QLAC 101

August 15, 2024

If you’ve saved well for retirement, then you may find you can cover your living expenses without needing to withdraw from your retirement accounts. But if you think that by age 73, you won’t need your full required minimum distributions or RMDs, then you might want to consider getting a qualified longevity annuity contract, or QLAC. 

Anyone between the age of 18 and 75 can purchase a QLAC, but there may be some people that this annuity makes more sense for. If you’re looking to avoid the market risk on some retirement accounts and ensure a steady, guaranteed income in retirement, a QLAC is probably a good fit for you. If you also have concerns about the longevity of your savings and having enough money later in life, then you may benefit from a QLAC. 

Here’s everything you need to know about a QLAC before deciding if it’s right for you.

How a QVAC Could Lower Your RMDs

A QLAC is a deferred fixed annuity contract sold by insurance and financial companies that you purchase with money from a retirement account, like a 401(k) or an individual retirement account (IRA).It’s important to know that Roth IRAs cannot be used to purchase QLACs as they do not come with RMDs to begin with.

RMDs are mandated starting at the age of 73 as of this year, but that will rise to age 75 in 2033. One appeal of the QLAC is that it can reduce the balance in your retirement accounts used to calculate those RMDs. “People tend to spend their RMDs,” says Steven Kaye, a financial planner in Warren, New Jersey. “So a QLAC forces people—in a good way—to leave more money in their IRAs,” he says.

One way to avoid using your RMDs is to use the funds from one of your retirement accounts to purchase a QLAC, which will guarantee that you receive regular payments for as long as you live. “So, if you used 25% of a $400,000 qualified account, your $100,000 purchase of a QLAC would immediately reduce your RMDs by 25%,” says Jerry Golden, investment advisor.  “And the income from a QLAC could be deferred until as late as age 85,” he says.

When you choose a QLAC, you’ll be able to set your payout date, which is when you’ll begin receiving payments. Just like with Social Security, the longer you wait to receive payments, the higher the payments will be. Once you have a QLAC, you’ll be able to delay RMDs until the payout date of your QLAC, which can be no later than age 85.

The Tax Benefits of Having a QLAC

Once you withdraw money from your QLAC, you’ll need to pay income taxes on it. However, a QLAC can be an efficient tax planning strategy. For example, by using $100,000 of a traditional IRA to purchase a QLAC, you’ll reduce the balance of your IRA by $100,000, which will lower the amount you’ll need to take out for RMDs. The lower your RMD, the lower your income will be on that, which could significantly reduce the income tax you’ll owe.

QLAC Contribution Limits and Inflation Riders

You are now permitted to buy a QLAC for up to $200,000 from an eligible retirement plan. Previously, you were limited to whichever was lesser of $145,000 or 25% of your account balance. The current $200,000 upper limit is a combined cap that applies to all of your eligible retirement accounts, even if you take money from different accounts or purchase more than one QLAC. But if you and your spouse have your own eligible retirement accounts, then you can each spend up to the $200,000 limit on your own QLACs.

Since a QLAC locks in future payments, you are protecting your retirement money from market dips later in life. But unless you purchase an inflation rider with your QLAC, which will lower the initial amounts you receive from an annuity, your monthly payment may lose value over time.If you’re considering acquiring a QLAC, then you’ll want to work with a financial advisor to make sure you’re picking the right one.

Considering Your Spouse When Purchasing a QLAC

Some QLACs offer a survivor payout, also referred to as contingent annuity payments. These would continue your annuity payments to your designated beneficiary, which is usually a spouse, after your death. Other QLACs offer death benefits that would return any unused premiums to your beneficiaries through a lump sum or series of payments. If you have a spouse or individuals who will depend on your annuity after your passing, then you need to make sure any QLAC you choose has one of these features. Without these features in your annuity, your survivors would get nothing.

In addition to making sure your QLAC comes with a survivor payout or death benefit, you may also consider getting a joint QLAC with your spouse. If you’re married, a joint QLAC would provide income payments that continue for as long as one of you is alive. The only downside to choosing a joint contract is that it decreases your income payments, compared to a single life contract.

When a QLAC Isn’t For You

If you’re 65 and in poor health, you probably don’t want to wait until age 85 to start receiving income payments, so a QLAC may not benefit you at all. “If the probabilities are that you have a longer than average life expectancy, QLACs can be a windfall,” says Artie Green, a financial planner. “But if you have a shorter than expected longevity, of course, that works against you with any annuitization.” QLAC recipients can use their funds on whatever they want, but often they spend it on late-in-life health care or housing costs. The purpose of a QLAC is longevity protection that could minimize or even eliminate the risks of running out of money.

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There are really only two scenarios in which a QLAC is a good fit. The first is if you have reached age 73 and do not need your RMDs to cover expenses. The second is if you think you’ll reach 73 and not have enough funds to pull from. QLACs can be a safeguard that guarantees you an income late in life, while also reducing your need for RMDs and even lowering your income taxes on them. At Insureyouknow.org, you may keep all of your financial and retirement planning in one place, making it easy for you to forecast and plan for your future.

Five Things Happy Retirees Have in Common

June 15, 2024

The transition into retirement can be difficult, when work no longer provides a sense of identity and accomplishment. The change can be startling, especially when most people don’t switch to part-time schedules on the way out of their full-time careers. “We don’t really shift our focus to, how do we live well in this extra time,” says M.T. Connolly, author of The Measure of Our Age. “A lot of people get happier as they age because they start to focus more on the meaningful parts of existence and emotional meaning and positive experience as finitude gets more real.”

While most people account for how much money they’ll need when it’s time to retire, there are many other factors to consider when planning for a fulfilling retirement. Here are five things that happy retirees have in common. 

Feeling a Sense of Purpose

There are several approaches to staying active and finding purpose after leaving a career. “Your retirement schedule should be less stressful and demanding than your previous one, but we don’t need to avoid all forms of work or service,” says Kevin Coleman, a family therapist. “Find some work that you take pride in and find intrinsically meaningful.”

