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National Entrepreneurship Month: Managing Irregular Income and Retirement Options When You’re Self-Employed

National Entrepreneurship Month: Managing Irregular Income and Retirement Options When You’re Self-Employed

November is National Entrepreneurship Month and is dedicated to celebrating entrepreneurs, their spirit of innovation, risk-taking, and the economic growth they bring to our communities and the global economy. Honoring these entrepreneurial spirits would not be complete without acknowledging the unique financial challenges they face as self-employed individuals. In this blog, we’re answering common questions about managing irregular income and retirement options when you’re self-employed. These financial strategies and considerations will help you build a healthy financial future as an entrepreneur. 

How can I plan for my retirement while also reinvesting in my business?

When you are self-employed and running your own business, it is tempting to reinvest every dollar you earn right back into your business. Of course, it is important to reinvest some of your earnings to fuel essential growth in your business, but your financial security is also of high importance. Balancing these needs can be challenging, but is possible with proper and thoughtful planning. There are various types of retirement accounts for self-employed individuals including SEP IRAs, 401(k)s, and SIMPLE IRAs. These accounts offer tax advantages while allowing you to save for your retirement and a financially healthy future. The key to successfully utilizing a retirement fund is to contribute consistently, even when income is irregular. Work with a financial advisor to establish a realistic retirement savings goal, and aim to meet it each year. 

What deductions and credits are available to entrepreneurs?

There are many tax deductions and benefits available to self-employed entrepreneurs. The Tax Cuts and Jobs Act (TJCA) went into effect in 2018 and put several changes into place in tax deductions for the self-employed, some of which are permanent and others which are temporary. The following are only some of the current deductions that may be available to you to help reduce your taxable income:

  • Self-employment tax deductions refer to Medicare and Social Security taxes self-employed people are required to pay
  • Home office deductions allow you to deduct the cost of any workspace used regularly and exclusively for business, the business percentage of deductible mortgage interest, home depreciation, utilities, and repairs if you own your home. Rent deductions are also available if you rent your office space outside of your home. 
  • Internet and phone bill deductions allow you to deduct the business portion of these expenses regardless of whether or not you claim home office deductions. 
  • Health insurance premiums deductions are available if you pay for your health insurance premiums and are not eligible to participate in a plan through your spouse’s employer.
  • Meal deductions are relevant when traveling for business, at a conference, or dining with clients. 
  • Travel deductions apply to business travel lasting longer than an ordinary workday, requiring rest, and taking place away from where your business is located. 
  • Retirement plan contributions deductions are available and help you build up tax-deferred investment gains for the future.

Tax credits such as the Small Business Health Care Tax Credit and the Research and Development Tax Credit are also available. It is important to review your deductions and credits every year in order to make your business as profitable as possible. Consider speaking to a financial professional to help you maximize your benefits while remaining compliant with tax laws.

How can I ensure financial security for myself and my family after retiring from my business?

Planning for a financially secure retirement is not solely about accumulating wealth, it also involves creating a reliable income stream in your post-working years. Many different strategies can be used to build your retirement income plan such as investments, annuities, and Social Security. Additionally, be sure to create your estate plan to ensure your wealth lasts beyond your lifetime and can contribute to your family’s financial security. Consider life insurance and disability insurance as an extra layer of protection in the case of unforeseen events. Sit down with your financial advisor to determine which options are best for you based on your personal retirement goals and your individual financial circumstances. 

How can I balance my personal financial goals with the financial needs of my business?

Balancing your personal goals with the needs of your business may be daunting, but it is essential to your (and your business’s) financial well-being. To begin your balancing act, set clear priorities for your personal finances while keeping your business’s financial needs in mind. Use these priorities to create a budget that accommodates both business and personal aspects of your life. Build an emergency fund into this budget to help take care of any unexpected expenses, whether they are personal or business-related. The most important part of budgeting is sticking to your budget! If you are struggling to establish or stay within your set budget, reach out to a financial advisor.

What steps should I take to prepare for audits or regulatory inspections?

Facing audits or regulatory inspections can be nerve-racking, but with proper records and a strong financial team, you can navigate them smoothly. The best approach involves maintaining accurate financial records and documentation to ensure transparency in your financial affairs. Keep receipts, bills, and records of any necessary communication on hand. Additionally, take time to understand relevant regulations and tax laws through your own research and professional financial guidance. By staying informed and organized, you can help avoid any accidental lack of compliance to mitigate regulatory headaches.

By seeking professional financial guidance as an entrepreneur, you can proactively address financial challenges and reap the long-term benefits of effectively managing your irregular income and retirement planning. At Blakely Financial we understand that running a successful entrepreneurial venture is challenging, and our team of financial advisors would love to see how we can support your entrepreneurial efforts. Contact us today to get started. 

 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Optimizing Your 401(k) Contributions

Optimizing Your 401(k) Contributions

What is a 401(k) plan?

A 401(k) plan is a company-sponsored retirement plan that allows eligible employees to contribute a portion of their salary to a variety of investment options. 401(k) contributions are typically “before tax” money, meaning the amount you choose to contribute is deducted from your paycheck before taxes are taken out and you are paying taxes on a smaller portion of your salary. 

