reward – Are you able to tolerate more significant risk to have a greater reward or prefer less risk and are content with a reasonable return?

Area of Focus – The types of investments (ex. stocks, bonds) and sectors of investments (ex. Technology) in your portfolio.

Investment Strategies – Help to shape your investor profile by the types of investing you prefer (ex. ethical, growth, index)

Valuation Methods – Help to develop your investor profile through valuation methods (ex. Fundamental analysis, technical analysis, quantitative analysis).

I can help you with specific accounts, or help with your entire portfolio.  It’s really up to you, and you always have choices.

The Great Wealth Transfer

Over the next twenty years, there will be a wealth transfer that exceeds $30 trillion as the Baby Boomer generation passes the remainder of their wealth to the Millennials and subsequent generations.  The Baby Boomers (born 1946-1964) are considered the wealthiest generation, currently controlling 70% of all the disposable income in the United States. Its imperative families develop a plan to transfer assets since the transfer of wealth is inevitable.  For most families, the transferring wealth was acquired during this lifetime and not inherited from the previous generation.

When starting to plan for wealth transfer pre-retirees should prepare for their retirement first, healthcare costs second, and the remaining transferring assets last.  Although some individuals choose not to involve their family members that will become the beneficiaries of their assets, including qualified tax and legal professionals are important.  But don’t write off including your heirs in all aspects of wealth transfer planning if you’d like more than just one generation to benefit.

Preparing your heirs to take over your estate eventually passing their remaining assets on to their beneficiaries is equally important.  Heirs that are unprepared in managing money, investments or seeking financial guidance from qualified professionals seldom have enough inheritance left over for their heirs.  Some families choose to ‘train’ heirs by teaching how to wisely invest so they can give some away through philanthropy.  Without financial education, frequent investment decision making and a purpose to preserve the inherited wealth, many estate transfers rarely survive.  The complexities of wealth preservation are not taught in school or other institutions and can only demonstrate through modeling, professional guidance, and the generation’s intention to pass their wealth forward.

If the generation set to inherit from the Baby Boomers does a good job preserving what they inherit, it’s possible it could easily provide financial benefits to others for the next thirty to forty years.  And that’s worth planning.

As financial advisors, we spend a lot of time preparing for building wealth, but not passing it on to subsequent generations.  If you would like guidance on The Great Wealth Transfer and my working with your beneficiaries, I welcome a meeting with all of you.

End of Year Money Moves

It’s that time of year again; kids go back to school, the election season is near, fall holiday planning starts, and suddenly we all move closer to the end of 2018.   As we approach the last quarter of the year, remember these ‘money moves’ that you still have time to make:

  1.  Add to Your 401K.  Now is the time to make additional contributions if you are not already maximizing.  Some companies include bonuses in the last paycheck of the year.  Consider giving yourself the ‘gift’ of the bonus down the road with a higher balance retirement account.
  2. Rebalance Your Investment Accounts.  Meet with me to rebalance your accounts and reassess your financial plan with updated information.
  3. Check Your Budget.  Analyze saving and spending, and readjust if necessary.  Finish this year by updating your budget to start next year with a spending plan.
  4. Make Purchases With Cash.  If you spend on holiday gifts, plan to pay with cash (or debit cards) and keep credit card balances low.  Cash purchases are often less than credit purchases per item.
  5. Meet With Your Tax Professional.  Discussing options to off-set taxes you will need to pay for 2018 can save you money.  It’s better to be prepared and have time to make some changes then be ‘shocked’ at filing time.  This year will see the Tax Cuts and Jobs Act takes effect in full force.
  6. Complete a New Risk Assessment and Financial Plan.  If you haven’t done either of these in a few years, now is the time to update all information and update your financial plan.

Regardless of how busy you may be at the end of the year, procrastination can hurt your progress toward your goals.  Financial planning is for everyone irrespective of age or income and is about your financial situation today so that you can plan for your financial future.

I highly recommend doing these simple steps before 2018 is over and look forward to working with you.

Contact a Financial Advisor in Las Vegas.