Many retirees, for example, choose encore careers, where instead of working for the money, they are working for the enjoyment of the job. Besides finding a new job, there are other simple ways to feel purposeful during retirement. Purpose can be found by making oneself useful, such as by volunteering in the community, joining a community board, or participating in an enjoyable activity with a group, like a gardening club. Many retirees enjoy volunteering to take care of their grandchildren or helping their older friends with caregiving duties. Finding purpose doesn’t need to be complicated and can be achieved through simple acts of showing up for others and being open to new connections.

Finding Ways to Connect

As nearly 25% of those who are 65 and older feel socially isolated, finding ways to connect are important for mental and physical well-being during retirement. One way to connect is through storytelling. Sharing our stories with the people we care about strengthens our social bonds and helps us feel less lonely. Storytelling also helps people pass down their family memories, especially when we share stories with younger relatives, such as with grandchildren. It’s a nice feeling to think that your memories will live on through your loved ones. “The models we have for aging are largely either isolation or age segregation,” says Connolly. “There’s a loss when we don’t have intergenerational contact. It impoverishes our social environment.” Perhaps the best thing to do as you age is to cherish and foster these relationships with younger relatives.

Making Plans for the Retirement Years 

Budgeting for your retirement is crucial to happiness during the retirement years. Successful retirement planning includes paying off debts prior to retiring and saving for unexpected expenses or emergency funds in addition to a standard monthly budget. According to a survey conducted by Wes Moss, author of You Can Retire Sooner Than You Think, the happiest retirees are those who have between $700,000 and $1.25 million in liquid retirement savings, such as stocks, bonds, mutual funds, and cash. His research also found that retirees within five years or less of paying off their mortgages are four times more likely to be happy in retirement. This is because the mortgage payment is typically the most significant expense, so those retirees who own their homes feel safer and more at peace once they no longer have that bill. Plus, not having a mortgage payment due every month dramatically lowers their monthly expenses and can help retirement savings last longer.

Many retirees overlook retirement planning beyond their finances. New research from the Stanford Center on Longevity shows that where someone lives in retirement can affect their longevity. Researchers found that people over the age of 60 who lived in upper-income areas lived longer due to having more access to health and social services. They also credited strong social networks and a sense of community to living longer. So perhaps there’s a city or area that you’ve always dreamed of living in or you’d like to live closer to family. Think about where you want to live when you’re done working and then plan for it before you retire.

Setting New Retirement Goals

Beyond saving up and thinking about where you want to spend your retirement years, setting goals for once you’re in retirement is equally as important. “Research suggests that those who think about and plan for what they will do in retirement in advance are far happier and fulfilled once they actually retire and begin living this phase of life,” says financial planner Chris Urban. “Sometimes it is helpful for people to write down what they plan to do every day of the week, what goals they have, who they want to spend time with and what they want to do with them.”

While your goals before retirement were likely centered around career and finances, it will be important to set different kinds of goals once you’re retired. Having goals doesn’t become less important just because you’re no longer working. “If you really want something, maybe a new romance, then take a concrete step in that direction,” says psychiatry professor Ahron Friedberg. “Don’t ever tell yourself that it’s too late.”

Prioritizing Both Physical and Mental Health

With a full-time career no longer on the schedule, cooking healthy meals at home, getting enough sleep, and finding ways to be more physically active everyday will be easier. It will also be important to keep up on medical appointments and preventive therapies. A study conducted by Harvard shows that even people who become more physically active and adopt better diets later in their lives still lower their risks of cardiovascular illnesses and mortality more than their peers who do not. “Not all core pursuits include physical activity or exercise, but many of the top ones do. I refer to them as the ‘ings’—walking, running, biking, hiking, jogging, swimming, dancing, etc.,” says Moss. “These all involve some sort of motion and exercise.” The most sustainable form of physical activity will be doing more of those activities that you enjoy and that move your body.

In addition to caring for your physical health, focusing on your mental health is just as important, especially as you age. According to Harvard’s Medical newsletter, challenging your brain with mental exercise activates processes that help maintain individual brain cells and stimulate communication between them. So choose something new or that you’ve always wanted to learn. Take a course at a community college or learn how to play an instrument or speak a language. If you enjoy reading, visit the library every week for a new book. If you enjoy helping others learn, then looking into a part-time tutoring job or volunteering to tutor is a way to challenge yourself mentally, connect socially, and feel a sense of purpose.

Prioritizing your overall health includes asking for help when you need it. If you reach a point where you need assistance with daily tasks and activities, then you shouldn’t hesitate to ask for help early. Whether it’s family members or caregiving services, finding help with the things that are becoming difficult for you is the best way to maintain your independence for as long as you can so that you may continue to thrive during your retirement years.

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It’s important to think about how you want to spend your retirement before it’s here. While many people only consider their finances when they begin to plan for the future, there are other factors, including how you’ll spend your time, where you’ll live, and your overall health that will impact the quality of your retirement years. With Insureyouknow.org, storing all of your financial information, medical records, and planning documents in one easy-to-review place will help you plan for what can be the best years of your life.

Six Things to Know about SIMPLE IRA

April 30, 2024

Offering a SIMPLE IRA (Savings Incentive Match Plan for Employees) to employees is an effective way for small businesses to offer their employees a retirement plan. At a glance, this plan allows both the employer and employee to make contributions, and there are less reporting requirements and paperwork involved for the small business owner. Besides the ease in which these plans can be established for employees, the main perks are tax incentives for both the employer and the employee. “They are fairly inexpensive to set up and maintain when compared to a conventional retirement plan,” says client advisor at First American Bank Karina Valido. “For employers, contributions are tax-deductible. For participants, contributions and earnings are not taxed until withdrawn.”

Even though the SIMPLE IRA is a straightforward retirement option, here are six things to know about this plan, whether you’re an employer or an employee.