Many plans also offer options for employees to make post-tax ROTH 401(k) contributions from their paychecks. Post-tax ROTH contributions do not lower an employee’s taxable income, but they do grow tax-free and aren’t taxed upon withdrawal.

An additional benefit of a 401(k) plan is that when you finally pay the taxes on your 401(k) contributions, you may be at a lower rate. Typically, you begin withdrawing money from your 401(k) when you retire and you may very well be in a lower tax bracket at that time; thus you could end up paying less tax on your savings when you do eventually withdraw funds.

If your company offers a 401(k) plan and you are not participating, you may want to revisit your decision as they are a great opportunity and an easy way to save for the future. If you have just entered the workforce, retirement may be the last thing on your mind. Or if you are an older employee nearing retirement, you might be thinking it is too late. At any stage of life, 401(k)s can offer specific advantages that make them a great option for investing and saving.

Making the Most of Your 401(k) Contributions

Many employers offer matching contributions to 401(k)s. For example, your employer may offer a 4 percent match, where they will contribute the same amount you do, up to 4 percent. While this is their limit, you can personally contribute more. If you are not contributing to your company’s 401(k) plan and they have a match, you are leaving money on the table! Don’t be concerned if you cannot contribute the maximum amount to your retirement plan. Simply participating in an employer-sponsored plan puts you in a great position for a successful retirement, especially if you start early. If you are unsure about the specifics of your company’s plan, take the time to read over it thoroughly, perhaps with your financial advisor, so you can make the most of your money.

Combined Savings Strategy

A large number of people find success in a combined savings strategy using both a 401(k) and an IRA to truly maximize their retirement funds. A study conducted by the Employee Benefit Research Institute (2020) found that, on average, individuals who owned both a 401(k) and an IRA at some point during the six years of the survey had combined balances about 2.5 times higher than those who owned only a 401(k) or an IRA. People who owned both types of accounts consistently over the period had even higher balances. Talk to a financial advisor to explore your options and decide which is best for you based on your own income and circumstances.

A Few Key Points to Remember about 401(k)s

  • It is a retirement savings plan, so once you put money in it is best to leave it in. 
  • There are penalties if you take the money out before retirement age.
  • If you change employers you can roll your vested balance into your new employer’s 401(k) plan or into another qualifying retirement account such as an IRA.

No matter what, take advantage of any type of savings plan your current employer offers as the earlier and more aggressive you are, the closer you will come to achieving your financial goals. If you have questions, it is always a great idea to call a financial advisor for guidance. Contact the Blakely Financial team today to get started saving for your future. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Understanding Social Security Survivors Benefits

Understanding Social Security Survivors Benefits

Social Security provides retirement income for workers in the United States by replacing a portion of their pre-retirement income based on their lifetime earnings. What happens to your benefits when you or an immediate family member passes? In this article, we explore how Social Security benefits can extend beyond your lifetime and support your loved ones as Social Security survivors benefits. 

Defining Social Security Survivors Benefits

Social Security survivors benefits refer to the portion of Social Security funds set aside as a form of life insurance for widows, widowers, and any dependents of eligible workers. Funds begin being set aside from the day you start paying into your Social Security fund. There are two main determining factors when deciding on the presence and status of benefits: the deceased’s work history and the credits they have accumulated. The more years an individual works and is paying into the fund, the more credits they will earn, leaving a more significant benefit for loved ones to access after their passing. The number of credits needed to provide survivors benefits differs based on the worker’s age at the time of death. No one needs more than 40 credits to be eligible for Social Security benefits, so with the ability to earn up to 4 credits per year, anyone working and contributing to Social Security for at least 10 years is eligible. Each situation is different. For more insight, talk to a Social Security claims representative about your situation and choices.

Who qualifies for these benefits?

If you meet the necessary work requirements, different family members may be eligible to collect survivors benefits including:

  • Spouse
  • Ex-spouse
  • Children under a certain age
  • Parents over the age of 62 and dependent on your income

It is possible to have multiple survivors benefits within a single family but the amount that can be drawn for each within a single household is capped by the maximum family benefit. The percentage of benefits they receive will vary as follows, according to the Social Security Administration: 

  • Spouse or ex-spouse, full retirement age or older: 100%
  • Spouse or ex-spouse, age 60 through full retirement age: 71.5% – 99%
  • Spouse or ex-spouse with a disability, age 50 – 59: 71.5%
  • Spouse or ex-spouse caring for a child under age 16: 75%
  • Child under age 18 or who has a disability: 75%
  • Single surviving dependent parent: 82.5%
  • Both surviving dependent parents: 75% to each parent

Taxes and Optimizing Payout

Survivors benefits can be claimed even if the person making the claim is currently working. The amount may be reduced based on multiple factors including the survivor’s age and income. When you receive benefits of any kind, it is important to factor in taxes. The amount paid in taxes is determined by a calculation of combined income, which is defined as your adjusted gross income (AGI), plus nontaxable interest, plus half of your Social Security benefits.

