Retirement

Maximizing Small-Business Tax Deductions

Maximizing small-business tax deductions

How small-business owners can take advantage of Section 199A

The Tax Cuts and Jobs Act (TCJA) passed in December 2017 offers a wealth of opportunities to small-business owners. Among the most notable provisions is Section 199A, which provides for qualified business income (QBI) deductions. These deductions are available to taxpayers who are not corporations, including S corporations, partnerships, sole proprietorships and rental properties.

While Section 199A provides a huge tax break for small-business owners, determining who is qualified can be complicated. In addition to eligibility requirements, there are income thresholds after which deductions are phased out. Here’s a look at who is eligible to use Section 199A, as well as strategies business owners above phase-out thresholds can use to recapture QBI deductions. 

Are you eligible?           

In general, small-business owners may qualify for QBI deductions if they meet one of the following criteria:

  •  No matter the type of business, if a business owner’s taxable income falls below $157,500 for single filers or $315,000 for joint filers, that business owner is eligible for a QBI deduction. That deduction is equal to the smaller of 20% of their qualified business income or 20% or their taxable income.

  • Businesses that offer specified service—such as lawyers, accountants, athletes, financial services, consultants, doctors, performing artists, and others with jobs based on reputation or skill—may have deductions phased out if they make too much money. If your income is above $207,500 for single filers or $415,000 for joint filers, you can no longer claim the QBI deduction.

  • If you own a business that is not a service business or a specialized trade, the QBI deduction is partially phased out if your taxable income is above $157,500 for single filers or $315,000 for joint filers. The deduction is limited to the lesser of either 20% of qualified business income or the greater of the following: 50% of W-2 wages paid, or the sum of 25% of W-2 wages paid by the business generating the income plus 2.5% times the cost of depreciable assets

The retirement solution

If your income is above the phase-out limits, you can preserve your full deduction by making smart use of retirement plans. Here’s a look at a few examples of ways to strategically employ retirement plans to reduce your income and recapture a QBI deduction:

Example 1: A couple, age 50, with a specified service business

A couple, each 50 years old, has a specific service business in the form of an S corp that pays W-2 wages of $146,000 and pass-through income of $254,000, for a total income of $400,000. The couple claims the standard deduction of $24,000, making their adjusted gross income $376,000. Because of their high earnings, the couple’s QBI deduction is only $19,812 due to QBI phase-outs. Their total income is  $356,188.

The couple can capture their full QBI deduction by setting up and funding a 401(k) plan. They can set up an individual 401(k) plan, deferring $24,500 as an employee contribution and contributing 25% of salary, or $36,500, as a profit sharing contribution. The deferral and profit sharing max out their individual 401(k) plan with a total contribution of $61,000. In this way, their W-2 wages are reduced to $121,500, and their pass-through income is reduced to $217,500 after the profit sharing contribution. Their total income after the standard deduction is $315,000.

As a result, the couple can claim their full QBI deduction of $43,500 (20% of 217,500), and their income is now $271,500. With a $61,000 contribution to a 401(k), the couple was able to effectively reduce their income by $84,688. In other words, this couple was able to get 1.39 times the income reduction for every dollar they contributed to a retirement plan. 

Example 2: A couple, age 55, with a higher-income specified service business,

Business owners who earn higher income may need to deploy additional retirement plans to capture their QBI deduction. Consider an S corp that pays W-2 wages of $146,000 to the couple, and pass-through income of $317,500 for a total income of $463,500. They claim the standard deduction of $24,000 and their adjusted gross income becomes $439,500. The couple does not receive a QBI deduction because their high income results in a complete phase-out. Their total income therefore remains $439,500.

However, this couple can still take advantage of a QBI deduction by setting up an individual 401(k) plan and deferring $24,500 as an employee contribution. They also can add a defined benefit (DB) plan or a cash balance (CB) plan and contribute even more to a retirement plan. Suppose they set up a DB or a CB plan and the actuaries calculated they could contribute $100,000 to the plan for a total combined contribution of $124,500. In this case, their W-2 wages are reduced to $121,500 and their pass thru income is $217,500.

The couple’s total income after the standard deduction is $315,000. Their QBI deduction is $43,500 (20% of $217,500) and their income is now $271,500. With $124,500 in contributions to their individual 401(k) plan and DB or CB plan the couple received a $168,000 income reduction. This couple was able to get 1.35 times of income reduction for every dollar they contributed to a retirement plan.  

This material is for educational purposes and is not intended to provide tax advice. Talk to your tax professional to find out how QBI deductions may apply to your financial situation.

To learn more about how to maximize your QBI deduction, please email us at rpyle@diversifiedassetmanagement.com or call (303) 440-2906.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice

Solve the Self-Employed Retirement Dilemma

 

Solve the Self-Employed Retirement Dilemma

Here’s how to figure out the best retirement plan for your situation

The challenges of self-employment seem endless. You are your own chief marketing officer, chief financial officer, chief executive and junior assistant. With all of the roles you play, it’s no wonder that you haven’t spent much time planning for retirement.

The good news is that the right retirement plan can address more than just your retirement—it can help lower your taxes and reduce the need to rely on a welfare system in your retirement years. And you don’t have to search alone for that plan: Your financial advisor can help you weigh your plan options and build an appropriate investment strategy once you choose a plan. And your accountant can calculate the potential tax savings this new retirement plan will generate.

So which plan is right for you? The first option you should consider is an IRA or a Roth IRA. Both offer tax advantaged growth, but in different ways: The IRA grows tax deferred, meaning your contributions are tax deductible but you won’t owe taxes on your savings until you start making withdrawals. Contributions to a Roth IRA are made after taxes, but you won’t owe any taxes when you take withdrawals.

Anyone can contribute to an IRA, but not everyone is allowed to make tax deductible contributions. For instance, if you already have a retirement plan in place, your contributions likely won’t be deductible. But if you have a retirement plan, you may still be able to contribute to a Roth IRA, which bases eligibility on income levels. (In 2018, the Roth IRA income eligibility limits phase out between $120,000 and $135,000 for single filers and eligibility limits phase out between $189,000 and $199,000 for married couples filing jointly.) For 2018, individuals can make annual contributions of up to $5,500 to both IRAs and Roth IRAs. If you’re over 50, your limit rises to $6,500 a year thanks to an extra $1,000 in catch-up contributions allowed for older individuals.

If you want to save more than an IRA or Roth IRA allows, consider a formal retirement plan such as a Simple IRA, SEP IRA or an Individual 401(k).

  • The Simple IRA is easy to establish. You can contribute a maximum of $12,500 annually if you are under 50 and $15,500 if you are over 50. In addition, you can contribute 3% of any W-2 wages. One note: The deadline to establish a Simple IRA is October 31, so don’t wait until the end of the year to open an account.
  • The next option is a SEP IRA. The annual limit for a SEP IRA is $55,000 or 25% of self-employment income if you are paying yourself a salary. The deadline to establish the SEP IRA is your tax filing deadline plus extensions. Therefore, you can put off starting a SEP IRA until well into 2019. For that reason we call it “the procrastinator’s retirement plan.”
  • The third option is the Individual 401(k). The annual contribution limit for this 401(k) is $55,000 if you are under 50 and $61,000 if you are over 50. The 401(k) can either be a traditional 401(k) (contributions are pre-tax, but withdrawals are taxed) or a Roth 401(k) (contributions are after tax money, but withdrawals are tax free).
  • There are no income limits for the Roth 401(k). The deferral is made up of two parts. The first part is the employee portion, which has a limit of $18,500 if you are under 50 and $24,500 if you are over 50. This deferral can either go into the 401(k), the Roth 401(k) or a combination of both. The remainder is the employer contribution, which has a limit of 25% of compensation.
  • The deadline to establish this plan is December 31 of this year. The employer contributions can be contributed later but employee deferrals need to be in as soon as they are withheld from your paycheck. Therefore, you can’t wait like the SEP.

How do these plans stack up? Let’s look at an example. Say you are self-employed and you pay yourself $50,000 in W-2 salary. Here are the limits for each plan.

Retirement Plan summary.PNG

What’s the verdict? The 401(k) is the big winner. The Simple IRA is a good option for those with lower incomes, while the SEP is good for those who tend to procrastinate.

If these contribution limits are not enough, then you might want to consider a Defined Benefit Plan, which can be paired with a 401(k). Contribution limits to Defined Benefit plans are based on actuarial calculations, but you could be able to contribute $200,000 or more each year.

As always, it is important to coordinate with your financial professional to see what plan is best for you. Please contact me if you’d like to explore your retirement savings options.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice

Diversified Asset Management, Inc. - 2018 3rd Quarter Newsletter

New Ways To Influence The Next Generation

The Tax Cuts And Jobs Act of 2018 (TCJA) gives you more good reasons to help you children, grandchildren, great nieces and nephews. Any amount you give to a 529 account that's used to pay for qualified expenses for college as well as private or religious schooling before college is deductible. With tax reform eliminating all or a large chunk of state income-tax deductions for many individuals in 2018, giving to a 529 lightens your state income-tax load while perhaps changing a life of a family member or friend and influencing their values.

Are You “Rich” Or Not? New Survey Hits The High Points

Do you consider yourself rich? If you own a couple of mansions, a fleet of luxury cars, and financial accounts reaching high into the millions, it may be easy to answer that question. But other well-to-do people might struggle with the issue of whether they are "rich" or not. 

New Deduction Rules For Business Owners

If you are a small business owner, Washington, D.C. has changed tax rules to lower your burden but the new rules are fairly complex. Many small businesses, and some that aren't so small, are "pass-through companies," tax-jargon that means the entity's net income isn't taxed at the corporate level but flows straight to their owners' personal returns. That income is taxed at personal income tax rates, as opposed to corporate rates that are generally lower.

Five Retirement Questions To Answer

How much money do you need to save to live comfortably in retirement? Some experts base estimates on multiple of your current salary or income, while others focus on a flat amount such as a million dollars. Either way, the task can be daunting.

A Guide To The New Rules On Tax Deductions In 2018

Uncle Sam giveth, and Uncle Sam taketh away. New federal tax code, which went into effect in 2018 and affects the return you'll file in spring 2019, lowers taxes by expanding some deductions, but restricts or outright eliminates others.

Giving More To Loved Ones – Tax-Free

While it may be better to give than to receive, as the adage contends, both givers and receivers should be happy with the new tax law. The annual amount you can give someone tax-free has been raised to $15,000, from $14,000 in 2017.

To read the newsletter click on the link below:

Diversified Asset Management, Inc. - 2018 3rd Quarter Newsletter

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Flash Report - The Road to Longevity: Living to 120—and Beyond?

Medical technology can now identify risk factors in the human body long before they impact your health.

A medical revolution is underway—one that’s making it possible for us to extend our lives for decades by stopping now-fatal diseases before they can take hold of our bodies. In the coming years, we’ll not only be able to live longer, but also have fuller lives characterized by enduring physical mobility and mental sharpness.

Here’s a closer look at the personal longevity revolution—and what it could mean to you and your family as you seek to live your best life.

Stop disease before it starts: the power of biomarkers and genomes

Perhaps the most interesting component of longevity care is the role of biomarkers in understanding genomic risk and promoting long-term health.

Biomarkers are biological data points that reveal the current physical state of affairs of a particular condition. Most biomarkers are blood tests for future risk, but they also might include other health data points like a calcium score or even simpler values like heart rhythm and blood pressure.

 

Click here to read more:

The Road to Longevity Living to 120—and Beyond-Flash Report

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Contribution Limits to 401K

Here is a nice article provided by Kimberly Lankford of Kiplinger:

 

By Kimberly Lankford, Contributing Editor   

 

September 6, 2017

 

Now is a good time to review your 401(k) contributions to make sure you're getting your employer's full match. 

 

Q. I've been contributing to my 401(k), and my employer matches a portion of my contributions. Does the $18,000 maximum for contributions include the employer match, or does it apply only to my individual contributions? Is it too late to increase my contributions to get the full employer match by the end of the year?

 

A. The $18,000 maximum (or $24,000, if you're age 50 or older) applies only to your contributions. The overall maximum for 2017, which includes the employer match, is $54,000 ($60,000 if you're 50 or older), even though it would be very unusual for your employer to add that much money to your account.