1. Employee Contribution Limits in 2024

With a SIMPLE IRA, an employee can, but isn’t obligated to, make salary reduction contributions. In 2024, the maximum amount an employee under the age of 50 can contribute is $16,000. With a SIMPLE IRA, you may also contribute to another retirement plan as long as both contributions don’t exceed the yearly limit. The annual limit for combined SIMPLE IRA and 401(k) contributions in 2024 cannot be more than $23,000 or $30,500 for people who are 50 or older. Since an employer cannot offer both plans, this would only apply to those employees who held a previous account elsewhere.

2. Employer Contribution Requirements

Employers must do one of two things: match employee contributions or make nonelective contributions. If an employer chooses to match each employee’s salary reduction contribution, they must do so by up to 3% of their employee’s compensation. While an employer may choose to match less than 3%, they must at least match 1% for no more than two out of five years. If an employer chooses to make nonelective contributions of 2% of the employee’s compensation, they must do so for every employee, regardless of having some employees who are making their own contributions. So if an employer chooses to make nonelective contributions, then they must also match the contributions of those employees who choose to contribute to their own plans.

3. SIMPLE IRA Tax Advantages

For employees, salary reduction contributions to their SIMPLE IRA reduces their taxable income and their investments will grow tax-deferred over time. Because it’s a tax-deferred account, you won’t need to pay capital gains taxes when you buy and sell investments within the account. Plus, unlike many other retirement plans, such as a 401(k), employer contributions to a SIMPLE IRA are immediately vested and belong to the employee.

Employers also benefit from tax incentives with the SIMPLE IRA. They can get a tax credit equal to 50% of the startup costs, or up to a maximum of $500 per year, for three years. This credit is in addition to the other tax benefits they will receive from contributing to employee retirement plans.

4. All About Withdrawals

During retirement, withdrawals will be taxed as regular income. Before the age of 59 ½, there’s a 10% penalty on withdrawals in addition to the income taxes you would owe. With the SIMPLE IRA, the withdrawal penalty rises to 25% if the money is taken out within two years of the plan being contributed to. Under qualified exemptions, like higher education costs or first home purchases, then you may avoid an early withdrawal fee, but you would still have to pay the taxes.

5. Eligibility for SIMPLE IRAs

The Small Business Job Protection Act of 1996 created the SIMPLE IRA. It was designed with small businesses and self-employed individuals in mind and meant to be simple, accessible, and inexpensive. “A SIMPLE IRA is a small-business-sponsored retirement plan that, as the name indicates, is simple to establish and maintain,” explains financial advisor at Marsh McLennan Agency Craig Reid. “Available to U.S. companies with 100 or fewer employees, SIMPLE IRAs are a cost-effective alternative to the mainstream 401(k) plan.”

In order to be eligible for a SIMPLE IRA, an employer must have fewer than 100 employees and have no other retirement plan in place. They must also make contributions each year. For an employee to be eligible, they must receive at least $5,000 in compensation during any two prior years and expect to receive the same during the current year.

6. The Difference Between SIMPLE IRA and SEP-IRA

Both a Simplified Employee Pension (SEP-IRA) and a SIMPLE IRA are employer-sponsored retirement plans that offer employees a tax-advantaged way to save for their retirement. Contributions in each grow tax-deferred until they are withdrawn during retirement. They are each designed to be easily established in small businesses, especially when compared to a 401(k).

One key difference between the two plans is that while a SIMPLE IRA allows both the employer and employee to make contributions, the SEP-IRA only allows the employer to contribute. The SEP-IRA, though, does allow higher contributions, which will be limited to $69,000 in 2024, compared to $16,000 in 2024 for the SIMPLE IRA. The other main difference between the two plans is that any employer can offer a SEP-IRA, while only businesses with less than 100 employees qualify for offering the SIMPLE IRA.

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If you’re a self-employed individual, a small business owner, or you have recently begun working for a small business that offers you a SIMPLE IRA, it will benefit you to know the upsides of having one and understand the rules around the plan. With Insureyouknow.org, you can store all of your financial information and records in one place so that you may stay organized and allow yourself the best decision-making process in your retirement planning.

2024 Changes that Would Impact Your Retirement Finances

April 1, 2024

Changes to retirement regulations are making 2024 out to be the perfect time to reexamine your retirement planning and make sure you’re getting the most out of your savings.

“The rules are constantly changing,” says director of Personal Retirement Product Management at Bank of America Debra Greenberg. “It’s always a good idea to familiarize yourself with what’s new to see whether it makes sense to take advantage of it.”

Here’s what you should know about several changes to retirement regulations in 2024.

It Pays to Plan for Retirement

While the changes to retirement regulations may seem small, Americans need all the help they can get right now. According to the National Council on Aging, up to 80% of older adults are at risk of dealing with economic insecurity as they age, while half of all Americans report being behind on their retirement savings goals.

“The IRS adjusts many things each year to reflect cost of living and inflation,” says Jackson Hewitt’s chief tax information officer Mark Steber. “It happens each year and taxpayers shouldn’t be alarmed — they might even have a bigger benefit.” Since retirement contributions are pre-tax, saving for retirement actually lowers your taxable income, which may even place you into a lower tax bracket. Plus, you may even be eligible for a tax credit of up to 50% of what you put into your retirement accounts.

Contribution Limits Will Increase

The contribution limits for a traditional or Roth IRA are increasing in 2024. The limit on annual contributions to an IRA will go up to $7,000, up from $6,500 last year.

Individuals will be able to contribute more to their 401(k) and employer-based plans as well. For those who have a 401(k), 403(b), most 457 plans, or the federal government’s Thrift Savings Plan, the contribution limit is increasing to $23,000 in 2024, which is $500 more than last year. Those who are 50 and older, can contribute up to $30,500 into the same accounts.

Starter 401k Plans are Possible

In 2024, employers who don’t sponsor a retirement plan may offer a Starter 401(k) deferral-only arrangement. A starter 401(k) is a simplified employer-sponsored retirement plan with lower saving limits than a standard 401(k). Employers are not allowed to make contributions, and employee auto-enrollment is required. In 2024, the annual contribution limit to this plan will be $6,000. Beginning this year, employees with certain qualifiable emergencies may also make penalty-free withdrawals from their 401(k) of up to $1,000, though they would still have to pay the income tax on those withdrawals.