Social Security Retirement Benefits: Why Waiting May Be the Best Decision

Taking Social Security Benefits can be a guessing game unless you do your research to figure out what age to take benefits the best for you.  Do you receive benefits at the earliest age or wait until your full benefit age?  Will you die in early retirement or live a longer life than you imagined?  These are the challenging questions many pre-retirees ask because it can add up to thousands of dollars over your lifetime.  Most people want to get their benefits sooner than later, not realizing that the odds are in their favor for living longer than they thought.  Pre-retirees need to plan for the long-haul, or so to speak each generation, on average, is living longer than the previous.

Finding out your ‘break even’ age for Social Security is important to determine what age is best to start taking benefits.  Once you make the decision and start benefits at a specific age, you can’t change your decision since it is essentially ‘locked-in’ for life.  Benefit amounts will not increase, aside from the occasional small cost of living increases.

The best way to determine when to start taking benefits is by running a break-even analysis to find your break-even benefit age.  The break-even age is when an individual’s total lifetime Social Security benefits received would be equal to the benefit amount, but using a different claiming age.  When doing your pre-retirement income planning, the break-even analysis is a crucial piece of information to consider.

Deciding to start Social Security benefits at the first opportunity or delaying benefits is a personal decision.  Factors to consider are other retirement assets available and their value, genetic health factors, and outstanding debt and lifestyle considerations.  If you would like more information on social security benefits and implementing it into your financial plan along with other assets, contact our office for a meeting.

Why the Technology (and Person) Managing Your Money Matters

Money and technology are so closely related that if a financial advisor isn’t employing the latest technology, how will it equate to risk for you and your money?  When it comes to managing your money, you expect your financial advisor to have the best technology resources available to do the job.

Since the last recession, the financial services industry is leading the way in technology development, with healthcare second and other sectors closely following.  Among the new technologies, Artificial Intelligence (AI) and machine learning are in first place for the top development trend in financial services.  The acceptance of AI at large financial companies has still deemed a threat to the old system of money management, but continues to be widely accepted by established advisors (ages 35-44) even more so than advisors that are new to the industry.  New technology is helping clients and advisors to be more efficient in managing assets and their risk.

One of the new developments using AI is in behavioral finance software that determines client behaviors and their adversity to risk before selecting funds, ETFs and other assets to be managed inside portfolios.  No longer should selection be done manually when AI can search funds with precision based on client behavioral perimeters.  Without an assessment of client behaviors before market activity, potential losses may impact the client and be more difficult to recover.

When behavioral finance software combines with risk profiling, the assessment of misaligned investment choices can be overridden helping to build better portfolios based on scientific data and not solely on past performance.  Without behavioral considerations, misaligned investment choices aren’t just possible, but likely.

Investment managers must continuously upgrade their technology infrastructure  to keep up with client expectations and best practices to continually improve the client experience and make advisors better at their jobs.  While robo technology, or portfolio automation, continues to become an accepted part of the investment equation for younger clients with fewer assets, to clients transferring wealth to future generations, artificial intelligence and machine learning are the next great frontier.

The New Senior Safe Act: S$A Provides Immunity for Reporting

On May 24th, 2018 President Trump signed The New Senior Safe Act into federal law, encouraging financial professionals to report senior financial abuse.  Since financial advisors and bank employees are usually the first to witness clients making money withdraws that are not common, the law rewrites protocol and protection for those that report abuse.  The old law left loopholes citing ‘customer privacy’ when reporting to authorities the suspected fraud.  Bank employees and financial advisors had their ‘hands tied’ even if reporting was in the client’s best interest; previously reporting suspected financial abuse or fraud required obtaining the client’s permission to report it.

The new S$A Law  moves the reporting to the federal level, over-riding the 25 states that still have customer privacy laws preventing the financial professional or company from reporting without client consent.  Although not a mandate, the new law encourages and protects the individual reporting abuse or fraud from scrutiny or termination by their employer due to company client privacy rules.

To have protection under the new law, the financial company is required to have a training program that addresses identifying, documenting and reporting protocol. The new law is a positive step in protecting financial professionals and their employees as well as financial clients.  Since most seniors view their financial professional as someone they can trust, many disclose information about a person, transaction, or scam unknowingly to the professional, who now is in a position to help stop it.  Regular conversations with seniors about their finances may reveal abuse or concerns they have about a family member or friend asking for money.

The most common ways scammers get to seniors is through telemarketing (phone), the internet, or through personal contact of a stranger forming a new ‘friendship’ with the senior, or through their family member.  As people age, their ability to decipher fraud becomes less likely to happen, making them easier targets.