When filing as a single individual if your combined income is: 

  • Below $25,000: Your Social Security benefits are not taxed
  • $25,000 – $34,000: 50% of your Social Security benefits are taxable
  • Over $34,000: 85% of your Social Security benefits are taxable

When filing status is married filing jointly if your combined income is:

  • $32,000 – $44,000: 50% of your Social Security benefits are taxable
  • Over $44,000: 85% of your Social Security benefits are taxable

Children may be subject to taxes on benefits if they hold trust accounts or brokerage funds. 

Someone already receiving their own Social Security benefits must choose between those and survivors benefits, they can not take both. Like retirement benefits, waiting until age 67 allows the payment amount to increase annually. Delaying survivors benefits may result in a larger payout overall than delaying your own Social Security. Talk to a financial professional to work out which option will have the highest payout. 

How to Apply for Social Security Survivors Benefits

Social Security survivors benefits are not automatic, you will need to go through a formal application process which can be completed by phone, online, or in person at a Social Security Administration office. Documents you will need to complete the process include:

  • Proof of death of your loved one
  • Birth certificate, for both you and your loved one
  • Proof of US citizenship, for both you and your loved one
  • Your loved one’s W-2 form or self-employment tax returns for last year
  • A marriage certificate, as a spouse
  • A final decree of divorce, as an ex-spouse
  • For other circumstances, other documents may be required

If you need assistance throughout the filing process, you are able to go into a Social Security Administration office either by yourself or with an advisor to work with a representative on your case. 

Contact Blakely Financial today to learn more about your Social Security survivors benefits. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Electing Delayed Social Security Retirement Benefits

Electing Delayed Social Security Retirement Benefits

What is it?

You can elect to delay receiving Social Security retirement benefits.

You can choose to delay receiving Social Security retirement benefits until you are past normal (full) retirement age. Perhaps you want to work longer because you enjoy it, or maybe you want your retirement benefit to be higher when you finally do retire.

Your benefit will be increased by the delayed retirement credit.

If you are eligible to receive Social Security retirement benefits but you delay receiving benefits until after normal retirement age, you will be eligible to receive the delayed retirement credit. The delayed retirement credit increases your retirement benefit by a predetermined percentage of your primary insurance amount (PIA) for each month you delay receiving retirement benefits up to the maximum age of 70. The amount of the credit you receive depends upon two factors:

  • What year you were born
  • How many months you delayed receiving retirement benefits past normal retirement age

If you were born in 1943 or later, you will receive 2/3 of 1 percent more per month or 8 percent more per year if you delay receiving retirement benefits. So, for example, if your normal retirement age is 66, and you delay retirement until age 70, your benefit at age 70 will be 32 percent more than it would be at age 66. If your normal retirement age is 67, and you delay retirement until age 70, your benefit at age 70 will be 24 percent more than it would be at age 66.

Although the delayed retirement credit increases your Social Security retirement benefit, it does not increase your PIA.

When can it be used?

You must be eligible to receive delayed retirement benefits.

In order to receive delayed retirement benefits, you must meet the following criteria:

  • You must be at least one month older than normal retirement age, and
  • You must be fully insured for retirement benefits (in most cases have 40 quarters of coverage).

You must apply for benefits.

Receiving delayed retirement benefits is not automatic. You must apply for benefits when you want to begin receiving them. The Social Security Administration (SSA) recommends that you contact an SSA representative two or three months before you want to begin receiving benefits. You can call the SSA at 1-800-772-1213 for more information.

Strengths

Your retirement benefit will increase.

If you continue to work past normal retirement age and delay receiving Social Security retirement benefits, you may increase your retirement benefit in two ways. Not only will you receive a delayed retirement credit, but your earnings after normal retirement age may be substantial enough to increase your average indexed monthly earnings (AIME), upon which your benefit is based.

Your surviving spouse’s benefit will increase.

If you elect to receive delayed retirement benefits, then die, your surviving spouse (at normal retirement age) may receive 100 percent of the benefit you were receiving. Therefore, if your spouse has a life expectancy substantially greater than your own, you might consider delaying retirement so that your spouse may receive a higher benefit after you die.

Your delayed retirement credit isn’t counted toward your family maximum.

When you retire, your family may be eligible to receive benefits based on your PIA. These benefits may be limited by the family maximum, which generally ranges from 150 to 180 percent of your PIA. However, if you delay receiving retirement benefits, your delayed retirement credit won’t count toward your family maximum and can be paid whether or not your family’s benefits are limited by the family maximum.

Tradeoffs

Delaying retirement won’t necessarily increase your lifetime retirement benefit.

Just because you receive a higher monthly benefit when you delay retirement doesn’t necessarily mean you’ll receive a higher overall lifetime benefit. If you delay receiving retirement benefits, the amount of each benefit check will be higher, but you’ll receive fewer benefit checks than you would have if you begin receiving retirement benefits at normal retirement age. How many fewer checks you receive will depend upon how many years you delay receiving retirement benefits.