529 Plans Can Now be Converted Into Roths

For parents who will no longer need their 529 funds for their children, the Secure 2.0 Act will allow for a portion of the 529 to be rolled into a Roth IRA. Beginning January 1st, the funds can either be used for educational expenses or put toward retirement, as a Roth IRA rollover. You may rollover up to $35,000, free of income tax or any tax penalties. The only limitations are that the 529 must have been in place for at least 15 years, and certain states may not allow the rollover.

Changes to Social Security and RMDs

In January, Social Security checks will increase by 3.2% due to the latest COLA, or cost-of-living adjustment. On average, Social Security monthly benefits will increase by $59 a month, from $1,848 to $1,907. Those who receive survivors or spousal benefits will receive even more.

For 2024, the maximum benefit for a worker who claims Social Security at FRA (Full Retirement Age)is $3,822 a month, which is up from $3,627 in 2023. For 2024, the FRA is 66 years and 6 months for those born in 1957 and 66 years and 8 months for those born in 1958. That means that anyone born between July 2, 1957 through May 1, 1958 will reach FRA in 2024.

The IRS uses a calculation based on the amount in your retirement account and your life expectancy to determine the minimum amount you are required to take out each year, known as RMDs (required minimum distributions). Secure 2.0 increased the age for starting RMDs from 72 to 73, effective in 2023. If you are subject to RMDs, then you must make your withdrawal by the end of this year or by April 1st next year if it’s your first year being eligible. So if you turn 73 in 2024, you’ll have until April 1, 2025 to make your first RMD.

Rising Medicare Costs

Anyone receiving more Social Security but paying Medicare premiums may not feel much of a difference in their increased Social Security benefits since standard Medicare Part B premiums are rising by 6%. As many participants have their Medicare premium deducted right from their Social Security payment, the $9.80 increase will take a portion of the average $59 benefit increase. The annual deductible will also increase this year from $226 to $240.

Insureyouknow.org It will always be important to review your retirement savings every year, but this is  becoming even more important to do in the face of rising costs and changing regulations. With Insureyouknow.org, storing all of your financial information in one easy-to-review place can help you ensure that you are still on track to meet your retirement goals at the start of each annual review.

Legal and Financial Planning for Those with Alzheimer’s and Their Caregivers

November 1, 2023

If you or a loved one is diagnosed with Alzheimer’s or dementia, then there are certain things that you will need to plan for legally and financially. An estimated 6 million Americans have Alzheimer’s, and it is currently the seventh leading cause of death in the United States. Alzheimer’s is a brain disorder that slowly decreases memory and thinking skills, while dementia involves a loss of cognitive functioning; both cause more and more difficulty for an individual to perform the most simple tasks. Though a diagnosis can be scary, the right planning can help individuals and their families feel more at ease.

Putting Legal Documentation in Place

Christopher Berry, Founder and Planner at The Elder Care Firm, recommends three main disability documents that should be in place.

First, there needs to be a financial power of attorney, a document that designates someone to make all financial decisions once an individual is unable to do so for themselves. If an individual lacks a trusted loved one to make financial decisions, then designating a financial attorney or bank is an option.

The next document that needs to be in place is the medical power of attorney that designates someone to make medical decisions for an individual. In many cases, it may be appropriate to appoint the same person to be the financial and medical power of attorney, as long as that person is well-trusted by the individual. In the event that something happens to the original power of attorney(s), successor (or back-up) agents for power of attorney(s) should also be designated.

The last document is the personal care plan, which instructs the financial and medical power of attorney(s) on how best to care for the individual in need. For instance, those entrusted to the care of an individual will need to make sure they sign medical records release forms at all doctor’s offices; copies of the power of attorney or living will should also be given to healthcare providers.

These three documents provide a foundation to make decisions for the individual diagnosed with Alzheimer’s or dementia when they no longer can themselves. It’s ideal to include the individual in these conversations in the early stages of their diagnosis, so that they may be a part of the decision-making process and appoint people that they will feel most comfortable with during their care.

How to Pay for Long-Term Care

Since Alzheimer’s is a progressive disease, the level of care an individual needs will increase over time. Care costs may include medical treatment, medical equipment, modifications to living areas, and full-time residential care services.

The first thing a family can do is to use their own personal funds for care expenses. It’s important for families to remember that they will also pay in their time, as many children of loved ones with Alzheimer’s or dementia will become the main caregivers. It may be wise to meet with a financial planner or sit down with other family members, such as your spouse and siblings, to determine how long some of you may be able to forgo work in order to provide full time care.

When personal funds get low or forgoing work for a period of time becomes difficult, long-term care insurance can be a lifesaver. The key to relying on long-term care insurance though is that it needs to be set up ahead of the Alzheimer’s or dementia diagnoses, so considering these plans as one ages may be smart.

Veterans can make use of the veterans benefit, or non-service-connected pension, which is sometimes called the aid and attendance benefit. This benefit can help pay for long-term care of both veterans and their spouses.

Finally, an individual aged 65 or older can receive Medicare, while those that qualify for Medicaid can receive assistance for the cost of a nursing home. If someone’s income is too high to receive Medicaid, then the spenddown is one strategy to know; under spenddown, an individual may subtract their non-covered medical expenses and cost sharing (including Medicare premiums and deductibles) from their available income. With the spenddown, a person’s income may be lowered enough for them to qualify for Medicaid.

Minimizing Risk Factors During Care

Research published recently in the journal Alzheimer’s & Dementia found that nearly half of patients with Alzheimer’s and dementia will experience a serious fall in their own home. Author Safiyyah Okoye, who was at John Hopkins University when the study was conducted, recommends minimizing risks such as these by safeguarding homes early on in diagnoses. “Examining the multiple factors, including environmental ones like a person’s home or neighborhood, is necessary to inform fall-risk screening, caregiver education and support, and prevention strategies for this high-risk population of older adults,” she states.