 

Match calculations vary by 401(k) plan. But the average match in plans administered by Fidelity Investments is 4.5% of a worker's pay. This is a great time of year to review your 401(k) contributions and make sure you're getting as much money as possible from your employer. About 20% of people don't contribute enough to get the full match, says Fidelity's Meghan Murphy.

 

The procedures for changing your contributions vary by plan, but you can usually make revisions online or by calling the plan administrator at any time. Your new contribution level will generally take effect within two pay periods, says Murphy. Find out how your employer calculates the match before deciding how to boost your contributions. Some limit how much they'll match per pay period, so if you add a lot of money all at once, you may not get the full match. In that case, you should spread your extra contributions out over the rest of the year.

 

Be careful not to contribute more than the annual limit. Your plan administrator usually tracks the amount you contribute for the year, so that you don't accidentally cross the limit when you boost the money you put in. But it's a good idea to keep track of the amount yourself, too. And it's particularly important to monitor contributions if you've changed jobs in 2017 and your new plan administrator doesn't know how much you've put away in your old employer's plan for the year.

 

This is also a good time to make sure you're taking advantage of catch-up contributions if you're 50 or older. You can contribute up to an extra $6,000 anytime in the year you turn 50. No need to wait until your birthday.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

10 Things You Must Know About Medicare

Here is a nice article provided by the Editors of Kiplinger’s Retirement Report:

 

By the Editors of Kiplinger’s Retirement Report | Updated May 2017

 

Heading into your retirement years brings a slew of new topics to grapple with, and one of the most maddening may be Medicare. Figuring out when to enroll, what to enroll in and what coverage will be best for you can be daunting. To help you wade easily into the waters, here are ten essential things you need to know about Medicare.

 

Medicare Comes With a Cost

Medicare is divided into parts. Part A, which pays for hospital services, is free if either you or your spouse paid Medicare payroll taxes for at least ten years. (People who aren't eligible for free Part A can pay a monthly premium of several hundred dollars.) Part B covers doctor visits and outpatient services, and it comes with a monthly price tag -- for most people in 2017, that monthly cost is about $109. New enrollees pay $134 per month. Part D, which covers prescription drug costs, also has a monthly charge that varies depending on which plan you choose; the average Part D premium is $34 a month. In addition to premium costs, you'll also be subject to co-payments, deductibles and other out-of-pocket costs.

 

You Can Fill the Gap

Beneficiaries of traditional Medicare will likely want to sign up for a medigap supplemental insurance plan offered by private insurance companies to help cover deductibles, co-payments and other gaps. You can switch medigap plans at any time, but you could be charged more or denied coverage based on your health if you choose or change plans more than six months after you first signed up for Part B. Medigap policies are identified by letters A through N. Each policy that goes by the same letter must offer the same basic benefits, and usually the only difference between same-letter policies is the cost. Plan F is the most popular policy because of its comprehensive coverage. A 65-year-old man could pay from $1,067 to $6,772 in 2017 for Plan F depending on the insurer, according to Weiss Ratings.

 

There Is an All-in-One Option

You can choose to sign up for traditional Medicare -- Parts A, B and D, and a supplemental medigap policy. Or you can go an alternative route by signing up for Medicare Advantage, which provides medical and prescription drug coverage through private insurance companies. Also called Part C, Medicare Advantage has a monthly cost, in addition to the Part B premium, that varies depending on which plan you choose. With Medicare Advantage, you don't need to sign up for Part D or buy a medigap policy. Like traditional Medicare, you'll also be subject to co-payments, deductibles and other out-of-pocket costs, although the total costs tend to be lower than for traditional Medicare. In many cases, Advantage policies charge lower premiums but have higher cost-sharing. Your choice of providers may be more limited with Medicare Advantage than with traditional Medicare.

 

High Incomers Pay More

If you choose traditional Medicare and your income is above a certain threshold, you'll pay more for Parts B and D. Premiums for both parts can come with a surcharge when your adjusted gross income (plus tax-exempt interest) is more than $85,000 if you are single or $170,000 if married filing jointly. In 2017, high earners pay $187.50 to $428.60 per month for Part B, depending on their income level, and they also pay extra for Part D coverage, from $13.30 to $76.20 on top of their regular premiums.

 

When to Sign Up

You are eligible for Medicare when you turn 65.

If you are already taking Social Security benefits, you will be automatically enrolled in Parts A and B. You can choose to turn down Part B, since it has a monthly cost; if you keep it, the cost will be deducted from Social Security if you already claimed benefits.

For those who have not started Social Security, you will have to sign yourself up for Parts A and B. The seven-month initial enrollment period begins three months before the month you turn 65 and ends three months after your birthday month. To ensure coverage starts by the time you turn 65, sign up in the first three months.

If you are still working and have health insurance through your employer (or if you’re covered by your working spouse’s employer coverage)you may be able to delay signing up for Medicare. But you will need to follow the rules, and must sign up for Medicare within eight months of losing your employer’s coverage, to avoid significant penalties when you do eventually enroll. (See also: FAQs About Medicare.)

 

A Quartet of Enrollment Periods

There are several enrollment periods, in addition to the seven-month initial enrollment period. If you missed signing up for Part B during that initial enrollment period and you aren't working (or aren’t covered by your spouse’s employer coverage), you can sign up for Part B during the general enrollment period that runs from January 1 to March 31 and coverage will begin on July 1. But you will have to pay a 10% penalty for life for each 12-month period you delay in signing up for Part B. Those who are covered by a current employer’s plan, though, can sign up later without penalty during a special enrollment period, which lasts for eight months after you lose that employer coverage (regardless of whether you have retiree health benefits or COBRA). If you miss your special enrollment period, you will need to wait to the general enrollment period to sign up. Open enrollment, which runs from October 15 to December 7 every year, allows you to change Part D plans or Medic are Advantage plans for the following year, if you choose to do so. (People can now change Medicare Advantage plans outside of open enrollment if they switch into a plan given a five-star quality rating by the government.)

 

Costs in the Doughnut Hole Shrinking

One cost for Medicare is decreasing -- the dreaded Part D "doughnut hole." That is the period during which you must pay out of pocket for your drugs. For 2017, the coverage gap begins when a beneficiary's total drug costs reach $3,700. While in the doughnut hole, you’ll receive a 60% discount on brand-name drugs and a 49% federal subsidy for generic drugs in 2017. Catastrophic coverage, with the government picking up most costs, begins when a patient's out-of-pocket costs reach $4,950.

 

You Get More Free Preventive Services

Medicare beneficiaries can receive a number of free preventive services. You get an annual free "wellness" visit to develop or update a personalized prevention plan. Beneficiaries also get a free cardiovascular screening every five years, annual mammograms, annual flu shots, and screenings for cervical, prostate and colorectal cancers.

 

What Medicare Does Not Cover

While Medicare covers your health care, it generally does not cover long-term care -- an important distinction. Under certain conditions, particularly after a hospitalization to treat an acute-care episode, Medicare will pay for medically necessary skilled-nursing facility or home health care. But Medicare generally does not cover costs for "custodial care" -- that is, care that helps you with activities of daily living, such as dressing and bathing. To cover those costs, you will have to pay out of pocket or have long-term-care insurance. Traditional Medicare also does not cover routine dental or eye care and some items such as dentures or hearing aids. For more on tests, items or services that Medicare doesn't cover, check www.medicare.gov/coverage/your-medicare-coverage.html.

 

You Have the Right to Appeal

If you disagree with a coverage or payment decision made by Medicare or a Medicare health plan, you can file an appeal. The appeals process has five levels, and you can generally go up a level if your appeal is denied at a previous level. Gather any information that may help your case from your doctor, health care provider or supplier. If you think your health would be seriously harmed by waiting for a decision, you can ask for a fast decision to be made and if your doctor or Medicare plan agrees, the plan must make a decision within 72 hours.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Tax Strategies for Retirees

Nothing in life is certain except death and taxes. —Benjamin Franklin

That saying still rings true roughly 300 years after the former statesman coined it. Yet, by formulating a tax-efficient investment and distribution strategy, retirees may keep more of their hard-earned assets for themselves and their heirs. Here are a few suggestions for effective money management during your later years.

Less Taxing Investments

Municipal bonds, or "munis" have long been appreciated by retirees seeking a haven from taxes and stock market volatility. In general, the interest paid on municipal bonds is exempt from federal taxes and sometimes state and local taxes as well (see table).1 The higher your tax bracket, the more you may benefit from investing in munis.

Also, consider investing in tax-managed mutual funds. Managers of these funds pursue tax efficiency by employing a number of strategies. For insta nce, they might limit the number of times they trade investments within a fund or sell securities at a loss to offset portfolio gains. Equity index funds may also be more tax-efficient than actively managed stock funds due to a potentially lower investment turnover rate.

It's also important to review which types of securities are held in taxable versus tax-deferred accounts. Why? Because the maximum federal tax rate on some dividend-producing investments and long-term capital gains is 20%.* In light of this, many financial experts recommend keeping real estate investment trusts (REITs), high-yield bonds, and high-turnover stock mutual funds in tax-deferred accounts. Low-turnover stock funds, municipal bonds, and growth or value stocks may be more appropriate for taxable accounts.

The Tax-Exempt Advantage: When Less May Yield More

Taxes.png

Which Securities to Tap First?

Another major decision facing retirees is when to liquidate various types of assets. The advantage of holding on to tax-deferred investments is that they compound on a before-tax basis and therefore have greater earning potential than their taxable counterparts.

On the other hand, you'll need to consider that qualified withdrawals from tax-deferred investments are taxed at ordinary federal income tax rates of up to 39.6%, while distributions—in the form of capital gains or dividends—from investments in taxable accounts are taxed at a maximum 20%.* (Capital gains on investments held for less than a year are taxed at regular income tax rates.)

For this reason, it's beneficial to hold securities in taxable accounts long enough to qualify for the favorable long-term rate. And, when choosing between tapping capital gains versus dividends, long-t erm capital gains are more attractive from an estate planning perspective because you get a step-up in basis on appreciated assets at death.

It also makes sense to take a long view with regard to tapping tax-deferred accounts. Keep in mind, however, the deadline for taking annual required minimum distributions (RMDs).

The Ins and Outs of RMDs

The IRS mandates that you begin taking an annual RMD from traditional IRAs and employer-sponsored retirement plans after you reach age 70½. The premise behind the RMD rule is simple—the longer you are expected to live, the less the IRS requires you to withdraw (and pay taxes on) each year.

RMDs are now based on a uniform table, which takes into consideration the participant's and beneficiary's lifetimes, based on the participant's age. Failure to take the RMD can result in a tax penalty equal to 50% of the required amount. TIP: If you'll be pushed into a higher tax bracket at age 70½ due to the RMD rule, it may pay to begin taking withdrawals during your sixties.

Unlike traditional IRAs, Roth IRAs do not require you to begin taking distributions by age 70½.2 In fact, you're never required to take distributions from your Roth IRA, and qualified withdrawals are tax free.2 For this reason, you may wish to liquidate investments in a Roth IRA after you've exhausted other sources of income. Be aware, however, that your beneficiaries will be required to take RMDs after your death.

Estate Planning and Gifting

There are various ways to make the tax payments on your assets easier for heirs to handle. Careful selection of beneficiaries of your money accounts is one example. If you do not name a beneficiary, your assets could end up in probate, and your beneficiaries could be taking distributions faster than they expected. In most cases, spousal beneficiaries are ideal, because they have several options that aren't available to oth er beneficiaries, including the marital deduction for the federal estate tax.

Also, consider transferring assets into an irrevocable trust if you're close to the threshold for owing estate taxes. In 2016, the federal estate tax applies to all estate assets over $5.45 million. Assets in an irrevocable trust are passed on free of estate taxes, saving heirs thousands of dollars. TIP: If you plan on moving assets from tax-deferred accounts, do so before you reach age 70½, when RMDs must begin.

Finally, if you have a taxable estate, you can give up to $14,000 per individual ($28,000 per married couple) each year to anyone tax free. Also, consider making gifts to children over age 14, as dividends may be taxed—or gains tapped—at much lower tax rates than those that apply to adults. TIP: Some people choose to transfer appreciated securities to custodial accounts (UTMAs and UGMAs) to help save for a grandchild's higher education expenses.