If you or someone you know has concerns they may be a victim of

The Second Half of Life- Discovering Your Passion

At some point along your life’s journey, you might find yourself at a crossroads looking back thinking, “Is this it?  Is this all there is to life?” while considering the path ahead of you.  It can happen at any time- you’ve spent your life building something that has taken all your blood, sweat, and tears and you realize you’re looking ahead to the remainder of your life and pondering how you will be remembered.  For many, this is the impetus for a life change– not the money they accumulated or the business they built, but what they intend to do with the years they have left, and what legacy they will leave.

As a society, we tend to focus on the first half of life and not the second half, which many times can become the most fulfilling.  The first part of life is filled with plans, projections, and goals to get to the next phase of our business (or life).  It’s easy to become consumed with what you need to do to achieve success, but the joy often fades when success comes.  Sometimes the more successful one becomes, the harder it is to find happiness and fulfillment.  Success and money suddenly aren’t as compelling as they once were.

When people discover their passion, sometimes they realize that all of the successes and skills gained and wealth accumulated, can be used to better the lives of others, and ultimately the planet.  Bill and Melinda Gates, The Buffet Family and other successful entrepreneurs have been inspiring examples of prioritizing higher causes and donating significant wealth during their second half of life.  For these individuals, it has become their focus to create something impactful, lasting, and personally fulfilling instead of just retiring with a pile of cash.

You alone have to decide if your life goal is success or significance- it’s your life.  It takes opening your eyes, looking inside yourself, and determining if you’re happy with the life you’ve created.  If you’re not satisfied, commit to discovering your passion, whatever that may be. Saving for your second half of life is essential, but so is having a love for it.

Is Early Retirement a Reality?

We all desire the flexible lifestyle, to not work or work when we want.   Wouldn’t it be great to spend more of our lives not working than working?  There have been countless financial plans created with this target in mind, but it may not be a reality to stop one’s career before reaching the full retirement age Social Security has set for us. 

Early retirement won’t be an option for many as most American’s haven’t saved enough for retirement-and may never.  The median retirement savings balance for US adults aged 56 to 61 is $17,000 according to the Economic Policy Institute.  That’s not even enough to cover a year’s worth of food and utilities in retirement!  What could we be doing better to increase the possibility of more American’s having the ability to retire early?  Saving! 

You may be preparing to retire early or on time if you’ve been saving consistently and planning.  If this is your situation, congratulations!  To be sure your early retirement is a reality, consider these facts:

  • Leaving the workforce before full retirement age (according to Social Security) stops 401(k) contributions, Social Security Accumulation, and employer health insurance benefits.
  • Drawing pre-tax retirement savings before age 59 ½ results in an IRS penalty, further depleting your savings.
  • Health Insurance will now become your responsibility to pay as you are not eligible for Medicare until full retirement age.  Even when you’re able to use Medicare, it doesn’t cover everything, and you still need to pay for additional coverages like dental, vision, prescription, and a percentage of costs for all medical service.  Medicare is not that great of coverage- ask a retiree!

The best way to meet your retirement goals for considering early retirement is to set a budget now for saving and spending-the save first, spend second philosophy.  Secondly, plan for the unexpected-poor health, bad financial markets, job loss and overhead debt payments.  Lastly, continue financial planning with financial advice to help make retirement a reality when you’re financially ready.

Advice on IRA Contribution for Las Vegas Residents

Richard London’s Quick Reminder About IRA Contributions

Just a reminder, this is IRA season and below are some key numbers to pay attention to.

For 2014, here is the max contribution limits:

Traditional IRA – $5,500 ($6,500 if you are 50 and older)

Roth IRA – $5,500 ($6,500 if you are 50 and older)

SEP IRA – $52,000 (is up to 25% of your total income or 20% of adjusted income, up to a maximum of $260,000 in income)

For some other information, max income for 2014 for social security wage base is $117,000.

There is some stipulations on whether or not your Traditional IRA contribution for 2014 is deductible. Please contact me to find out if you are able to contribute to your IRA by April 15th for a 2014 tax deduction. I can speak to your CPA to make sure your contribution makes sense.

For a consultation with Richard London CFP® or for more information on IRA contributions, please call (702) 318-1376 today!