For example, assume the following facts apply to you:

  1. You delay retirement by 4 years, and retire at age 70 instead of at age 66, making you eligible for an 8 percent delayed retirement credit for each year you delay retirement. You will receive 48 fewer benefit checks.
  2. Your PIA is $1,000, so if you retire at age 66, your annual benefit will be $12,000. If you retire at age 70, your monthly benefit will be increased by $320, so your annual benefit will be $15,840.
  3. Assume that even if you’ve saved or invested all or part of your benefits, your real rate of return is 0 percent.

Using these factors, it would take you more than 12 years from the time you retire at age 70 to reach the point at which your benefits would crossover with the amount you would have accumulated if you began receiving benefits at age 66 (does not take into account annual cost of living increases):

By this Age Accumulated Benefit if Retirement Age is 66 Accumulated Benefit if Retirement Age is 70 (32% credit has been earned)
70 $ 48,000 $0
76 $120,000 $95,040
82 $192,000 $190,080
83 $204,000 $205,920

If you were to die before reaching this crossover point, your lifetime benefits would be lower than if you had retired at your normal retirement age. Conversely, if you were to die after reaching this crossover point, then your lifetime benefits would be higher. That’s why life expectancy is one of the factors to consider when deciding whether to delay receiving Social Security retirement benefits.

The delayed retirement credit won’t increase benefits paid to most family members.

When you earn the delayed retirement credit, your retirement benefit will increase. However, because the delayed retirement credit doesn’t affect your PIA, benefits that are paid to family members won’t increase (unless you die, at which time your surviving spouse may receive the same benefit you were receiving).

How to do it

Decide whether you want to delay receiving retirement benefits by comparing your options.

You can estimate your retirement benefit online using the Retirement Estimator calculator on the Social Security website (ssa.gov). You can create different scenarios based on current law that will illustrate how different earnings amounts and retirement ages will affect the benefit you receive.

Consider the following questions before making your decision.

  • Why do you want to delay receiving retirement benefits?
  • Can you afford to delay receiving retirement benefits, or do you need Social Security retirement income as soon as possible?
  • Do you expect to live long enough to benefit from delaying your retirement benefits?
  • How important is it to increase the amount of survivor income available to your spouse?

Apply for delayed Social Security retirement benefits.

Three months before you’re ready to retire, fill out an application for benefits with the SSA.

Don’t forget to apply for Medicare benefits at age 65. See Questions & Answers.

Tax considerations

If you continue to work past normal retirement age, you will continue to pay Social Security or self-employment tax on your covered earnings. Even though your earnings may increase your AIME (and thus your retirement benefit), you may not be able to recoup those payroll taxes.

Questions & Answers

If you delay receiving Social Security retirement benefits, can you still receive Medicare at age 65?

Yes. Anyone age 65 or older who is entitled to receive Social Security benefits is eligible to receive Medicare, even if he or she has not yet filed an application for Social Security benefits. However, enrollment in Medicare is automatic only for individuals who are receiving Social Security retirement benefits for at least four months before reaching age 65. If you elect to delay receiving retirement benefits, you will need to apply for Medicare benefits online, in person, or through the mail.

Can you delay receiving Social Security retirement benefits until you’re 71 or older?

Yes, but there’s no advantage to waiting longer than age 70 to begin receiving Social Security retirement benefits. You can earn the delayed retirement credit only up until age 70. In addition, if you want to work, any money you earn from working after age 70 won’t decrease your Social Security retirement benefit. So why wait?

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.

Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

Planning Life’s Biggest Vacation: Setting Retirement Goals

Like a summer vacation, ‘life’s biggest vacation’ requires detailed planning. Retirement goals differ for everyone as they are dependent on your current lifestyle and how you see yourself living post-retirement. Making informed decisions when setting retirement goals will help you create a plan and guide you toward the happy retirement you’ve always dreamed of. Use these tips to start planning your retirement today!

Set Your Retirement Goals Early

Goals cannot be achieved if they are not identified ahead of time. When setting your retirement goals, consider where you would like to see yourself after retirement. What would you like to be doing? Where do you want to live? What are the interests and passions you would like to pursue? Answering these questions will allow you to begin road-mapping your retirement plan and solidifying your financial security. 

To most effectively plan your retirement, ensure your goals are specific, measurable, and attainable. The earlier these objectives are set, the sooner you can begin saving and investing. You will be able to establish a solid foundation for a secure and enjoyable retirement early on, keeping your options open and avoiding unnecessary financial strain later on in life.

Create a Retirement Timeline

When do you plan to retire? Once you decide, you can set or adjust your goals to match your ideal timeline. To determine if this period is realistic, assess your current financial situation. Get a clear picture of your financial health by taking a look at your assets, liabilities, and investments. Use this information to make informed decisions about saving and investing for retirement.

Work backward from your ideal retirement age to set milestones along the way. These could include saving amount targets, investment goals and strategies, and other financial decisions that will impact and contribute to your long-term retirement goals. 

Know How Much You Need to Save

When determining how much you need in your retirement fund, consider your basic needs, emergency funds, and leisure. Additionally, factor inflation and healthcare costs into your goals, as the cost of living tends to increase as time progresses. A general rule of thumb is to aim for between 70 to 85 percent of your pre-retirement income to maintain your lifestyle post-retirement. 