Strategies for mak ing the most of your money and reducing taxes are complex. Your best recourse? Plan ahead and consider meeting with a competent tax advisor, an estate attorney, and a financial professional to help you sort through your options.

Source(s):

1.  Capital gains from municipal bonds are taxable and interest income may be subject to the alternative minimum tax.

2.  Withdrawals prior to age 59½ are generally subject to a 10% additional tax.

*Income from investment assets may be subject to an additional 3.8% Medicare tax, applicable to single-filer taxpayers with modified adjusted gross income of over $200,000, and $250,000 for joint filers.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for com pensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other co ntent should not be construed as investment, legal, accounting or tax advice.

Frequently Asked Retirement Income Questions

When should I begin thinking about tapping my retirement assets and how should I go about doing so?

The answer to this question depends on when you expect to retire. Assuming you expect to retire between the ages of 62 and 67, you may want to begin the planning process in your mid- to late 50s. A series of meetings with a financial advisor may help you make important decisions such as how your portfolio should be invested, when you can afford to retire, and how much you will be able to withdraw annually for living expenses. If you anticipate retiring earlier, or enjoying a longer working life, you may need to alter your planning threshold accordingly.

How much annual income am I likely to need?

While studies indicate that many people are likely to need between 60% and 80% of their final working year's income to maintain their lifestyle after retiring, low-income and wealthy retirees may need closer to 90%. Because of the declining availability of traditional pensions and increasing financial stresses on Social Security, future retirees may have to rely more on income generated by personal investments than today's retirees.

How much can I afford to withdraw from my assets for annual living expenses?

As you age, your financial affairs won't remain static: Changes in inflation, investment returns, your desired lifestyle, and your life expectancy are important contributing factors. You may want to err on the side of caution and choose an annual withdrawal rate somewhat below 5%; of course, this depends on how much you have in your overall portfolio and how much you will need on a regular basis. The best way to target a withdrawal rate is to meet one-on-one with a qualified financial advisor and review your personal situation.

When planning portfolio withdrawals, is there a preferred strategy for which accounts are tappe d first?

You may want to consider tapping taxable accounts first to maintain the tax benefits of your tax-deferred retirement accounts. If your expected dividends and interest payments from taxable accounts are not enough to meet your cash flow needs, you may want to consider liquidating certain assets. Selling losing positions in taxable accounts may allow you to offset current or future gains for tax purposes. Also, to maintain your target asset allocation, consider whether you should liquidate overweighted asset classes. Another potential strategy may be to consider withdrawing assets from tax-deferred accounts to which nondeductible contributions have been made, such as after-tax contributions to a 401(k) plan.

If you maintain a traditional IRA, a 401(k), 403(b), or 457 plan, in most cases, you must begin required minimum distributions (RMDs) after age 70½. The amount of the annual distribution is determined by your life expectancy and, potentiall y, the life expectancy of a beneficiary. RMDs don't apply to Roth IRAs.

Are there other ways of getting income from investments besides liquidating assets?

One such strategy that uses fixed-income investments is bond laddering. A bond ladder is a portfolio of bonds with maturity dates that are evenly staggered so that a constant proportion of the bonds can potentially be redeemed at par value each year. As a portfolio management strategy, bond laddering may help you maintain a relatively consistent stream of income while managing your exposure to risk.1

In addition, many of today's annuities offer optional living benefits that may help an investor capitalize on the market's upside potential while protecting investment principal from market declines and/or providing minimum future income. Keep in mind, however, that riders vary widely, have restrictions, and that additional fees may apply. Your financial advisor can help you determine whether an annuity i s appropriate for your situation.2

When crafting a retirement portfolio, you need to make sure it is positioned to generate enough growth to prevent running out of money during your later years. You may want to maintain an investment mix with the goal of earning returns that exceed the rate of inflation. Dividing your portfolio among stocks, bonds, and cash investments may provide adequate exposure to some growth potential while trying to manage possible market setbacks.

Source(s):

1.  Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise. Bonds are subject to availability and change in price.

2.  Annuity protections and guarantees are based on the claims-paying ability of the issuing insurance company.

Required Attribution

Because of the possibility of human or mechanical error by DST Systems, Inc. or its sources, neither DST Systems, Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall DST Systems, Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content.

© 2017 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or indiv idualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

12 Reasons You Will Go Broke in Retirement

Here is a nice article provided by Stacy Rapacon of Kiplinger:

 

Retirement is a major milestone that brings many life changes. One thing that doesn't change for most people: the fear of running out of money. According to the Transamerica Center for Retirement Studies, the most frequently reported retirement worry is outliving savings and investments. Across all ages, 51% of respondents cited this concern, and 41% of retirees claim the same fear. Additionally, only 46% of retirees think they've built a nest egg large enough to last through retirement.

Now is the time to face your fears. Take a look at a dozen ways you could go broke in retirement and learn how to avoid them. Some you can avert with careful planning; others you have little control over. But you can prepare your finances to make the best of whatever may come.

1.  You Abandon Stocks:

It's true that stocks can be risky. For example, so far in 2016, Standard & Poor's 500-stock index, a benchmark for many investors, has experienced several wild swings, opening with a 5% decline in January and including a headline-grabbing, single-day drop of 3.4% on June 24 in response to the Brexit. So once you're retired, you might be inclined to move your money out of stocks altogether and instead focus on preserving your wealth.

But that would be a mistake. Despite the volatility, the S&P 500 is up about 6% year-to-date, as of mid October 2016. Without stocks, "you don't get the growth that you need," says Carrie Schwab-Pomerantz, senior vice president at Charles Schwab and author of The Charles Schwab Guide to Finances After Fifty. "You need your money to continue to grow through those 20 to 30 years of retirement." She recommends maintaining a stock allocation of at least 20% during retirement for your portfolio to outpace inflation and help maintain your lifestyle.

2.  You invest too much in stocks:

On the other hand, you're right: Stocks are risky. "You don't want to have too much in stocks, especially if you're so reliant on that portfolio, because of the volatility of the market," says Schwab-Pomerantz. There's no one-size-fits-all formula, but for the average investor Schwab-Pomerantz recommends moving to 60% stocks as you approach retirement, then trimming back to 40% stocks in early retirement. Later in retirement, allocate 20% to stocks.

If you're hesitant to make these portfolio adjustments yourself and don't want to work with a financial adviser, consider investing in target-date mutual funds instead. These funds are designed to reduce exposure to stocks gradually over time as you approach (and surpass) your target date for retirement. Not all target-date funds are the same, even if they sport the same retirement target year in their names. Be aware of specific funds' expenses and asset-allocation strategies to ensure they are affordable and fit your needs.

3.  You Live Too Long:

More time to enjoy the life you love is a joy; trying to afford it can be a pain. Current retirees are expecting a long retirement—a median of 28 years, according to the Transamerica Center for Retirement Studies. And 41% of retirees expect their retirements to go on for more than three decades. Women have to plan for an even longer life. According to the Centers for Disease Control and Prevention, a man who was age 65 in 2014 can expect to live to age 83, on average, while a woman of the same age may reach 85.5 years.

When saving for retirement, plan for a long life. But if it starts to look like your nest egg will come up short, you have to adjust your budget. For example, it might behoove you to downsize your home or relocate to an area with low taxes and living costs. You may even consider finding ways to pull in extra income, such as starting an encore career, taking a part-time job or cashing in on the sharing economy, if you can.

4.  You Spend Too Much:

It might seem obvious, but most of us—retired or not—are guilty of making this mistake and could benefit from a reminder to quit it. In fact, according to the Employee Benefit Research Institute, nearly 46% of retired households spent more annually in their first two years of retirement than they did just before retiring.

And retirees on a fixed income are particularly vulnerable to the ill effects of committing this error. "One of the biggest mistakes, I think, is that people continue to spend the way they did in their earning years without taking a close look at their current income," says Schwab-Pomerantz. "For retirees, budgeting is more important than ever." (Use Kiplinger's Household Budgeting Worksheet to get your expenses under control.)

5.  You rely on a single source of income:

Multiple income streams are better than one, especially in retirement. Case in point: Social Security is the primary source of income for 61% of retirees, according to the Transamerica Center for Retirement Studies. And 44% of retirees report that one of their biggest financial fears is that Social Security will be reduced or cease to exist in the future. Based on current projections, Social Security will only be able to pay 77% of promised retirement benefits beginning in 2035.

A pension, which 42% of retirees use as a source of income, or inheritance likely can't stand alone to support you through retirement, either. But when you put them all together, along with your self-funded retirement accounts—such as 401(k)s and IRAs—then you have a more stable and diversified financial base to rely on throughout your retirement.

6.  You can't work:

Another good reason for needing plenty of savings and multiple streams of income to support you in retirement: You can't count on being able to bring in a paycheck if you need it. While 51% of workers expect to continue working some in retirement, only 6% of retirees report working in retirement as a source of income.

Whether you work is not always up to you. In fact, 60% of retirees left the workforce earlier than planned, according to the Transamerica Center for Retirement Studies. Of those, 66% did so because of employment-related issues, including organizational changes at their companies, losing their jobs and taking buyouts. Health-related issues—either their own ill health or that of a loved one—was cited by 37%. Just 16% retired early because they felt they could afford to.

7.  You get sick:

As you age, your health is bound to deteriorate, and getting the proper care is expensive. According to a 2015 report from the Employee Benefit Research Institute, a 65-year-old man would need to save $68,000 to have a 50% chance of affording his health-care expenses in retirement (excluding long-term care) that aren't covered by Medicare or private insurance. To have a 90% chance, the same man would need to save $124,000. The news is worse for a 65-year-old woman, who would need to save $89,000 and $140,000, respectively. Be sure you're doing all you can to cut health-care costs in retirement by considering supplemental medigap and Medicare Advantage plans and reviewing your options every year.

Long-term care bumps up the bill even more. For example, the median cost for adult day health care in the U.S. is $1,473 a month; for a private room in a nursing home, it costs a median of $7,698 a month, according to Genworth. No wonder 44% of retirees fear declining health that requires long-term care and 31% fear cognitive decline, dementia and Alzheimer's disease. Consider getting long-term-care insurance to help cover those costs, and use these tactics to make it affordable.

8.  You tap the wrong retirement accounts:

This mistake probably won't leave you flat broke, but lacking a smart withdrawal strategy can cost you. The most tax-efficient way to go, suggests Schwab-Pomerantz, is to draw down the principal from your maturing bonds and certificates of deposit first, since they are no longer bearing interest. Next, if you're 70½ or older, take your required minimum distributions from your traditional tax-deferred accounts, such as IRAs and 401(k)s, focusing on assets that are overweighted or no longer appropriate for your portfolio. You face a stiff penalty from the IRS for neglecting to take RMDs on time.

Then, sell from your taxable accounts, for which you only have to pay the capital-gains tax. (Note: Retirees in the two lowest income tax brackets pay no tax at all on their capital gains.) Finally, withdraw from your tax-deferred and Roth accounts, in that order.

9.  You don't consider taxes:

Needing to be tax-smart extends beyond your drawdown strategy (see #8). Where you live impacts what you pay in taxes big time. That's part of why so many people flock to Florida and Arizona after they retire. Along with the warm weather and ample sunshine, those states offer two of the country's ten most tax-friendly environments for retirees. Other states with retirement-friendly tax codes include Alaska, Georgia and Nevada.

Of course, taxes alone shouldn't dictate where you live in retirement. Friends, family and other community ties play a major role. But you have to keep state and local taxes in mind (especially sales taxes, property taxes and taxes on retirement income) when planning your budget. Take a look at our state-by-state guide to taxes on retirees for more.

10.  You bankroll the kids:

A mistake made out of love is a mistake all the same. You may feel obligated to assist your children financially—paying for college, contributing to the down payment for a first home and covering them in emergencies, for example. But doing so at the expense of your retirement security may cause bigger problems for both you and your kids in the long run.

"It sounds awful to think a parent won't help [his children], but you're only going to become a drag on your kids eventually if you don't really focus on your own financial security during those later years," says Schwab-Pomerantz. "You gotta take care of yourself first."