The good news is that since the progression of Alzheimer’s is often slow, families have plenty of time to modify the home for increased safety.

In addition to fall prevention modifications, other safety measures may include installing warning bells on doors to signal when they’re opened, putting down pressure-sensitive mats to alert when someone has moved, and using night lights throughout the home. Coats, wallets, and keys should also be kept out of sight, because at some point, leaving the home alone and driving will no longer be safe. Conversations about these safety measures, such as when an individual will have to stop driving, are ones that caregivers should have early on with their loved ones. Including individuals in their future planning while they are still cognitively sound will help both them and their caregivers feel more comfortable with the journey ahead.

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It’s important to remember that even though receiving an Alzheimer’s or dementia diagnosis can be devastating, it is not the end. People with Alzheimer’s can thrive for many years before independent functioning becomes difficult. Both patients and caregivers will feel more calm through planning ahead. Insureyouknow.org can help caregivers stay organized by storing all of their important documents in one place, such as financial records, estate planning documentation, insurance policies, and detailed care plans. Above all, there is hope for those with Alzheimer’s; research is happening every day for potential therapies and future treatments.

How ChatGPT is Shaping Retirement

October 15, 2023

Chat GPT is an artificial intelligence program that can answer human questions. This chatbot is able to understand human language that is spoken or written and then uses algorithms to process and analyze this information in order to produce answers. For instance, you may ask ChatGPT informative questions such as how climate change is affecting endangered species, but Chat GPT can even be directed to write a poem. When it comes to finances, ChatGPT may even be able to help someone begin their retirement planning.

ChatGPT Provides Content, Not Human Advice

Anyone can ask ChatGPT anything, and they will receive a remarkably well-rounded response. If someone were to ask what their retirement plan should include, the chatbot will provide an outline of the basic elements of a common retirement plan. The problem with this is that ChatGPT won’t know the person asking the question and be able to understand the individual details of their life that would make a difference in their retirement planning.

While Chat GPT may not completely replace the value of a human financial advisor, that doesn’t mean that financial advisors won’t need to change the way in which they advise clients to plan for their retirement. If anyone can get a basic plan through ChatGPT, then the services provided by an advisor need to become more about the one thing ChatGPT can’t provide: the human understanding and emotional side of advice. Despite having spent decades taking the emotion out of financial decisions, financial professionals will have to pivot to provide more humanity than ever.

How AI Can Improve an Advisor’s Abilities

Once upon a time, the internet threatened travel agents everywhere, as people could suddenly book their own plane tickets, hotel rooms, and rental cars themselves, from the comfort of their home computers. But travel agents are alive and well, and that’s because the internet still couldn’t do one thing that an agent could: understand a client’s needs and provide personal advice. Instead of mere transactional planning, personalized insight is the new premiere service that a travel agent can provide, and financial planners can grow to do the same.

While ChatGPT can provide concrete information, it cannot begin to factor in the unique preferences of an individual. True conversation is more than the exchange of information. It involves feelings and the confirmation that the person you’re speaking with understands you. A good financial advisor already understands this. Their job is about more than just offering retirement plans; people need empathy. Financial advisor Patti Brennan says her clients “are looking for someone who isn’t just focused on managing their money; that’s just table stakes. What they really want is to know they’ve got someone they can count on during times of crisis; someone who will be a trusted advocate for their future and quality of life.”

Mitchell Morrison, CEO and founder of Eyeballs Financial, says, “ChatGPT is like building a chassis for the financial plan. Its chief weakness is that the answers you get are only as good as the questions you ask.”

While a machine can provide the building blocks of a good plan, an advisor has the capability to understand the complexities of financial planning and the nuances of a person’s life. Together, ChatGPT and the advice from a professional can be used to formulate a plan that is more well-rounded than if someone just relied on one or the other. Rob Leiphart, a certified financial planner at RB Capital Management, adds that, “ChatGPT lacks one crucial step needed in financial planning and investment management: KYC,” or know your client. “It doesn’t begin by asking questions of its own in order to hone its responses. Instead, it provides generic or basic advice,” he says.

While AI ‘s abilities will evolve, financial advisors will be required to as well. Professionals should view ChatGPT as a tool and reevaluate their role in retirement planning. While clients can be well-versed through the framework that ChatGPT can provide them, financial planners can become educators, coaches, and navigators of their retirement plans.

What AI Can Do For You Now

ChatGPT can do more than provide information on how to begin planning for retirement. It can also be used as a resource to think outside of the box in terms of finances. Here are five ways anyone can use ChatGPT to improve their finances now.

1. Research side gigs

Whether you’re interested in supplementing your income now or during retirement, you can ask ChatGPT, “What are the best side gigs for retirees, in my area, or in my field of work?” AI will provide a list of options ranging from consulting, house sitting, or personal errands.

2. Build a better resume

Perhaps you’d like to make more money in your working years or there are a handful of positions you’ve always wished you could land. ChatGPT can help make your resume stand out by suggesting which skills recruiters are looking for in certain positions.

3. Get your business off the ground

ChatGPT could tell you how much you’ll need to start that business you’ve always dreamed of starting, including what resources you’ll need to get going, projected earnings, and even help with sales copy. Whether you’re selling goods or services, you’ll need good advertising to attract potential clients. ChatGPT can provide you with a better idea of what your business idea will entail and help you to create a detailed plan of action.

4. Get tips for writing a better house listing

Planning to make money for retirement by selling your house or planning to move when you can retire are both common goals. An attractive house listing can help you get the best offer on your current property. Paired with gorgeous pictures of your home, ChatGPT can help you write the listing that will get you the most interest. You could even use ChatGPT to help you buy your home elsewhere by researching the most cost effective places to retire.

5. Find financial planners in your area

Once you’ve decided it’s time to start thinking about your retirement, ChatGPT can provide you with a list of qualified and highly-rated financial advisors in your area. Plus, educating yourself through ChatGPT on common retirement plans before you meet with your advisor will give you an idea of what to discuss at your meeting.