It is important to know where these funds for day-to-day living expenses and beyond will come from without a steady paycheck. Keep in mind Social Security, pensions, and individual retirement accounts. Take advantage of any plans offered by your employer such as 401(k)s and IRAs. Contribute as much as possible to these accounts, especially if your employer will match your contributions. Also, think about diversifying your portfolio of investments, and considering risk along the way.

To calculate how much you need in savings, assess your current savings and estimate your future retirement income from various sources like Social Security, pensions, and rental properties. Calculate the retirement gap by subtracting your estimated future retirement income from your current savings. This will give you the amount necessary to bridge the gap. Divide the retirement gap by the number of years until retirement to determine your necessary annual savings. Remember that these calculations are just a starting point. It is important to regularly reassess your progress and adjust as needed. 

Setting retirement goals allows you to take proactive steps toward achieving financial freedom and a comfortable retirement. Remember, retirement will not look the same for everyone. Your plans will differ depending on your age and aim and should be reviewed and adjusted periodically to stay on track. Planning your retirement can be overwhelming but talking to a financial advisor can significantly help you in your journey. Here at Blakely Financial, we want to help you embark on life’s biggest vacation fully prepared and ready to make the most of your years in retirement. Contact Blakely Financial today to get started. 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals. Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.
Commonwealth Financial Network® or Blakely Financial does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser.

 

Social Security Cost of Living Adjustment Adjustment

Social Security Update: Cost of Living Adjustment

If you receive Social Security benefits, you can expect them to be boosted by 8.7% in 2023. This cost-of-living adjustment (COLA) was announced by the Social Security Administration on October 13th, and it is a massive increase from that of previous years. 

What does this mean for you, and what does it imply for the future? 

In 2022, the Social Security cost-of-living adjustment was 5.9%, which was the highest in forty years. The last time the COLA was this high was in 1981, at 11.2%. This adjustment rate is set automatically, based on the inflation rate each year between July and September as it compares to the previous year, and has been set this way since the 1970’s. The amount is based on the rise in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). 

Use the extra benefit wisely

Despite these annual adjustments for inflation, a 2021 study found that the buying power of Social Security benefits declined by 30% from 2000 to early 2021, in part because the CPI-W is weighted more heavily toward items purchased by younger workers than by Social Security beneficiaries. Due to this method of setting the COLA, you should not anticipate that the increase you are seeing in 2023 will be continued in the upcoming years; be sure to handle the extra money wisely to prepare for future years in which your benefits may not be as high. 

While the COLA will actually take effect with the December 2022 benefits, payments will be made in January 2023. To gauge how much more money you may see next year, take your net Social Security benefit, add in your Medicare premium, and multiply that by the 2023 COLA.

If you have not yet begun to claim Social Security benefits, you may consider delaying until they are needed. Your benefits will still reflect the cost-of-living adjustments whether you claim them now or in a later year. Each year that you delay, benefits will increase 8% from your retirement age until age 70. Obviously, this strategy will not be ideal for every person, especially if you have health concerns, but you can change your mind at any point and begin receiving payments- you don’t have to delay until age 70 even if that was your initial plan. Conversely, if you are not ready to retire or decide to go back to work after retiring, you can still receive your social security benefits

If you are in need of a financial planner to help you get the most out of your benefits to enjoy a long and comfortable retirement, contact Blakely Financial today. 

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM  to see what other financial tips we can provide towards your financial well-being.

 

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

 

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

5 Common Factors Affecting Retirement Income

5 Common Factors Affecting Retirement Income

When it comes to planning for your retirement income, it’s easy to overlook some of the common factors that can affect how much you’ll have available to spend. If you don’t consider how your retirement income can be impacted by investment risk, inflation risk, catastrophic illness or long-term care, and taxes, you may not be able to enjoy the retirement you envision.

1. Investment Risk

Different types of investments carry with them different risks. Sound retirement income planning involves understanding these risks and how they can influence your available income in retirement. Investment or market risk is the risk that fluctuations in the securities market may result in the reduction and/or depletion of the value of your retirement savings. If you need to withdraw from your investments to supplement your retirement income, two important factors in determining how long your investments will last are the amount of the withdrawals you take and the growth and/or earnings your investments experience. You might base the anticipated rate of return of your investments on the presumption that market fluctuations will average out over time, and estimate how long your savings will last based on an anticipated, average rate of return.

Unfortunately, the market doesn’t always generate positive returns. Sometimes there are periods lasting for a few years or longer when the market provides negative returns. During these periods, constant withdrawals from your savings combined with prolonged negative market returns can result in the depletion of your savings far sooner than planned. Reinvestment risk is the risk that proceeds available for reinvestment must be reinvested at an interest rate that’s lower than the rate of the instrument that generated the proceeds. This could mean that you have to reinvest at a lower rate of return, or take on additional risk to achieve the same level of return.