11.  You are underinsured:

Cutting costs in retirement is important, but scrimping on insurance might not be the best place to do it. Adequate health coverage, in particular, is essential to prevent a devastating illness or injury from wiping out your nest egg. Medicare Part A, which covers hospital services, is a good start. It’s free to most retirees. But you’ll need to pay extra for Part B (doctor visits and outpatient services) and Part D (prescription drugs). Even then, you’ll probably want a supplemental medigap policy to help cover deductibles, copayments and such. "Medicare is very complex, and it's more expensive than people realize," says Schwab-Pomerantz. "So it definitely needs to be part of the budgeting process."

And don't forget about other forms of insurance. As you age, your chances of having accidents both at home and on the road increase. In fact, according to the Centers for Disease Control and Prevention, an average of 586 adults who are 65 and older are injured every day in car crashes. Beyond your own medical expenses, all it can take is a single adverse ruling in an accident-related lawsuit to drain your retirement savings. Review the liability coverage that you already have through your auto and home policies. If it’s not sufficient, either bump up the limits or invest in a separate umbrella liability policy that will kick in once your primary insurance maxes out. Premiums on a $1 million umbrella policy might run about $300 a year.

12.  You get scammed:

Older adults are particularly vulnerable to scam artists and fraudsters. The FBI notes that seniors are prime targets for such criminals because of their presumed wealth, relatively trusting nature and typical unwillingness to report these crimes. Even worse, the perpetrators may be closer than you think. According to a study from MetLife and the National Committee for the Prevention of Elder Abuse, an estimated one million elders lose $2.6 billion a year due to financial abuse—and family members and caregivers are the perpetrators 55% of the time.

Some common scams to watch out for: Con artists may pretend to represent Medicare to collect your personal information. Cheap prescription drugs marketed online could be knock-offs, and you may be handing over your credit card information in exchange for endangering your health. Charity workers seeking donations for disaster aid might actually pocket the money for themselves. See our advice on how to protect yourself from fraudsters.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

15 Worst States to Live in During Retirement

Here is a nice article provided by Stacy Rapacon of Kiplinger: 


Number crunching alone can't tell you where to retire. That's a choice you'll ultimately need to make on your own. But identifying the places that hold the lowest appeal for retirees can at least help narrow your search.

We rated all 50 states based on quantifiable factors that are important to many retirees. Our rankings penalized states with high living expenses—especially taxes and health care costs—and rewarded states with relatively prosperous populations of residents age 65 and up. We also ranked states lower if their populations are medically unhealthy, or if the state has fiscal health problems (red ink in state budgets could lead to tax hikes and program spending cuts for seniors).

Using our methodology, the following 15 states rank as the least attractive for retirees. That doesn't make them terrible places to live. They might, indeed, be great states in which to work or raise a family. You might even choose to stick around in retirement simply to be close to your grandchildren. But in dollars-and-practical-sense terms, retirees might be better off looking to settle elsewhere.

The average health care cost in retirement of $387,731 we cite is a lifetime cost for a 65-year-old couple who are expected to live to 87 (husband) and 89 (wife). For a complete explanation of our methodology and our data sources, see the Methodology slide at the end of this slide show.

15.  Minnesota

Population: 5.4 million

Share of population 65+: 13.6% (U.S.: 14.5%)

Cost of living: 2% above the U.S. average

Average income for 65+ households: $43,623 (U.S.: $50,291)

Average health care costs for a retired couple: About average at $387,007 (U.S.: $387,731)

Minnesota's tax rating for retirees: Least Tax Friendly

The Land of 10,000 Lakes is a hard place for retirees to stay afloat. Above-average living expenses and below-average incomes can equate to imbalanced budgets in retirement. Plus, the tax situation adds an extra burden. One of the 10 Worst States for Taxes on Retirees, Minnesota taxes Social Security benefits the same as the feds. Most other retirement income, including military, government and private pensions, is also taxable. And the state's sales and income taxes are high.

On the other hand, Minnesota is a great place for health-focused retirees. The state is the third-healthiest in the country for seniors, according to the United Health Foundation rankings, which are based on people's behaviors, such as physical activity, as well as community support and clinical care provided. In fact, Rochester, home of the renowned Mayo Clinic, ranks seventh among the best small metro areas for successful aging, according to the Milken Institute, in part due to its abundance of health care providers.

14.  West Virginia

Population: 1.9 million

Share of population 65+: 16.8%

Cost of living: 3% below the U.S. average

Average income for 65+ households: $38,917

Average health care costs for a retired couple: Below average at $370,403

West Virginia's tax rating for retirees: Tax Friendly

Despite its below-average living costs and positive tax rating, the Mountain State offers some rocky terrain for retirees. According to a recent report from the Mercatus Center at George Mason University, West Virginia ranks as the eighth-worst state in terms of fiscal soundness, indicating low confidence that it can keep up with short-term expenses and long-term financial obligations.

The state also scores poorly for the health of its 65-and-over population, ranking 45th in the country, according to the United Health Foundation. While 41.8% of older adults nationwide enjoy excellent or very good health, only 29.5% of those in West Virginia can say the same.

13.  Maine

Population: 1.3 million

Share of population 65+: 17.0%

Cost of living: 6% above the U.S. average

Average income for 65+ households: $38,504

Average health care costs for a retired couple: Below average at $367,832

Maine's tax rating for retirees: Not Tax Friendly

The Pine Tree State can be a bit prickly when it comes to its retirees. While Social Security benefits are not subject to state taxes, most other retirement income is taxable. There's even an estate tax. Plus, the Mercatus Center at George Mason University ranks Maine as the ninth-worst state in the country in terms of fiscal soundness.

Individuals in the state may have an equally difficult time balancing their own budgets. With below-average household incomes, retirees may struggle to cover Maine's above-average living costs.

12.  Kentucky

Population: 4.4 million

Share of population 65+: 14.0%

Cost of living: 9% below the U.S. average

Average income for 65+ households: $39,935

Average health care costs for a retired couple: About average at $384,317

Kentucky's tax rating for retirees: Tax Friendly

Kentucky seniors suffer the third-worst state of health in the country, according to the United Health Foundation's rankings. Among its challenges are a high rate of smoking, limited access to low-cost, nutritious food, and a low number of quality nursing homes. Also, physical inactivity among residents age 65 and up has increased to 40.2% over the past two years, compared with a national rate of 33.1%.

The Bluegrass State does offer low living costs, as well as a number of tax breaks for retirees. Social Security benefits, as well as up to $41,110 of other retirement income, are exempt from state taxes. However, with a low ranking of 45th in the country for fiscal soundness, those tax benefits may not be very secure. Also, despite the state's overall affordability, plenty of older residents struggle to make ends meet: 11.4% of those age 65 and older are living in poverty, compared with 9.4% for the U.S. as a whole.

11.  Indiana

Population: 6.5 million

Share of population 65+: 13.6%

Cost of living: 4% below the U.S. average

Average income for 65+ households: $39,260

Average health care costs for a retired couple: About average at $388,954

Indiana's tax rating for retirees: Not Tax Friendly

With its below-average living expenses, Indiana might seem like a winner for retirees. But when you consider the well-below-average household income, the older residents of the Hoosier State start looking more like underdogs. And the tax situation doesn't help their cause much. Most retirement income other than Social Security benefits is taxable at ordinary rates.

The state's health ranking is also among the 10 worst in the country. Some of the challenges Indiana's older residents face are high rates of obesity, physical inactivity and premature deaths, according to the United Health Foundation.

10.  Wisconsin

Population: 5.7 million

Share of population 65+: 14.4%

Cost of living: 10% above the U.S. average

Average income for 65+ households: $37,673

Average health care costs for a retired couple: About average at $387,705

Wisconsin's tax rating for retirees: Mixed

High living costs and low average incomes can put a yoke on retirees in Wisconsin. In fact, the state's average household income for seniors is the second-lowest in the country, behind only Montana. The tax situation in the Badger State doesn't help, either. Social Security benefits are exempt from state taxes, but most other retirement income is subject to taxation (though there are some breaks for low-income residents).

If you can afford it, though, the state capital of Madison holds its charms for retirees, offering an abundance of quality health care facilities, as well as plenty of museums, libraries and the University of Wisconsin.

9.  Vermont

Population: 626,358

Share of population 65+: 15.7%

Cost of living: 19% above the U.S. average

Average income for 65+ households: $42,599

Average health care costs for a retired couple: Below average at $373,830

Vermont's tax rating for retirees: Least Tax Friendly

It's not easy being retired in the Green Mountain State. Exorbitantly high living costs and taxes weigh heavily on below-average incomes. Social Security benefits, as well as most other forms of retirement income, are subject to state taxes, and the top income tax rate is a steep 8.95% (which kicks in at $411,500 for both single and married filers).

On a positive note, Vermont boasts the healthiest seniors in the country, according to the United Health Foundation's rankings. Burlington, a small city on the shores of Lake Champlain, rates as a great place to retire thanks to beautiful surroundings that surely help boost physical activity and overall health among the locals.

8.  Montana

Population: 1.0 million

Share of population 65+: 15.7%

Cost of living: 1% above the U.S. average

Average income for 65+ households: $36,933

Average health care costs for a retired couple: Below average at $377,877

Montana's tax rating for retirees: Least Tax Friendly

Despite its Treasure State nickname, it can be hard to hold onto your fortune in Montana. Living costs are about average, but incomes are well below the norm. In fact, the average household income for residents age 65 and up is the lowest in the country. The tax situation certainly doesn't help. One of the 10 Worst States for Taxes on Retirees, Montana taxes most forms of retirement income, and the top rate of 6.9% kicks in once taxable income tops just $17,000.

Still, Big Sky Country seems to retain a large number of retirement-age folks: The state's 65-and-older population is 15.7%, compared with 14.5% for the U.S. The great (albeit cold) outdoors, including Yellowstone and Glacier national parks, may be what trumps the state's drawbacks for adventurous retirees. Great Falls, on the high plains of Montana's Rocky Mountain Front Range, proves particularly popular with the over-65 crowd, which makes up 16.1% of the metro area's population.

7.  Rhode Island

Population: 1.1 million

Share of population 65+: 15.1%

Cost of living: 13% above the U.S. average

Average income for 65+ households: $55,802

Average health care costs for a retired couple: Above average at $392,592

Rhode Island's tax rating for retirees: Least Tax Friendly

Tiny Rhode Island packs in big bills for older folks. On top of the above-average living costs, it's one of the 10 Worst States for Taxes on Retirees, taxing virtually all sources of retirement income at ordinary rates. (Note: Starting in 2016, the state will begin to give residents a break on Social Security taxes.) The state sales tax is 7%.

On the bright side, the above-average incomes for older residents can make those burdensome costs a bit more bearable.

6.  Massachusetts

Population: 6.7 million

Share of population 65+: 14.4%

Cost of living: 17% above the U.S. average

Average income for 65+ households: $61,436

Average health care costs for a retired couple: Above average at $413,007

Massachusetts's tax rating for retirees: Not Tax Friendly

The Bay State harbors some heavy costs for retirees. On top of the high overall living costs, the total a couple can expect to pay for health care throughout their retirement is the second-highest in the country, trailing only Alaska.

And though the average household income for seniors is high, taxes can take a big bite out of those earnings. Social Security benefits are exempt, but effective in 2016 most other retirement income is taxed at the state's flat rate of 5.1%.

5.  Illinois

Population: 12.9 million

Share of population 65+: 13.2%

Cost of living: 4% above the U.S. average

Average income for 65+ households: $51,079

Average health care costs for a retired couple: Above average at $398,927

Illinois's tax rating for retirees: Mixed

The Prairie State's fiscal standing has been sliding downward for years. Illinois has weighty long-term debts, large unfunded pension liabilities and big budget imbalances. All this puts it squarely at the bottom of the state rankings for fiscal soundness, according to George Mason University's Mercatus Center. In October 2015, ratings agency Fitch downgraded the state's credit rating to near-junk status.

On the plus side, the state doesn't tax distributions from a variety of retirement income sources, including 401(k) plans and individual retirement accounts. For now, that is. Given such a poor fiscal state, tax breaks are hardly assured, and higher taxes are on the table. Already, state and local sales taxes rise above a combined 10% in some areas, and they will be even higher effective July 1, 2016.