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Retirement planning can be overwhelming, but you’ll benefit from using every resource available to you, including ChatGPT. For now ChatGPT is an excellent starting point but shouldn’t be the main resource of your final plan. Insureyouknow.org can help you compile your research, store your financial records, and serve as a valuable place to regularly revisit and fine tune your retirement plan.

The Pros and Cons of Living with Children in Retirement

August 1, 2023

Combining households can be a positive experience for everyone. In order to ensure that every member of the family is comfortable with living together, it will be important to talk it out. Communicating about any concerns before moving in together and then regularly thereafter will ensure that everyone remains happy with the decision to cohabitate. Amy Goyer, an AARP family expert, tells children of retirees to embrace the chance. “Look at this as an opportunity,” she adds. “You have a chance to enjoy your mom or dad in their later years. This is a way for children to know their grandparents in a way they wouldn’t otherwise.”

Before combining households, retirees and their children should consider all of the pros and cons of living together during retirement beforehand.

The Pros of Living With Children During Retirement:

1. Retirees can be a big part of their grandkids’ lives. Many parents choose to live with their children during retirement so that they can be a major part of their grandkids’ lives. Some parents want to help their children raise their kids, such as picking them up from school, helping with meals, or taking their grandkids to their extracurriculars after school. Parents who were busy with work while their own children were growing up may feel that they can now make up for lost time.
2. Your family will have a strong support system in place. While you may want to help your children with their needs, they may also need to help you. This can range from needing a ride to a doctor’s appointment to needing care after surgery or during an illness. Either way, living together will enable each of you to be more available to one another in times of need.
3. Combined expenses may make living together more cost effective for both of you. Having a real financial talk with your children before you decide to combine households may prove that it could save each of you a lot of money. Coming up with a budget of shared expenses can actually help family members thrive both as a whole and individually. With the right budget, retirees shouldn’t have to dig into their retirement as much every month, while their children will be able to save up more of their monthly income.

In addition to communicating with one another about finances and caretaking roles, make sure everyone is allotted their own personal time. For instance, grandparents may opt to have their friends over while their grandkids are in school and their children are at work. Working together to ensure that every member of the family gets space from one another from time to time will help prevent anyone from feeling stifled. Retirement expert Nancy K. Schlossberg, author of Too Young to Be Old: Love, Learn, Work and Play as You Age, says, “If you do your emotional work upfront, you’re more likely to be satisfied with your final decision.”

The Pros of Living With Children During Retirement Could Also be the Cons:

1. Retirees may not want to become full-time babysitters. If your children have children, and you’re disinterested in being a full-time babysitter to the grandkids, setting boundaries upfront about what you do and don’t want to do will be extremely important. Also, consider day-to-day life with young children and maybe pets. “If you have no tolerance for noise, do you want to move into a house with children or teenagers?” asks Jennifer Prell, president of Illinois elder-resource network Silver Connections.Be realistic about what you will and won’t be able to handle on a daily basis.
2. Children of retirees may not want to become full-time caretakers either. Children of retirees may not be prepared for the burden of caring for their own parents.Again, establishing what everyone is comfortable with will be imperative. Contemplate the worst-case scenarios before moving in together. “Even if Mom moves in relatively healthy, that could change overnight,” elder-law attorney Kerry Peck points out. “Families generally underestimate the amount of care that Mom is going to require.”
3. Retirees (or their children) may end up footing the bill for everyone. If retirees or their children become overly reliant on one another, then moving in together may become more expensive for one party than remaining apart. Having an honest talk about financial responsibilities and emergency savings before moving in together should help prevent unexpected expenses for either one of you down the road. “So many families run into trouble when something bad unexpectedly happens,” says Jill Schlesinger, author of The Dumb Things Smart People Do With Their Money. “That’s why it’s so important to talk to your kids about the What-Ifs,” said Schlesinger.

Consider Alternatives to Living Together

If you decide that joining households may not be the best option for your family, there are alternatives. Simply living closer to one another can reap the same benefits of living with children during retirement while removing the downsides.

While there’s an appeal to living ten minutes from one another, one of you may feel as if some of your independence has been lost. Talk to your children, and decide how close is too close. If in the end, you decide to live farther away from your children, planning reciprocal visits or spending part of the year with them may turn out to be the best of both worlds.

If you do decide to remain independent during retirement, make sure there’s plenty of room in your home for your children to visit or stay overnight. If you have more than one child, factor in enough space for all of them and their families, so that each of your children may visit you simultaneously.

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In the end, living with your children during retirement should be beneficial for both of you. Insureyouknow.org can help your family keep the peace. When combining households, keeping the budget, financial information, healthcare records, and even family schedules in one easy-to-access place can help everyone work together to keep the household running smoothly. Since communication will be the key to living happily together, it will be important for everyone to be in the know.

Are you too old to open a Roth IRA?

July 1, 2023

Many people intend to rely on their 401(k) plans offered through employment, personal savings and collecting Social Security and Medicare benefits during retirement, but financial advisors recommend diversifying your retirement plan to include a Roth IRA. Plus, if you’re not offered a 401(k) plan through work, Social Security and savings alone may not be enough. The first step in determining whether it’s too late to open a Roth IRA is understanding the potential benefits and downsides of having one.

Understanding the Roth IRA

The difference between a Roth IRA and a Traditional IRA is that a Roth IRA allows for tax-free income during retirement, while a Traditional IRA taxes withdrawals. With a Roth IRA, contributions are taxed upfront, so all withdrawals of earnings are federal tax-free once the account has existed for five years, and the account holder is at least 59½. Contributions, though, can always be withdrawn at any age without taxes or penalties, which could be especially important during unexpected financial hardship. For anyone new to investing or planning for retirement, IRA expert and accountant Ed Slott recommends starting with a Roth IRA, saying, “There’s just no question that that is the better place,” to start.