This type of risk is often associated with fixed interest savings instruments such as bonds or bank certificates of deposit. When the instrument matures, comparable instruments may not be paying the same return or a better return as the matured investment. Interest rate risk occurs when interest rates rise and the prices of some existing investments drop. For example, during periods of rising interest rates, newer bond issues will likely yield higher coupon rates than older bonds issued during periods of lower interest rates, thus decreasing the market value of the older bonds. You also might see the market value of some stocks and mutual funds drop due to interest rate hikes because some investors will shift their money from these stocks and mutual funds to lower-risk fixed investments paying higher interest rates compared to prior years.

*All investments are subject to risk and loss of principal. When sold, investments may be worth more or less than their original cost. Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

2. Inflation Risk

Inflation is the risk that the purchasing power of a dollar will decline over time, due to the rising cost of goods and services. If inflation runs at its historical long term average of about 3%, the purchasing power of a given sum of money will be cut in half in 23 years. If it jumps to 4%, the purchasing power is cut in half in 18 years. A simple example illustrates the impact of inflation on retirement income. Assuming a consistent annual inflation rate of 3%, and excluding taxes and investment returns in general, if $50,000 satisfies your retirement income needs this year, you’ll need $51,500 of income next year to meet the same income needs. In 10 years, you’ll need about $67,195 to equal the purchasing power of $50,000 this year. Therefore, to outpace inflation, you should try to have some strategy in place that allows your income stream to grow throughout retirement. (The following hypothetical example is for illustrative purposes only and assumes a 3% annual rate of inflation without considering fees, expenses, and taxes. It does not reflect the performance of any particular investment.)

Inflation Bar Graph

3. Long-Term Care Expenses

Long-term care may be needed when physical or mental disabilities impair your capacity to perform everyday basic tasks. As life expectancies increase, so does the potential need for long-term care. Paying for long-term care can have a significant impact on retirement income and savings, especially for the healthy spouse. While not everyone needs long-term care during their lives, ignoring the possibility of such care and failing to plan for it can leave you or your spouse with little or no income or savings if such care is needed. Even if you decide to buy long-term care insurance, don’t forget to factor the premium cost into your retirement income needs. A complete statement of coverage, including exclusions, exceptions, and limitations, is found only in the long-term care policy. It should be noted that carriers have the discretion to raise their rates and remove their products from the marketplace.

4. The Costs of Catastrophic Care

As the number of employers providing retirement healthcare benefits dwindles and the cost of medical care continues to spiral upward, planning for catastrophic health-care costs in retirement is becoming more important. If you recently retired from a job that provided health insurance, you may not fully appreciate how much health care really costs. Despite the availability of Medicare coverage, you’ll likely have to pay for additional health-related expenses out-of-pocket. You may have to pay the rising premium costs of Medicare optional Part B coverage (which helps pay for outpatient services) and/or Part D prescription drug coverage. You may also want to buy supplemental Medigap insurance, which is used to pay Medicare deductibles and co-payments and to provide protection against catastrophic expenses that either exceed Medicare benefits or are not covered by Medicare at all. Otherwise, you may need to cover Medicare deductibles, co-payments, and other costs out-of-pocket.

5. Taxes

The effect of taxes on your retirement savings and income is an often overlooked but significant aspect of retirement income planning. Taxes can eat into your income, significantly reducing the amount you have available to spend in retirement. It’s important to understand how your investments are taxed. Some income, like interest, is taxed at ordinary income tax rates. Other income, like long-term capital gains and qualifying dividends, currently benefit from special–generally lower–maximum tax rates. Some specific investments, like certain municipal bonds,* generate income that is exempt from federal income tax altogether. You should understand how the income generated by your investments is taxed, so that you can factor the tax into your overall projection. Taxes can impact your available retirement income, especially if a significant portion of your savings and/or income comes from tax-qualified accounts such as pensions, 401(k)s, and traditional IRAs, since most, if not all, of the income from these accounts is subject to income taxes. Understanding the tax consequences of these investments is important when making retirement income projections.

*Interest earned on tax-free municipal bonds is generally exempt from state tax if the bond was issued in the state in which you reside, as well as from federal income tax (though earnings on certain private activity bonds may be subject to regular federal income tax or to the alternative minimum tax). But if purchased as part of a tax-exempt municipal money market or bond mutual fund, any capital gains earned by the fund are subject to tax, just as any capital gains from selling an individual bond are. Note also that tax-exempt interest is included in determining if a portion of any Social Security benefit you receive is taxable.

Have you planned for these factors?

When planning for your retirement, consider these common factors that can affect your income and savings. While many of these same issues can affect your income during your working years, you may not notice their influence because you’re not depending on your savings as a major source of income. However, investment risk, inflation, taxes, and health-related expenses can greatly affect your retirement income.

 

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This blog has been developed by an independent third party. Commonwealth Financial Network is not responsible for their content and does not guarantee their accuracy or completeness, and they should not be relied upon as such. These materials are general in nature and do not address your specific situation. For your specific investment needs, please discuss your individual circumstances with your representative. Commonwealth does not provide tax or legal advice, and nothing in the accompanying pages should be construed as specific tax or legal advice. Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.
Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide towards your financial well-being.
Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.
Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

What is Your Retirement ‘Elevator Pitch’?