4.  Connecticut

Population: 3.6 million

Share of population 65+: 14.8%

Cost of living: 29% above the U.S. average

Average income for 65+ households: $63,726

Average health care costs for a retired couple: Above average at $402,594

Connecticut's tax rating for retirees: Least Tax Friendly

The Constitution State does little to promote the general welfare of its resident retirees. In fact, Connecticut ranks among the 10 tax-unfriendliest states for retirees. Real estate taxes are the second-highest in the country. Some residents face taxes on Social Security benefits, and most other retirement income is fully taxed, with no exemptions or tax credits to ease the burden. Because Connecticut ranks 47th out of all states for fiscal soundness, state taxes are not likely to go down any time soon.

All those taxes come on top of high living costs, the second-highest in the country, tied with New York and behind only Hawaii. One plus: Connecticut residents can often afford the costs. The state's average household income for seniors is the fourth-highest in the U.S., and its poverty rate for residents age 65 and older is a low 7.1%, compared with 9.4% for the U.S.

3.  California

Population: 38.1 million

Share of population 65+: 12.1%

Cost of living: 15% above the U.S. average

Average income for 65+ households: $62,003

Average health care costs for a retired couple: Above average at $394,831

California's tax rating for retirees: Least Tax Friendly

Another one of the 10 Worst States for Taxes on Retirees, the Golden State could be fool's gold as a retirement choice. Except for Social Security benefits, retirement income is fully taxed, and California imposes the highest state income tax rates in the nation (the top rate is 13.3% for single filers with $1 million incomes and joint filers with incomes above $1,039,374). The state sales tax combined with additional local levies can reach as high as 10%.

Everything seems bigger in California, including high living expenses. Indeed, plenty of older residents are unable to bear it: 1 in 10 Californians age 65 and over are living in poverty.

2.  New Jersey

Population: 8.9 million

Share of population 65+: 14.1%

Cost of living: 22% above the U.S. average

Average income for 65+ households: $66,409

Average health care costs for a retired couple: Above average at $403,420

New Jersey's tax rating for retirees: Least Tax Friendly

Retirees planning to plant themselves in the Garden State might want to reconsider. Both living costs and taxes in New Jersey take a big bite out of retirement nest eggs. The combined state and local tax burden is the second-highest in the nation. And it doesn't ease up after you die—the money you leave behind is subject to both an estate tax and inheritance tax (though there are exemptions for spouses and some others). Plus, with the second-worst ranking for fiscal soundness, behind only Illinois, the tax picture is unlikely to improve soon.

More bad news: New Jersey's living costs are the fourth-highest in the country, with retiree health care costs ranking third-highest in the nation. Still, residents seem to bear the burden well. The average income for 65-and-up residents is the third-highest in the U.S., and the poverty rate for the age group is a low 7.9%.

1.  New York

Population: 19.6 million

Share of population 65+: 14.1%

Cost of living: 29% above the U.S. average

Average income for 65+ households: $63,174

Average health care costs for a retired couple: Above average at $397,107

New York's tax rating for retirees: Least Tax Friendly

One (pricey) Big Apple spoils the entire Empire State. Manhattan reigns as the most expensive place to live in the U.S., with costs soaring 127.4% above the national average, according to the Council for Community and Economic Research. New York sports the second-highest living costs of any state, behind only Hawaii.

Despite boasting an average income for residents age 65 and older that's among the top five in the country, the same age group suffers a poverty rate of 11.4%, worse than the national 9.4% rate.

Worst States for Retirement 2016

Our Methodology

To rank all 50 states, we weighed a number of factors:

Taxes on retirees, based on Kiplinger's Retiree Tax Map, which divides states into five categories: Most Tax Friendly, Tax Friendly, Mixed, Not Tax Friendly and Least Tax Friendly.

Cost-of-living, with data provided by FindTheData.com.

Average health care costs in retirement are from HealthView Services and include Medicare, supplemental insurance, dental insurance and out-of-pocket costs for a 65-year-old couple who are both retired and are expected to live to 87 (husband) and 89 (wife). With a national average of $387,731, the average couple can expect to spend about $8,400 per person per year in retirement on health care costs. Note: Some of the worst states for retirees have less than average costs in this category, a positive factor for most retirees, but other factors drove the lower rankings.

Rankings of each state's economic health are provided by the Mercatus Center at George Mason University and are based on various factors including state governments' revenue sources, debts, budgets and abilities to fund pensions, health-care benefits and other services.

Rankings of the health of each state's population of residents 65 and over are from the United Health Foundation and are based on 35 factors ranging from residents' bad habits (smoking and excessive drinking) to the quality of hospital and nursing home care available in the state.

Household incomes and poverty rates are from the U.S. Census Bureau. While many of the worst states for retirees in our rankings have above-average household incomes, high average living costs in those states tend to offset the higher incomes.

Final note: Population data, including the percentage of the population that is age 65 and older, is also provided by the Census data. They are highlighted in these rankings, but were not a factor in our methodology for ranking the states. We provided this additional information for readers to decide for themselves whether they are important factors. Some retirees may want to live in states with higher-than-average retiree populations. For others, this isn't important.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.



The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

10 Worst States for Taxes on Your Retirement Nest Egg

Here is a nice article provided by Sandra Block of Kiplinger:

Retirees have special concerns when evaluating state tax policies. For instance, the mortgage might be paid off, but how bad are the property taxes—and how generous are the property-tax breaks for seniors? Are Social Security benefits taxed? What about other forms of retirement income—including IRAs and pensions? Does the state impose its own estate tax that might subtract from your legacy? The answers might just determine which side of the state border you’ll settle on in retirement.

These 10 states impose the highest taxes on retirees, according to Kiplinger’s exclusive 2016 analysis of state taxes. Three of them treat Social Security benefits just like Uncle Sam does—taxing as much as 85% of your benefits. Exemptions for other types of retirement income are limited or nonexistent. Property taxes are on the high side, too. And if that weren’t bad enoug h, some of these states are facing significant financial problems that could force them to raise taxes, cut services, or both.

10.  Utah:

State Income Tax: 5% flat tax

Average State and Local Sales Tax: 6.69%

Estate Tax/Inheritance Tax: No/No

The Beehive State joins our list of least tax-friendly states this year, replacing Rhode Island (which no longer taxes Social Security benefits for residents with adjusted gross income of as much as $80,000/individual, $100,000/joint).

Utah offers few tax breaks for retirees. Income from IRAs, 401(k)s, pensions and Social Security benefits is taxable at the 5% flat tax rate. The state does offer a retirement-income tax credit of as much as $450 per person ($900 for a married couple). The credit is phased out at 2.5 cents per dollar of modified adjusted gross income over $16,000 for married individuals filing separately, $25,000 for singles and $32,000 for married people fili ng jointly.

On the plus side, property taxes are modest. Median property tax on the state's median home value of $223,200 is $1,480, 11th-lowest in the U.S.

9.  New York:

State Income Tax: 4.0% (on taxable income as much as $8,450/individual, $17,050/joint) – 8.82% (on taxable income greater than $1,070,350/individual, $2,140,900/joint)

Average State and Local Sales Tax: 8.49%

Estate Tax/Inheritance Tax: Yes/No

New York doesn’t tax Social Security benefits or public pensions. It also excludes as much as $20,000 for private pensions, out-of-state government pensions, IRAs and distributions from employer-sponsored retirement plans. New York allows localities to impose an additional income tax; the average local levy is 2.11%, per the Tax Foundation.

The Empire State also has some of the highest property and sales tax rates in the U.S. Food and prescription and nonprescription drugs are exempt from state s ales taxes, as are greens fees, health club memberships, and most arts and entertainment tickets.

The median property tax on the state's median home value of $279,100 is $4,703, the 10th-highest rate in the U.S.

While New York has an estate tax, a law that took effect in 2015 will make it less onerous. Estates exceeding $4,187,500 are subject to estate tax in fiscal year 2016–2017, with a top rate of 16%. The exemption will rise by $1,062,500 each April 1 until it reaches $5,250,000 in 2017. Starting Jan. 1, 2019, it will be indexed to the federal exemption. But if you’re close to the threshold, get a good estate lawyer, because New York has what’s known as a "cliff tax." If the value of your estate is more than 105% of the current exemption, the entire estate will be subject to state estate tax.

8.  New Jersey:

State Income Tax: 1.4% (on as much as $20,000 of taxable income) – 8.97% (on taxable income greater than $500,000)

Average State and Local Sales Tax: 6.97%

Estate Tax/Inheritance Tax: Yes/Yes

The Garden State's tax policies create a thicket of thorns for some retirees.

Its property taxes are the highest in the U.S.The median property tax on the state's median home value of $313,200 is $7,452.

While Social Security benefits, military pensions and some retirement income is excluded from state taxes, your other retirement income could be taxed as high as 8.97%. And New Jersey allows localities to impose their own income tax; the average local levy is 0.5%, according to the Tax Foundation.

Residents 62 or older may exclude as much as $15,000 ($20,000 if married filing jointly) of retirement income, including pensions, annuities and IRA withdrawals, if their gross income is $100,000 or less. However, the exclusion doesn’t extend to distributions from 401(k) or other employer-sponsored retirement plans.

New Jersey is one of only a couple of states that impose an inheritance and an estate tax. (An estate tax is levied before the estate is distributed; an inheritance tax is paid by the beneficiaries.) In general, close relatives are excluded from the inheritance tax; others face tax rates ranging from 11% to 16% on inheritances of $500 or more. Estates valued at more than $675,000 are subject to estate taxes of up to 16%. Assets that go to a spouse or civil union partner are exempt.

Proposals to increase the state’s estate-tax threshold—the lowest in the U.S.—to levels that would ensnare fewer estates have been derailed by the state’s financial woes. George Mason University’s Mercatus Center ranks New Jersey 48th in its analysis of states’ fiscal health.

7.  Nebraska:

State Income Tax: 2.46% (on taxable income as much as $3,060/individual, $6,120/joint) – 6.84% (on taxable income greater than $29,590/individual, $59,180/joint)

Average State and Local Sales Tax: 6.87%

Estate Tax/Inheritance Tax: No/Yes

The Cornhusker State taxes Social Security benefits, but new rules that took effect in 2015 will exempt some of that income from state taxes. Residents can subtract Social Security income included in federal adjusted gross income if their adjusted gross income is $58,000 or less for married couples filing jointly or $43,000 for single residents.

Nebraska taxes most other retirement income, including retirement-plan withdrawals and public and private pensions. And the state’s top income-tax rate kicks in pretty quickly: It applies to taxable income above $29,590 for single filers and $59,180 for married couples filing jointly.

Food and prescription drugs are exempt from sales taxes. Local jurisdictions can add an additional 2% to the state rate.

The median property tax on the state's median home value of $133,800 is $2,474, the seventh-highest property-tax rate in the U.S.

Nebraska's inheritance tax is a local tax, ranging from 1% to 18%, administered by counties. Assets left to a spouse or charity are exempt.

6.  California:

State Income Tax: 1% (on taxable income as much as $7,850/individual, $15,700/joint) – 13.3% (on taxable income greater than $1 million/individual, $1,052,886/joint)

Average State and Local Sales Tax: 8.48%

Estate Tax/Inheritance Tax: No/No

California exempts Social Security benefits, but all other forms of retirement income are fully taxed. That’s significant, because residents of the Golden State pay the third-highest effective income tax rate in the U.S.

Early retirees who take withdrawals from their retirement plans before age 59½ pay a 2.5% state penalty on top of the 10% penalty imposed by the IRS.

At 7.5%, state sales taxes are the highest in the country, and local taxes can push the combined rate as high as 10%.

The median property tax on the state's median home value of $412,700 is $3,160.

5.  Montana:

State Income Tax: 1% (on as much as $2,900 of taxable income) – 6.9% (on taxable income greater than $17,400)

Average State and Local Sales Tax: None

Estate Tax/Inheritance Tax: No/No

You won’t pay sales tax to shop in the Treasure State, but that may be small comfort when you get your state tax bill.