Opening a Roth IRA

In order to contribute to a Roth IRA, you must earn an income, but there are income limits. In 2023, a single person may make $153,000 or less, while those who file jointly may make $228,000 or less. While there are no RMDs, there is a Maximum Contribution allowed of $6,500 under the age of 50 and $7,500 for those 50 and over. That means that if you have extra income to invest between the age of 50 and 70, the Roth IRA might be just right for you. Contributions are not tax deductible and all earnings grow tax-free. Because Roth IRAs do not have Required Minimum Distributions (or RMDs) after the age of 73, this is yet another reason that it might be the perfect account to consider for someone who is older and may be behind on their retirement planning.

The Benefits to Opening a Roth IRA at an Older Age

The earlier you start saving for retirement, the better. With a Roth IRA, the longer the account is open, the longer someone has to save and take advantage of compound interest. Winnie Sun, managing director of Sun Group Wealth Partners says she always points young investors to Roth IRAs, because not only can it get them started on long term investing, but it can “help them sock away money that can be accessed in an emergency.” There are still advantages to opening a Roth IRA even at an older age, as long as an individual falls within the income and contribution limits. If you’re over the age of 59½ or getting there, then once the account has been open for five years, there will be no penalty for withdrawing earnings tax-free, and if you plan to continue earning past 73 or don’t need to withdraw funds at that time, then there will be no harm in not withdrawing a certain amount per year as Roth IRAs do not have RMD restrictions. While some people view the inability to claim contributions as a tax deduction as the downside to Roth IRAs, others argue that not having to pay taxes on your distributions is the upside to that later on. Perhaps the best way of looking at this feature is that retirees may leave their heirs tax-free funds, which may be particularly important for some people. Income, though, may be the most important factor in opening a Roth IRA later in life, as some individuals don’t earn more until they are older. It may not be until an older age that an individual has the extra income that they can now invest, especially once the mortgage is paid or their children are independent. Many find themselves in the unfortunate position of not having saved up what they’ll need, and so they’ll want to make the most of their earnings while they can; that’s when a Roth IRA can help.

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The best thing to do when it comes to retirement planning is to start early, but because of various situations, this isn’t always possible for everyone. Even if an individual has been saving or has a decent 401(k) plan through their job, opening a Roth IRA at a later time can help many people plan on having extra funds during their retirement years. Insureyouknow.org can help you store all your retirement plans in one place so that your retirement accounts and other finances are easy to access and can be updated regularly. This way, you can focus on earning and enjoying your funds both now and later in life.

Scammer on the Rise: How to Protect Yourself in Retirement

June 1, 2023

A change in your retirement savings balance could be the result of recent stock market volatility, or because your account has been accessed by someone else and compromised. The National Association of Plan Advisors reported that hackers have been targeting retirement accounts, either through large-scale attacks on financial institutions or by using stolen personal information. Bryce Austin with TCE Strategy said that a hacker can get into your 401(k) two ways, either by “retrieving your credentials with the financial institution” and pretending to be you or by convincing you to do it “on their behalf.” Scammers have been known to contact people posing as the police, claiming that their funds are at risk and convincing them to transfer their retirement money into a “safer” account. If someone does so, then there’s no legal recourse, because they are doing so deliberately; the savings are “just gone,” Austin said. It’s important that retirees are aware of this trend and make sure that their accounts are secure.

Set Up Online Access to Your Accounts

First, make sure that you have online access to all of your retirement accounts. This will allow you to monitor your own accounts regularly. If you ever notice any unusual activity or changes that you have not made yourself, contact the institution immediately. Some firms will not reimburse account holders for fraudulent transactions if they aren’t reported during a certain time frame. Establishing online access also prevents someone else from doing so before you can, since thieves have been known to use stolen information to access and retrieve funds. Create your own Social Security account at ssa.gov while you’re at it, so that hackers don’t divert your Social Security benefits to their own accounts. When out and about, do not use public WiFi connections to check your accounts. Unfortunately, hackers can access these networks and steal your personal information by viewing your online activity.

Access your Accounts Safely

Once you have access to your accounts online, make sure you use a strong password and change it regularly. Your password should be something that a hacker cannot easily guess, such as your or a loved one’s birthday. Next, use multi-factor authentication if your institutions offer this step. Requiring multiple verifications to access your account can stop thieves in their tracks, as well as alert you if someone else is trying to access your account. If you are able to, financial author Cameron Huddleston suggests naming a trusted contact. A trusted contact cannot access your account, but your institution can contact them and make sure that it is actually you who is trying to access your funds.

Periodically Check Your Credit Reports

In addition to monitoring your own accounts, checking your credit reports regularly is one more easy thing you can do to catch any unusual activity on your accounts. A credit report shows all accounts that you have opened, balances, and can even find data breaches. A data breach can compromise your personal information and alert you to change your passwords or close a compromised account. A sudden fluctuation in your credit score can also be a sign that something isn’t right.

How to Recognize (and Avoid) a Scam

If you receive a suspicious phone call, text message, email, social media message, or letter that doesn’t seem right, then trust your gut. The caller or sender may not be who they say they are and it’s likely a scam. If you want to be sure, then you can call the company’s customer service line and verify that they meant to contact you. No matter how official the message may seem, that doesn’t mean it’s authentic. Many scammers pretend to be from the Social Security Administration, Medicare, IRS, or credit card companies. Lawyer and author Steve Weisman says, “The IRS and the SSA will never initiate contact with people through a phone call, so you can be sure that the person calling you is a scammer.” The same goes for Medicare. Your Medicare number is valuable and can enable a criminal to steal health benefits, so if anyone is asking you for your Medicare number, then this is a sure red flag that they are a scammer.

Perhaps the number one rule for protecting yourself against a scam is to never provide anyone with personal information without verifying their true identity. Again, this can be done by hanging up or ignoring the message and calling the company directly. Also, be mindful of your mail. Any documents with sensitive information should be shredded, and if anyone else is retrieving your mail, make sure they are someone you trust. Opting for paperless statements is another safeguard against anyone stealing personal information via your mail.