We are entering the halfway point in the year. Now is a great time to do a mid-year check of your goals. And a great way to do this is to start with an ‘elevator pitch’.  Imagine stepping into an elevator and realizing that you are about to spend the 30-second ride with someone who could make your retirement dreams come true — if only you could explain them before the doors open again. How would you summarize your financial situation, outlook, aspirations, and plans if you had 30 seconds to make an “elevator pitch” about achieving one of your most important goals?

Answering that question — and formulating your own unique retirement dream elevator pitch — could help bring your vision of the future into sharper focus and make sure you are on the path to reaching those goals.

What Are Your Goals?

Start with an overview of what you hope to accomplish. That typically includes describing what you want, when you want it, and why. For example, you might say, “My goal involves retiring in 10 years and moving to a different state so I can be closer to family.” Or, “In the next 15 years, I need to accumulate enough money to retire from my regular job and open a part-time business that will help sustain my current lifestyle.”

If your plans include sharing life with a loved one, make sure you’re both on the same page. Rather than assume you have similar ideas about retirement, discuss what you want a future together to look like.

How Much Will It Cost?

To put a price tag on your retirement dream, consider working with a financial professional to calculate how much money you’ll need. Making multiple calculations using different variables — such as changing your anticipated retirement date and potential investment growth rate — will help you develop a better understanding of the challenges and opportunities you may encounter.

It’s important to remember that plans don’t always work out the way we intend. For example, 72% of workers surveyed in 2021 said they expect to continue working for pay during retirement, but only 30% of retirees said they actually did so. And nearly half (46%) of current retirees left the workforce earlier than expected.1 Understanding the financial implications of an unanticipated change in plans before it happens could make it easier to adjust accordingly.

How Will You Do It?

If your calculations indicate you may be facing a retirement savings shortfall, take a fresh look at your spending habits to help find ways to save more money. Make a list of your fixed expenses and then keep track of your discretionary purchases every day for a month. It might be startling to realize how much you routinely spend on non-essential items, but you’ll quickly discover exactly where to start applying more financial discipline.

Source: Employee Benefit Research Institute, 2021

Finally, you’ll need to manage the funds you earmark for retirement by choosing the types of accounts to use and allocating your money within each account. If you have access to an employer-sponsored retirement account with matching contributions from your employer, you might want to start there and then invest in additional tax-deferred and taxable investments.

Regardless of the types of accounts you choose, your specific investment decisions should reflect your personal tolerance for risk and time frame, while addressing the priorities outlined in your retirement dream elevator pitch. If your retirement outlook changes at any point, take a fresh look at your investment strategy to make sure you’re still potentially on course.

Taking time to perform this exercise of crafting your ‘elevator pitch’ and talking to your trusted financial advisor to review your goals and current situation is imperative in helping to achieve your goals and dreams.

All investing involves risk, including the possible loss of principal. There is no guarantee that any investment strategy will be successful. Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. There is no assurance that working with a financial professional will improve investment results.

1) Employee Benefit Research Institute, 2021

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Engage with the entire Blakely Financial team at www.blakelyfinancial.com to see what other financial tips we can provide for your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

 

Mid-Year is a Good Time for a Financial Checkup

The first half of the year is coming to a close. Conducting a mid-year financial analysis can be helpful. Here are some ways to make sure that your financial situation is continuing on the right path.

Reassess your financial goals

At the beginning of the year, you may have set financial goals geared toward improving your financial situation. Perhaps you wanted to save more, spend less, or reduce your debt. How much progress have you made? If your income, expenses, and life circumstances have changed, you may need to rethink your priorities. Review your financial statements and account balances to determine whether you need to make any changes to keep your financial plan on track.

Take a look at your taxes

Completing a mid-year estimate of your tax liability may reveal new tax planning opportunities. You can use last year’s tax return as a basis, then factor in any anticipated adjustments to your income and deductions for this year. Check your withholding, especially if you owed taxes or received a large refund. Doing that now, rather than waiting until the end of the year, may help you avoid owing a big tax bill next year or overpaying taxes and giving Uncle Sam an interest-free loan. You can check your withholding by using the IRS Tax Withholding Estimator at irs.gov. If necessary, adjust the amount of federal or state income tax withheld from your paycheck by filing a new Form W-4 with your employer.

Check your retirement savings

If you’re still working, look for ways to increase retirement plan contributions. For example, if you receive a pay increase this year, you could contribute a higher percentage of your salary to your employer-sponsored retirement plan, such as a 401(k), 403(b), or 457(b) plan. For 2021, the contribution limit is $19,500, or $26,000 if you’re age 50 or older. If you are close to retirement or already retired, take another look at your retirement income needs and whether your current investment and distribution strategy will provide the income you will need.