Montana taxes most forms of retirement income, including Social Security benefits, and its 6.9% top rate kicks in once your taxable income exceeds a modest $17,400.

Montana allows a pension- and annuity-income exemption of as much as $3,980 per person if federal adjusted gross income is $35,180 ($37,170 if filing a joint return) or less. If both spouses are receiving retirement income, each spouse can take up to the maximum exemption if the couple falls under the income threshold. Montana also permits filers to deduct some of their federal income tax.

The median property tax on the state's median home value of $196,800 is $1,653, below average for the U.S.

4.  Oregon:

State Income Tax: 5% (on taxable income as much as $3,350/individual, $6,700/joint) – 9.9% (on taxable income greater than $125,000/individual, $25 0,000/joint)

Average State and Local Sales Tax: None

Estate Tax/Inheritance Tax: Yes/No

Although Oregon doesn’t tax Social Security benefits, most other retirement income is taxed at your top income tax rate. Making matters worse, localities can tack on an additional 2% of income taxes.

The Beaver State allows residents to subtract as much as $6,350 of their current year’s federal income tax liability, after credits. There is also a retirement-income credit for seniors with certain income restrictions.

One bright spot in Oregon's tax picture: no sales tax. You can buy anything in the state and never pay a penny in sales taxes.

The median property tax on the state's median home value of $239,800 is $2,570.

Oregon's estate tax applies to estates valued at more than $1 million—one of the lowest thresholds nationwide. The top rate is 16%. Assets left to a surviving spouse or registered domestic partner are exempt.

3.  Minnesota:

State Income Tax: 5.35% (on taxable income less than $25,180/individual, $36,8 20/joint) – 9.85% (on taxable income greater than $155,650/individual, $259,420/joint)

Average State and Local Sales Tax: 7.27%

Estate Tax/Inheritance Tax: Yes/No

The North Star State offers cold comfort on the tax front to retirees.

Social Security income is taxed to the same extent as it is on your federal return. Pensions are taxable regardless of whether they are military, government or private pensions. Income tax rates and the sales tax rate are high.

Food, clothing, and prescription and nonprescription drugs are exempt from state sales tax. A few cities and counties also add a sales tax.

The median property tax on the state's median home value of $188,300 is $2,148, about average for the U.S. Minnesota homeowners of any age may be eligible for a refund if property taxes are high relative to their incomes.

Minnesota’s estate tax hits estates valued at just $1.6 million or more. Assets left to a surviving spouse are exempt. The maximum estate tax rate is 16%.

2.  Connecticut:

State Income Tax: 3% (on taxable income as much as $10,000/individual, $20,000/joint) – 6.99% (on taxable income greater than $500,000/individual, $1 million/joint)

Average State and Local Sales Tax: 6.35% for most items; 7% for certain luxury items

Estate Tax/Inheritance Tax: Yes/No

The Constitution State is a tax nightmare for many retirees.

Its real estate taxes are the fourth-highest in the nation. Median property tax on the state's median home value of $267,200 is $5,369.

Most types of retirement income are taxed, along with a portion of Social Security benefits for taxpayers above certain income thresholds. (Social Security benefits are exempt for individual taxpayers with federal adjusted gross income of less than $50,000 and for married taxpayers filing jointly with federal AGI below $60,000.) Retirement plans, private pensions and out-of-state government and federal civil-service pensions are fully taxed. Fifty percent of federally taxable military income is exempt.

There are no local sales taxes in Connecticut, so you’ll pay only the statewide rate of 6.35% on your purchases. Clothing, footwear and accessories priced at more than $1,000 and luxury items (such as jewelry) worth more than $5,000 are taxed at 7.75%.

The state also faces massive pension liabilities that could force it to raise taxes even higher. The Mercatus Center at George Mason University ranks it 50th in its analysis of states’ fiscal health.

Connecticut imposes an estate tax on estates valued at $2 million or more at a progressive rate starting at 7.2%. The rate rises to a maximum of 12% for an estate valued above $10.1 million. Connecticut is the only state with a gift tax that applies to real and tangible personal property in Connecticut and intangible personal property anywhere for permanent residents.

1.  Vermont:

State Income Tax: 3.55% (on taxable income as much as $39,900/individual, $69,900/joint) – 8.95% (on taxable income greater than $415,600/individual, $421,900/joint)

Average State and Local Sales Tax: 6.17%

Estate Tax/Inheritance Tax: Yes/No

The Green Mountain State doesn't coddle retirees. It has a steep top income tax rate, and most retirement income is taxed. Vermont treats Social Security benefits the same way the federal government does, which means as much as 85% of your benefits could be taxed.

Vermont limits deductions to $15,000 for single residents and $31,500 for married couples. If your income is $1 million, that would cost you about $5,000 in additional state taxes every year.

Local jurisdictions can add 1% to the state sales tax. Food for home consumption, clothing, and prescription and nonprescription drugs are exempt. But you’ll pay 9% tax on prepared foods, restaurant meals and lodging, and 10% if you order a glass of wine or beer in a restaurant.

The median property tax on the state's median home value of $214,600 is $3,797, the eighth-highest property-tax rate in the U.S. Eligible Vermont residents can make a claim for a rebate of their school and munici pal property taxes if their household income does not exceed a certain level.

Like many of the states on this list, Vermont imposes its own estate tax on estates that exceed $2.75 million – a relatively low threshold that ensnares more estates than the federal death tax. The maximum estate-tax rate is 16%. Assets left to a surviving spouse are exempt.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should no t be construed as investment, legal, accounting or tax advice.

Millennials: On Investing and Retirement

Move over Baby Boomers. These days all eyes are on Millennials, those young adults between the ages of 18 and 34 who are now America's largest living generation.1 According to the U.S. Census Bureau, Millennials in the United States number more than 75 million -- and the group continues to expand as young immigrants enter the country.1

Due to its size alone, this generation of consumers will undoubtedly have a significant impact on the U.S. economy. When it comes to investing, however, the story may be quite different. One new study found that 59% of Millennials are uncomfortable about investing due to current economic conditions.2 Another study revealed that just one in three Millennials own stock, compared with nearly half of Generation-Xers and Baby Boomers.3

On the Retirement Front

How might this discomfort with investing manifest itself when it comes to saving for retirement -- a goal for which time is on Millennials' side? According to new research into the financial outlook and behaviors of this demographic group, 59% have started saving for retirement, yet nearly two-thirds (64%) of working Millennials say they will not accumulate $1 million in their lifetime. Of this group, half have started saving for retirement -- 37% of which are putting away more than 5% of their income -- despite making a modest median $27,900 a year.2

As for the optimistic minority who do expect to save $1 million over time, they enjoy a median personal income that is about twice that -- $53,000 -- of the naysayers. Three out of four have started saving for retirement and two-thirds are deferring more than 5% of their income; 28% are saving more than 10%.2

So despite their protestations, their reluctance to embrace the investment world, and a challenging student loan debt burden -- a median of $19,978 for the 34% who have student loan debt -- Millennials are still charting a slow and steady course toward funding their retirement.2

For the Record …

Here are some additional factoids about Millennials and retirement revealed by the research:

•  The vast majority (85%) of Millennials view saving for retirement as a key passage into becoming a "financial adult."

•  A similar percentage (82%) said that seeing people living out a comfortable retirement today encourages them to want to save for their own retirement.

•  Those who have started saving for retirement said the ideal age to start saving is 23.

•  Those who are not yet saving for retirement say they will start by age 32.

•  Of those who are currently saving for retirement, 69% do so through an employer-sponsored plan.

•  Three out of four said they do not believe that Social Security will be there for them when they retire.

•  Most would like to retire at age 59.
 
Source(s):

1.  Pew Research Center, "Millennials overtake Baby Boomers as America's largest generation," April 25, 2016.

2.  Wells Fargo & Company, news release, "Wells Fargo Survey: Majority of Millennials Say They Won't Ever Accumulate $1 Million," August 3, 2016.

3.  The Street.com, "Only 1 in 3 Millennials Invest in the Stock Market," July 10 2016.
 

Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.
 

Business Owner or Corporate Exec: Are You On Track to Retire (Someday)?

If you are a business owner, corporate executive or similar professional, “success” often means at least two things. There’s the career satisfaction you’ve worked your tail off for. Then there’s that question that starts whispering in your ear early on, growing louder over time: 

Am I on track to retire on my own terms and timeline? (And if not, what should I do about it?) 

While every family’s circumstances are unique and personalized retirement planning is advised, the ballpark reference below can help you consider how your current nest eggs stack up. It shows the savings you’ll want to have accumulated, assuming the following: 

•  You’re saving 10–16% of your salary (or equivalent income) and receiving an annual raise of 3%.

•  Your annual investment return is 6%.

•  At retirement (age 65) you want to spend 40% of your final salary (with Social Security making up an additional 20–40% of the same). 

•  You plan to withdraw 4% annually from your portfolio.

Salary vs. Age vs. Desired Savings Today (To Retire at 65)

Savings 2.JPG

Still feeling a little overwhelmed by the size of the chart? Let’s look at some plausible scenarios. 

Let’s say you are a 40-year-old couple earning $100,000 annually. The table suggests you should have saved about $317,000 by now. If you continue to save 10–16% of your salary every year and the other assumptions above hold true as well, you should be on track to retire at age 65 and replace 40% of your final paychecks by withdrawing 4% of your portfolio each year. If you’re already 50 and pulling in $200,000, your savings should be right around $1.067 million to be on track in the same manner. 

Do your numbers not add up as well as you’d like? No need to panic, but it’s likely you’ll want to get planning for how you can make up the gap. That may mean saving more, retiring later in life, investing more aggressively or employing a judicious combination of all of the above. 

If you’re not sure how to get started, I recommend turning to a professional, fee-only advisor who you’re comfortable working with. He or she should be able to offer you an objective perspective to help you decide and implement your next steps. In the meantime, here is one tip to consider. 

How To Channel Your Salary Increases Into Retirement Assets

As you approach retirement, many business owners’ or corporate executives’ salaries tend to increase, while some of their expenses (such as the mortgage) remain level. If that’s the case and you’re behind on your retirement savings, you may be able to direct your annual salary increases into increased saving. 

For example let’s say you’ve been saving 7% of your salary, or $10,500/year, and you receive a 3% raise.  Take that extra 3% ($4,500) and direct it into savings. Without having to alter your current spending, you’re now saving 9.7% of your salary or $15,000 total.  If you get another 3% raise the following year, do it again and you’ll be saving $19,635 or about 12.3% of your $159,135 salary. 

And so on. If you can’t allocate all of every raise every year to increased savings, do as much as you’re able and the numbers should start adding up, without having to significantly tighten your belt. Who knows, as you and your spouse see the numbers grow, you may even begin to enjoy the exercise. 

One repeated caveat before we go: Remember that the table above offers only rough saving guidelines. It’s certainly not the final word, and should not be taken as such. In addition to saving for retirement, you’ll want to ensure that the rest of your financial house is in order, so your plans won’t be knocked off course by life’s many surprises. 

Again, a financial professional can assist. He or she can help ensure that your investment portfolio is well diversified (to manage investment risk), your estate plan is current, your advance directives and insurance policies are in place, and your tax strategies are thoughtfully prepared.  

So, start with the chart, and give us a call if we can tell you more. 


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Retirement Confidence Leveled Off in 2016

Americans' confidence in their ability to retire in financial comfort has rebounded considerably since the Great Recession, but worker optimism leveled off in 2016. According to the 26th annual Retirement Confidence Survey -- the longest-running study of its kind conducted by Employee Benefit Research Institute in cooperation with Greenwald & Associates -- worker confidence stagnated in the past year due largely to subpar market performance.

The percentage of workers who reported being "very confident" about their retirement prospects hit a low of 13% between 2009 and 2013, recovered to 22% in 2015, and stabilized at 21% in 2016. However, significant improvement was reported among workers who said they were "not at all" confident about retirement, as their numbers shrank from 24% in 2015 to 19% this year. Curiously, the attitude shift away from being not at all confident came from those respondents who reported no access to a retirement plan.