Anyone who is trying to rush you into making an important financial decision likely does not have your best interests at heart. It’s important to research any company that you plan to invest with. Before buying stocks, you can even check the SEC’s EDGAR database. Be especially skeptical of anyone who is pitching something in a time-sensitive manner, such as a “once in a lifetime opportunity.” A true financial advisor will respect your desire to think it over and even encourage you to do so. Before making any important financial decisions, it’s not a bad idea to refer to a trusted professional anyway. That being said, anyone telling you to “leave everything to me” may not deserve that much of your trust. At the end of the day, you should always be your own expert on your retirement and finances. 

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The best defense against retirement theft is your willingness to take a few extra steps to protect your accounts, such as using multi-factor authentication and monitoring your own accounts on a regular basis. Most of all, remain diligent about who you’re providing sensitive personal information to. These are simple ways to protect your nest egg and gain valuable peace of mind. Insureyouknow.org can help you store all of your financial information in one place so that your retirement accounts and other finances are easy to monitor. Then you can get back to worrying about what’s really important, such as how you’ll be enjoying your retirement.

The Lowdown on the Banking Crisis and What it Means for Retirees

May 15, 2023

In the midst of the Great Retirement, an excess of 2.6 million retirees left the workforce during the pandemic. “A lot of people had reasons to retire and the way markets evolved allowed them to,” says research economist Miguel Faria-E-Castro. While health and safety concerns were very real for many, others chose to leave early because of changing work environments or needing to become full time caregivers; others simply took advantage of rising asset values.

The pandemic isn’t solely to blame for the influx of retirees, though. The Employee Benefit Research Institute regularly finds that many Americans end up retiring earlier than planned. Whether you’ve already retired or intend to soon, it may be important to factor the recent banking crisis into your planning.

Understanding the Banking Crisis

In March 2023, the United States’ Silicon Valley Bank (SVB) suddenly collapsed, mainly in part due to a bank run, when their customers rushed to withdraw their funds over panic due to the bank’s loss of stocks. The failure of this California-based bank raised concerns for Americans about the financial health of their own assets, even though the Federal Reserve, Treasury department, and FDIC moved quickly to ensure that all depositors would have full access to their funds, a move meant to calm fears of a full market collapse. Financial experts believe that because of these unprecedented actions, the failure of SVB does not pose a threat to the financial market at this time.

While deposits of up to $250,000 are FDIC insured, many people are wondering if their 401(k) is protected, and the short answer is: It depends. If your 401(k) is uninsured and invested in “stocks, bonds, or mutual funds, you’re not covered against those investments losing value,” then your funds are not protected under the FDIC guarantee, according to finance professor Valentina Bruno. Retirement plans that the FDIC does cover include IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs, up to $250,000, but if you had more than one of these (each valued at over $250,000) at the same banking institution, then only one of them would be insured. This is why it may be a good idea to spread your assets out over different institutions.

Planning for Retirement

If you haven’t retired yet, hopefully you’ve begun planning and saving already, because the earlier you start, the more time your money has to grow. If you’re offered a 401(k) retirement plan through employment, it’s important to take advantage and get enrolled. Even better, if the plan allows you to make contributions, do so and you’ll be rewarded with lower taxes at the end of the year. The biggest mistake people make, according to financial expert Jim Yih, is starting too late. “All my clients, no matter how much they have saved, say they wish they’d started earlier.” Yih’s first recommendation is to put away 10 percent of your gross income, starting as soon as you can.

Become the Expert of Your Retirement

While learning all about retirement plans may be intimidating, many financial advisors actually recommend becoming an expert of your own retirement options. If you are not offered a 401(k) through employment, there are other options, including an IRA, which is a plan that you would open yourself through a broker or other provider. Since there are many types of IRA accounts, the most common being a Traditional or Roth IRA, it’s important to learn about the different conditions of each account before deciding which is the best fit for you. Financial author Liz Weston encourages everyone “to consult a fee-only financial planner or accredited financial counselor if at all possible before retiring, simply because there are so many decisions that have to be made.”

No matter the kind of account you choose, the first step is to determine how much money you’ll need when you retire. Experts advise replacing 70 to 90% of your annual pre-retirement income through Social Security and savings. The next step is to determine what your financial goals are now, such as paying off a mortgage or other debts and saving for your childrens’ college tuition. Factoring in these financial boundaries help put retirement budgets into perspective. Yih warns that, “It’s almost impossible [to do it all] unless you have a big income, and even then, things don’t always work out,” so he tells people to choose two or three focal areas that are most important to them.

Exercising Financial Resilience

In order to increase financial resilience, one must learn to anticipate the unexpected. While 60% of families faced a financial emergency last year, one third faced two. If any of your retirement accounts were affected by the banking crisis, then you may have experienced an unexpected loss firsthand. It’s best to prepare for this and diversify your retirement plan. A good rule is to make sure 80% of your savings are invested in methods that have stood the test of time, while 20% of your funds are involved in higher-risk investments.

Live Your Best Retired Life

Thanks to Social Security, whatever your retirement accounts are, you can still plan on collecting something after the age of 65. This also means that if you were affected by the banking crisis and are 65 or older, then you can still count on these benefits. If you intend to retire earlier than 65, then you want to include this factor in your planning. For instance, how much money will you need to carry health insurance before you’re eligible for Medicaid at 65? Since “Social Security is guaranteed income that is adjusted for inflation,” Weston advises delaying Social Security benefits for as long as you can.

Consider part-time work, not just for the supplementary income it will provide, but for the purpose it will likely bring to your life. The lifestyle component of your retirement is as important as having enough money to retire. “The most successful retirees are not the ones with the most money. The busiest retirees are the most successful ones,” says Yih.

Planning for retirement and financial resilience can provide peace of mind and allow you to focus on what really matters. The resolve you’ll feel after tackling financial planning is priceless. Insureyouknow.org can help you store all of your financial information in one place so that your retirement planning remains organized. Plus, when everything is easy to assess, periodically reassessing your finances when circumstances change becomes painless and straightforward.