Evaluate your insurance coverage

What are the deductibles and coverage limits of your homeowners/renters insurance policies? How much disability or life insurance coverage do you have? Your insurance needs can change over time. As a result, you’ll want to make sure your coverage has kept pace with your income and family/personal circumstances. The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

Ask questions

Finally, you should also ask yourself the following questions as part of your mid-year financial checkup:

  • Do you have enough money in your emergency fund to cover unexpected expenses?
  • Do you have money left in your flexible spending account?
  • Are your beneficiary designations up-to-date?
  • Have you checked your credit score recently?
  • Do you need to create or update your will?
  • When you review your portfolio, is your asset allocation still in line with your financial goals, time horizon, and tolerance for risk? Are any changes warranted?Asset allocation is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. All investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.

Doing that mid-year checkup will help you maintain course and achieve your goals. The team at Blakely Financial is always here to help, so call us today!

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other financial tips we can provide for your financial well-being.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

BFI April Blog • Social Security Benefits

Working While Receiving Social Security Benefits

The COVID-19 recession and the continuing pandemic pushed many older workers into retirement earlier than anticipated. More than 50% of Americans aged 55 and older said they were retired in Q3 2021, up from about 48% two years earlier, before the pandemic.1

For people age 62 and older, retiring from the workforce often means claiming Social Security benefits. But what happens if you decide to go back to work? With the job market heating up, there are opportunities for people of all ages to return to the workforce. Or, to look at it another way: What happens if you work and want to claim Social Security benefits while staying on your job?

Retirement Earnings Test

Some people may think they can’t work — or shouldn’t work — while collecting Social Security benefits. But that’s not the case. First, however, it’s essential to understand how the retirement earnings test (RET) could affect your benefits.

  • The RET applies only if you are working and receiving Social Security benefits before reaching full retirement age (FRA). After reaching full retirement age, any earnings do not affect your Social Security benefit. Your FRA is based on your birth year: age 66 if born in 1943 to 1954; age 66 & 2 months to 66 & 10 months if born in 1955 to 1959; age 67 if born in 1960 or later.
  • If you are under full retirement age for the entire year in which you work, $1 in benefits will be deducted for every $2 in gross wages or net self-employment income above the annual exempt amount ($19,560 in 2022). The RET does not apply to income from investments, pensions, or retirement accounts.
  • A monthly limit applies during the year you file for benefits ($1,630 in 2022) unless you are self-employed and work more than 45 hours per month in your business (15 hours in a highly skilled industry). So, for example, if you file for benefits starting in July, you could earn more than the annual limit from January to June and still receive full benefits if you do not make more than the monthly limit from July through December.
  • In the year you reach full retirement age, the reduction in benefits is $1 for every $3 earned above a higher annual exempt amount ($51,960 in 2022 or $4,330 per month if the monthly limit applies). Starting in the month you reach full retirement age, there is no limit on earnings or reduction in benefits.
  • The Social Security Administration may withhold benefits as soon as it determines that your earnings are on track to surpass the exempt amount. After that, the estimated amount will typically be deducted from your monthly benefit in full. (See example.)
  • The RET also applies to spousal, dependent, and survivor benefits if the spouse, dependent, or survivor works before full retirement age. Regardless of a spouse’s or dependent’s age, the RET may reduce a spousal or dependent benefit based on the benefit of a worker who is subject to the RET.

Back to Work

In this hypothetical example, Fred claimed Social Security in 2021 at age 62, and he was entitled to a $1,500 monthly benefit as of January 2022. However, Fred returned to work in April 2022 and is on track to earn $31,560 for the year — $12,000 above the $19,560 RET exempt amount. Thus, $6,000 ($1 for every $2 above the exempt amount) in benefits will be deducted. Assuming that the Social Security Administration (SSA) became aware of Fred’s expected earnings before he returned to work, benefits might be paid.
In practice, benefits may be withheld earlier in the year or retroactively, depending on when the SSA becomes aware of earnings.

The RET might seem like a stiff penalty, but the deducted benefits are not lost. Your Social Security benefit amount is recalculated after you reach full retirement age. For example, if you claimed benefits at age 62 and forfeited the equivalent of 12 months’ worth of benefits by the time you reached full retirement age, your benefit would be recalculated as if you had claimed it at age 63 instead of 62. You would receive this higher benefit for the rest of your life, so you could receive substantially more than the amount that was withheld. There is no adjustment for lost spousal benefits or lost survivor benefits based on having a dependent child.

If you regret taking your Social Security benefit before reaching full retirement age, you can apply to withdraw benefits within 12 months of the original claim. You must repay all benefits received on your claim, including any spousal or dependent benefits. This option is available only once in your lifetime.

1) Pew Research Center, November 4, 2021

 

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to make sure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Engage with the entire Blakely Financial team at WWW.BLAKELYFINANCIAL.COM to see what other expert advice we can provide towards your financial well-being.

ROBERT BLAKELY, CFP® is a financial advisor with BLAKELY FINANCIAL, INC. located at 1022 Hutton Ln., Suite 109, High Point, NC 27262. He is the founder and president of Blakely Financial, Inc.

Blakely Financial, Inc. is an independent financial planning and investment management firm that provides clarity, insight, and guidance to help our clients attain their financial goals.

Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a Registered Investment Adviser.

Diversification and asset allocation programs do not assure a profit or protect against loss in declining markets, and cannot guarantee that any objective or goal will be achieved.