It's All in the Plan

The data clearly shows a strong relationship between the level of retirement confidence among workers and retirees and participation in a retirement plan -- be it a defined contribution (DC) plan, a defined benefit (DB) pension plan, or an IRA. Workers reporting they and or their spouse have money in some type of retirement plan -- from either a current or former employer -- are more than twice as likely as those with no plan access to be very confident about retirement.

Still Not Preparing

Underlying the generally positive trend in the 2016 survey was the persistent fact that most Americans are woefully unprepared for retirement, having little or no money earmarked for retirement. For instance, among today's workers, 54% said that the total value of their savings and investments (excluding the value of their home and any defined benefit plan assets) is less than $25,000. This includes 26% who have less than $1,000 in savings.

Retirement Plan Dynamics

Not only do workers and retirees that own retirement accounts have substantially more in savings and investments than those without such accounts, on a household level, these individuals tend to have assets stored in multiple savings vehicles. For instance, according to the 2016 RCS, about two-thirds of those with money in an employer-sponsored plan also report that they or a spouse have an IRA. Further, 90% of survey respondents with access to a defined benefit pension plan either through their current or former employer also have money in a defined contribution plan.

Retirement Age

Perhaps as an antidote to their lack of savings, some workers are adjusting their expectations about when they will retire. In 2016, 17% of workers said the age at which they expect to retire has changed -- of those, more than three out of four said their expected retirement age has increased. Longer-term trends show that the percentage of workers who expect to retire past the age of 65 has consistently crept higher -- from 11% in 1991 to 37% in 2016.

For more retirement trends among workers and retirees or to review the 2016 Retirement Confidence Survey in its entirety, visit EBRI's website.


Source:

Employee Benefit Research Institute and Greenwald & Associates, 2016 Retirement Confidence Survey, March 2016.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.
 

Will Debt Hinder Your Retirement Outlook?

The number of Americans in or nearing retirement who are still holding significant mortgage, auto, even student loan debt has been rising in recent years. According to recent data released by the Federal Reserve Bank of New York, the average 65-year-old borrower has 47% more mortgage debt and 29% more auto debt than 65-year-olds had in 2003, after adjusting for inflation.1

One key takeaway from the trend, as cited by a Federal Reserve economist, is that since the Great Recession there has been a significant shift in the allocation of debt away from younger consumers with weaker repayment records to older individuals with strong repayment histories.2

While on the surface, this shift should not be cause for concern, if debt levels were to rise to the point where older Americans were struggling to repay debt as they entered retirement, the story could play out quite differently.

Is Debt an Obstacle to Your Retirement Re adiness?

The Employee Benefit Research Institute's annual Retirement Confidence Survey has consistently made a connection between the level of debt and retirement confidence. For instance, citing reasons why they are not saving (or not saving more) for retirement, workers pointed to their current level of debt as a key obstacle. Just 6% of workers who describe their debt as a "major problem" say they are very confident about having enough money to live comfortably throughout retirement, compared with 35% of workers who indicate debt is not a problem. Overall, 51% of workers and 31% of retirees reported having issues with debt.3

Types of Debt Held by Workers and Retirees

Source: Employee Benefit Research Institute and Greenwald & Associ ates, 2015 Retirement Confidence Survey.

If you are concerned with the impact your current debt load may have on your ability to save for retirement or on the quality of your lifestyle once you retire, speak with a financial advisor now. Together you can craft a plan to lower and/or eliminate your lingering debt.

Source(s):

1. & 2.  The Wall Street Journal, "People Over 50 Carrying More Debt Than in the Past," February 12, 2016.

3.  Employee Benefit Research Institute and Greenwald & Associates, 2015 Retirement Confidence Survey.

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential d amages in connection with subscriber's or others' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Longevity Risk and Retirement Income

How long might you live in retirement? Think carefully. Your answer could influence whether you have enough money for a comfortable retirement or just scrape by.

According to pension mortality tables, at least one member of a 65-year-old couple has a 72% chance of living to age 85 and a 45% chance of living to age 90.1 This suggests that many of us will need to plan carefully to ensure that we don't outlast our assets.

Live Long and Prosper

The first step in tackling longevity risk is to figure out how much you can realistically afford to withdraw each year from your personal savings and investments. You can tap the expertise of a qualified financial professional to assist you with this task. Or, you can use an online calculator to help you estimate how long your money might last.

One strategy is to withdraw a conservative 4% to 5% of your principal each year. However, your annual withdrawal amount will depend on a number of factors, including the overall amount of your retirement pot, your estimated length of retirement, annual market conditions and inflation rate, and your financial goals. For example, do you wish to spend down all of your assets or pass along part of your wealth to family or a charity?

Protecting Your Retirement Paycheck

No matter what your goals, there are ways to potentially make the most out of your nest egg. The remainder of this article examines how a strategy might play out with assets held in taxable accounts.

First, you'll likely need ready access to a cash reserve to help pay for daily expenditures. A common rule of thumb is to keep at least 12 months of living expenses in an interest-bearing savings account, though your needs may vary.

Then, consider refilling your cash reserve bucket on an annual basis by selectively liquidating different longer-term investments, timing gains and losses to offset one another whenever possible.

Developing a Diverse Income Strategy

Responding to the current interest rate environment is one way to potentially squeeze more income from your savings and stretch out the money you've accumulated for retirement. For example, if rates are trending upward, you might consider keeping more money in short-term Certificates of Deposits (CDs).2 The opposite strategy may be employed when rates appear to be declining.

Most retirees need their investments to generate income. Bonds may help fill this need. "Laddering" of bonds can potentially create a steady income stream while helping reduce long-term interest exposure (see illustration).

bond ladder.png

A common way to help temper investment risk is to spread it out by diversifying among different types of securities. A retiree seeking income can use the same strategy by adding dividend-paying equities to his or her portfolio.

These stocks potentially offer the opportunity for supplemental income by paying part of their earnings to shareholders on a regular basis. Another potential attraction? Qualified stock dividends are currently taxed at a maximum rate of 20%, rather than ordinary federal income tax rates, which currently run as high as 39.6%. Also, keep in mind that investing in an equity-income mutual fund, which generally holds many dividend-paying stocks, may help reduce risk compared with investing in a handful of individual stocks.

Adding Annuities to the Mix

One way to potentially provide regular income and address longevity risk is to purchase an immediate annuity. In exchange for giving an insurer a specific amount of money, you're guaranteed income for either a specific period of time, or life. Keep in mind, however, that guarantees are backed by the claims-paying ability of the issuing company. There are many types of annuities, so speak with a financial professional to carefully weigh your options, and be sure to examine fees and other charges before buying.3

The chart shows how adding an annuity could potentially increase the odds that your money will last your lifetime. One tactic is to figure out your annual expenses and determine how much income you'll receive from Social Security and pensions (if any). Then, consider purchasing an annuity that will make up any shortfall. This allows peace of mind, knowing that your regular expenses are covered. Then, you can put your other investments to work pursuing growth.

Accounting for Growth

Finally, be cautious about being overly conservative with your investments. Many people may live 30 or more years in retirement. Therefore, your portfolio may need a boost of stocks to outpace inflation over the years.

These are just a few ideas for developing an adequate income plan during retirement. Consider sitting down with a qualified financial professional to discuss these and other strategies that might be appropriate for your situation.

retirement portfolio.png

Points to Remember

1.  For many Americans, a great threat to their financial security in retirement is the risk of outliving their money.

2.  The first step in tackling longevity risk is to figure out a sustainable annual withdrawal rate from personal savings and investments.

3.  Next, consider keeping a cash reserve of 12 or more months to help pay for daily expenditures.

4.  Consider diversifying the rest of your taxable portfolio among different savings and investment options, including those with different maturities to account for fluctuating interest rates.

5.  Purchasing an immediate annuity with part of your nest egg can provide regular income and help address longevity risk.

6.  You may need to own some stocks to outpace inflation over the years.

7.  Work with a qualified financial professional to discuss retirement income strategies that might be appropriate for you.

Source(s):

1.  Social Security Administration, Period Life Table (2007, latest available).

2.  Certificates of Deposit (CDs) offer a guaranteed rate of return, guaranteed principal and interest, and are generally insured by the Federal Deposit Insurance Corp. (FDIC), but do not necessarily protect against the rising cost of living.

3.  Withdrawals from annuities prior to age 59½ are subject to a 10% additional tax and all withdrawals are taxed as ordinary income. Issuing companies may also charge surrender charges for some early withdrawals. Neither fixed nor variable annuities are insured by the FDIC, and they are not deposits of -- or endorsed or guaranteed by -- any bank. Investing in variable annuities involves risk, including loss of principal.
 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.
 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

What to Know About Annuities

Are you retiring soon and looking into your options to start drawing down your savings from your employer-sponsored plan? Are you also concerned about making sure your money lasts as long as you need it to? If so, annuities may make sense for you.1 Annuities, simply put, reduce the risk that you will outlive your savings. Here is how to decide whether an annuity is right for you.

Understanding Annuities

Annuities are contracts offered by insurance companies that pay a stream of monthly payments in exchange for a premium. An immediate annuity is one in which you receive payments right away. A deferred annuity is one where you purchase a contract, but don't receive payments until after a set period of time.

While annuities reduce the risk that you will outlive your savings (and suffer a drop in your standard of living), they do so at a cost. They are not liquid -- once you have purchased one, it can be expensive or impossible to change your mind later. For this reason, using a portion of your savings to purchase an annuity may be most attractive when:

•  You (and your spouse) expect to live for many more years.

•  You have relatively low income from other sources (e.g., from Social Security or defined benefit pension plans).

•  You are relatively more averse to risk.

Which One Is Right for You?

Whether the amount of the annuity is right for you -- or even if you should annuitize -- involves a lot of issues, such as your other assets, savings, income, and taxes. If you're only taking care of yourself, the lifetime payment option might be a good choice. If there are other people counting on the income, you'll want to look into the other options.

Another issue for you to think about is today's low interest rates. One way to deal with this is to "ladder" smaller investments in immediate annuities over several years to take advantage of potentially higher interest rates.

Regardless of your decision, here are three key factors to keep in mind.

•  Comparison shop. Payment rates will differ significantly from insurer to insurer. Look carefully at the fees and expenses. Examine the rates and terms they offer.

•  Find a reputable company. Investigate the stability and financial strength of the companies you are thinking of purchasing an annuity from. Be sure to include the main insurance company rating agencies -- A.M. Best, Moody's, Fitch, Standard & Poor's, and Weiss -- as part of your due diligence process. And don't forget to ask your agent for a current listing of COMDEX scores for insurance carriers. COMDEX is a service that compiles scores from a range of ratings agencies and assigns a score to each company from 0 to 100 -- 100 being perfect.

•  Watch for additional costs. At their core, immediate annuities are a very simple product, but extra features come with additional costs. Be sure to read the fine print.
 
Source/Disclaimer:

1.  Variable annuities are long-term, tax-deferred investment vehicles designed for retirement purposes and contain both an investment and insurance component. They are sold only by prospectus. Guarantees are based on the claims-paying ability of the issuer and do not apply to a variable annuity's separate account or its underlying investments. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Withdrawals made prior to age 59½ may be subject to a 10% additional tax. Surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.



The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Retirement Spending in Scary Markets

When the markets are down or particularly volatile, how do I safely withdraw retirement money out of my portfolio?


This is a common question and a very good one. It is very scary when the market is volatile and the TV is telling you the world is coming to an end. It can be even scarier when you are in or near retirement. While one blog post won’t replace a fee-only wealth planner who is committed to serving your highest financial interests in an ongoing relationship, the following are three ideas to get you started.


1.  Take a Reality Check

The first step to knowing how you’re doing is to determine where you stand. For this, we suggest taking a very analytical approach to withdrawing money from your portfolio.

At our firm, the first thing we look at for clients who are taking money out of their portfolio is their withdrawal rate. In other words, what percentage of the portfolio’s total worth are they taking out? If the withdrawal rate is reasonable according to their financial plan, then everything should be fine. If the withdrawal rate seems too high (again, according to their particulars), we let them know.


How do we assess what is “fine” and what may be “too much”? When we do a financial plan, we use software that runs 10,000 simulations under all kinds of market conditions to come up with a confidence factor for a financial plan’s probable success. What is the best possible outcome for a given spending plan? What’s the worst that could happen? What seems most likely to occur?


Running these analytics can generate tough choices if the numbers are uncomfortably short. But by assigning hard numbers to otherwise abstract questions, you are in a better position to decide where your personal comfort level falls along the spectrum of possibilities.  That seems better – and we would argue ultimately less stressful – than taking an “ignorance is not so blissful” approach.


2.  Depend on Disciplined Diversification

When scanning scary headlines while withdrawing money during a down market, it may seem as if your entire portfolio is as low as it could go. If your portfolio has been well diversified, that’s usually not the case. If stocks are down due to market volatility, then bonds are usually up. When international stocks are taking a beating, it’s not uncommon for domestic stocks to shine … and vice-versa.


By having – and sticking with – a diversified mix that reflects your return goals and risk tolerances, you can help your portfolio remain more stable and a bit more dependable through varied market climates.


3.  Rely on Periodic Rebalancing

Better yet, if you periodically rebalance your portfolio to its intended target allocations (such as half stocks, half bonds), you’re creating a strategy for buying low and selling high – every investor’s goal – while keeping your portfolio diversified as planned.


Rebalancing during your earning years is usually done in two ways: (1) By selling holdings when they have become popular (high-priced) and using the proceeds to reinvest in low-cost, out-of-favor holdings; or (2) by investing new money, and using it to replenish underweighted portions of your portfolio. 


In retirement, the principles remain the same but the strategy can change a bit. When it’s time to withdraw assets, we try to sell holdings in asset classes that have recently outperformed (selling high). This not only serves to bring your portfolio back into balance according to your original intent, it can often be used to generate the desired retirement cash flow.


That said, while this big-picture strategy seems logical, it can be tricky to implement. Tax ramifications must be carefully considered, which may warrant additional planning and synchronized action across your multiple taxable and tax-favored accounts. Plus, emotionally, it’s not in our nature to sell recent winners and bulk up on recent losers. That’s why we have spent the last 13 years developing a structured rebalancing program to help optimize the logistics and remove the emotion from reallocating your portfolio even as you are withdrawing money from it.

Achieving a Well-Reasoned Retirement

Assessing where you stand through carefully analysis and employing evidence-based investment principles such as global diversification and periodic rebalancing can go a long way toward helping you minimize your emotional reactions to fleeting market news. It also helps you replace those emotions with smart, fact-based decisions on selling high, buying low and spending responsibly – in retirement or, really, throughout your life. 
 


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.



The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Your Second Wind — Starting Up a New Business in Retirement

Not that long ago, retirement meant being put out to pasture, with long days punctuated by occasional games of golf and bridge. But today, with lengthening life expectancies and dwindling pensions, many Americans are looking to retirement as an opportunity to start a new business. "We've never before seen so many seniors who are this active and doing so many things,'' says Lisa Gundry, a professor of management at DePaul University's Kellstadt Graduate School, who has worked with seniors in DePaul's business incubator program. "They've accumulated enough financial security so that they are better able to take a risk on a business than someone who is younger and has a mortgage and small children.''

 

Senior Start-ups: Common Characteristics

Older entrepreneurs differ from their younger brethren in several critical ways. For one, seniors are usually in a much better financial position than younger entrepreneurs. Their bigger financial cushion -- retirement packages, nest eggs, or home ownership -- affords them flexibility in the initial stages of a start-up, where funding is often critical. Because they can often rely on other sources for current income, they are in a better position to take greater entrepreneurial risks. Start-up funding may also be easier to come by for seniors, who can draw from personal savings and a lifetime of business and professional contacts. Senior start-ups may also be looked on more favorably by lenders, who often associate older entrepreneurs with a lower risk of default.

 

Creativity and business acumen are also key characteristics of elder entrepreneurs. Older entrepreneurs bring "an invaluable network of contacts, credibility, and investment acumen,'' says Barry Merkin, a professor at Northwestern University's Kellogg School of Management. Having been tested again and again in their lives, they're not afraid of failure or worried about what others will think. Instead of that urgency to "make it,'' they get their satisfaction from the process of building their companies.

 

The type of businesses typically started by seniors varies widely. Consultancies, small retail businesses, and bed-and-breakfast establishments are perennial favorites. A growing number of late-life start-ups also involve Internet-based businesses which, even after the dot-com bust, remain a popular type of new business start-up. For many, Web-based business start-ups offer particular appeal, since they can be operated right out of your home in the early stages, often requiring no more than a high-speed Internet connection and a phone line. While most senior start-ups are related to an individual's former career, some break into completely new territory. This is often the case with "serial" entrepreneurs -- those who have started up many different businesses over their lives and are experts at the start-up process itself. Whatever business you might consider, make sure you first do your homework. Talk to owners of similar businesses and scope out the market for such products or services in your area. Then, take the time to draft a formal business plan.

 

Not For Everybody

As attractive as starting a new business in retirement may sound, there are several considerations you should bear in mind before taking the leap. Start-ups can be physically and emotionally draining for a retiree. Seniors tend to work fewer hours and take more vacations than their younger counterparts. Ask yourself: Are you willing or able to work the long hours that may be required in a fledgling business? There is also the matter of elder health concerns. For seniors, health problems can come at any time. Even if you are in top shape, you should factor in contingencies for unexpected health issues for yourself and your spouse.

 

Then there's financial vulnerability. "Failing at 60 is not like failing at 30, when you have lots of time to build up your assets,'' says Martin Nissenbaum, national director of retirement planning for Ernst & Young International. Seniors also rely much more on personal investments to supply a portion of their income. For these reasons, seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging as loan collateral personal assets such as a home.

 

Successful post-retirement start-up tips:

•  Build on already established contacts and expertise. Seniors have a distinct advantage over younger entrepreneurs in their experience and long-established business network, which can give them a competitive advantage in virtually any business.

 

•  Start small. When starting up a new business in retirement, many begin with a small consultancy and gradually work their way into a full-blown business. This will give you time to assess whether you're willing or able to take on another full-time career.

 

•  Don't bet the farm. If you're retired, you probably rely on personal investments for a portion of your income. Consider your income needs before investing a portion of your nest egg in a new business and think twice before taking on any personal debt.

 

Retirement Business Ideas

Some practical businesses that are popular among retirees. 

•  ADULT DAY CARE

•  DRIVING SERVICE

•  HOME HANDYMAN

•  SALES

•  REAL ESTATE AGENT

•  BUSINESS CONSULTANT

•  HOME/PET SITTING

•  ARTS/CRAFTS

•  ELDERLY TRANSPORT

 

Points to Remember

1.  Today, with lengthening life expectancies and dwindling pensions, an increasing number of retirees are looking to retirement as an opportunity to start a new business.

 

2.  Older entrepreneurs differ from their younger brethren in several critical ways: They are usually in a much better financial position; they generally have easier access to funding; and they are able to tap into a lifetime of experience and connections.

 

3.  The type of businesses typically started by seniors varies widely. Consultancies, small retail businesses, and bed-and-breakfast establishments are perennial favorites.

 

4.  Before considering a senior start-up, you should weigh the physical and emotional pressures that a new business is likely to place on your life, and remember to factor in the heightened health considerations of elders.

 

5.  Seniors are advised not to sink too great a portion of their investment portfolio into a new business and should avoid pledging as loan collateral personal assets such as a home.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

 

© 2016 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Understanding Medicare: Parts A, B, C, and D

Medicare contains many rules that beneficiaries and their caregivers are required to learn. Perhaps the best way to grasp the program's details is to review the major components of the Medicare program: Parts A, B, C, and D.

 

Medicare Part A: Hospital Insurance

 

This insurance is designed to help cover the following:

 

•  Inpatient care in hospitals, including rehabilitation facilities

 

•  Care provided in a skilled nursing facility or hospice for a limited period

 

•  Home health care

 

For inpatient hospital care, Medicare typically covers a semi-private room, meals, general nursing, drugs, and other hospital services and supplies. Medicare typically does not cover long-term care or custodial care in a skilled nursing facility, although under limited circumstances, it may cover a maximum of 100 days during a benefit period if a doctor certifies that a patient needs daily skilled care.

 

Medicare Part B: Medical Insurance

 

Part B helps to cover physician services, outpatient care, preventive services, durable medical equipment, and certain home health care. Although the scope of Part B is extensive, there are many services -- such as dental care, routine eye exams, hearing aids, and others -- that are not covered as part of this program.

 

Medicare Part C: Offered by Private Insurers

 

Also known as Medicare Advantage plans, Part C consists of insurance plans provided by private carriers. For beneficiaries with Part C, Medicare pays a fixed amount every month to a private insurer for their care. Many Medicare Advantage plans include Medicare drug coverage, and all cover emergency and urgent care. In addition, certain plans may cover services that are not covered by Medicare, which may result in lower out-of-pocket fees for beneficiaries.

 

You can sign up for Medicare Part C when you first become eligible for Medicare. You can also sign up between January 1 and March 31 or between October 15 and December 7 each year. If you sign up at the beginning of the year, you can't join or switch to a plan with prescription drug coverage unless you already had Medicare Part D. If you sign up toward the end of the year, your coverage will begin January 1 of the following year.

 

Medicare Part D: Prescription Drugs

 

There are generally two ways to obtain Medicare prescription drug coverage. If you have Original Medicare (Part A plus Part B), you can add drug coverage by obtaining it from an insurer approved by Medicare through Part D. Or if you have a Medicare Advantage plan, find out whether your plan includes prescription coverage as part of its program. Even if you don't take many prescriptions, you may want to consider signing up for Part D as soon as you become eligible. If you wait and try to sign up during a subsequent enrollment period, you may be charged a late enrollment penalty and be forced to pay higher premiums.

 

You can join Medicare Part D when you initially become eligible for Medicare or between October 15 and December 7 of each calendar year.

 

Infographic: Out of Pocket

 

Medical coverage from Medicare is far from a freebie. The following are costs that you may encounter.

 

 Part A: No premium if you or your spouse paid Medicare taxes while you were working. For 2015, there is a deductible of $1,260 before coverage begins. You may expect to pay a portion of the cost for a hospital stay of more than 60 days during a benefit period.

 

•  Part B: A deductible of $147 for 2015 plus 20% of Medicare-approved amounts for medical services. The amount of additional monthly premiums depends on whether you are enrolled in Original Medicare or in Part C. With Original Medicare, the standard 2015 premium is $104.90 per month. Single beneficiaries with incomes above $85,000 and couples earning more than $170,000 pay higher premiums.

 

•  Part C: Costs and levels of coverage vary according to the plan. Contact plans that interest you to learn the details and to compare the costs and levels of coverage with Medicare Part A and Part B.

 

•  Part D: Pricing for prescription drug coverage is complex. For those who add Part D to Original Medicare, there is a monthly premium, an annual deductible, and copayments. There is a "coverage gap" that works as follows: After a beneficiary and the insurer pay $2,860 for prescription drugs during a benefit period, the beneficiary will pay 47.5% of the plan's covered brand-name perscription drugs until out-of-pocket expenses total $4,700, at which point catastrophic coverage takes effect. Effective the following calendar year, a new benefit period begins with applicable premiums, copayments, and other costs.

 

Medicare's rules can be confusing for many people. The Medicare website can be a valuable resource. Every year, Medicare also mails Medicare & You to beneficiaries and makes this fact-filled publication available online. You may want to review it to make sure you have an cost structure accurate understanding of the Medicare program.

 

Points to Remember

 

1.  Medicare consists of four components: Parts A, B, C, and D.

 

2.  Part A is hospital insurance designed to help cover care in a hospital or rehabilitation center. In addition, Part A may cover a limited amount of care in a skilled nursing facility or hospice.

 

3.  Part B is medical insurance that helps to cover physician services, outpatient care, preventive services, durable medical equipment, and certain home health care.

 

4.  Part C, also known as Medicare Advantage, consists of insurance plans provided by private carriers. For beneficiaries with Part C, Medicare pays a fixed amount every month to a private insurer for their care.

 

5.  Part D, which is prescription drug coverage, may be available as part of a Medicare Advantage plan or may be purchased in addition to Part A and Part B (also known as "Original Medicare").

 

Required Attribution

 

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

 

© 2016 Wealth Management Systems Inc. All rights reserved.

 

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.