Watch Your Blindspot

by | Sep 23, 2020 | News and Updates

It has happened to everyone. You are driving down the highway and you go to change lanes only to be shaken to your core by a loud horn. That’s right there was a car in your blind spot. You are a good driver, you obey the rules, but just because you can’t see something does not mean it is not there.

I focus on retirement in my practice and I have found that many people do not know what they do not know. Two area that frequently come up are taxes and long-term care. Think about this. About 70% of people turning 65 today may need some type of Long-Term Care. 20% of those requiring care will need it longer than 5 years and currently 80% of care is provided at home by unpaid caregivers. These statistics tell me that this is a blind spot for many people. With cost close to $100,000 a year for care how many can afford a half a million out of their retirement accounts. That is 1 out of 5 people impacted. The reality is that how to pay for Long-term care has changed. I recently analyzed traditional Long-term care plans to asset-based plans and the results surprised even me. Traditional plans are like your homeowners insurance plan. It is a use it or lose it plan. Asset based plans are simply committing and leveraging existing assets for your long-term care. The benefits of these are two-fold. Because it is backed up by a life insurance plan you have cash value that you can access for other needs should they be needed in the future and the second is that if you do not need the care you can designate a beneficiary to receive more than what you allocated to the plan as a death benefit income tax free. For those that want to leave money to heirs this is important. If you do not need it they get the money and if you do need it other assets do not have to be drawn down to cover long term care needs. I am happy to show you how all this works and how it may benefit you. As illustrated by the need and the lack of people having care this is a major blind spot in retirement and I would say that if you do not have long-term care you do not have a retirement plan. You may have a portfolio, but not a plan.

Taxes are the other blind spot. For those retiring today the 401(k) plan or IRA represent the largest portion of their retirement assets. Pensions have become less prevalent and this results in the need to understand the impact of taxes on these assets. The big benefit of saving in a qualified retirement account (401(k) or IRA) was the ability to defer taxes. For many this was the reason they saved in these plans. Now that it is time to take the money out the government wants their money. Currently we are in historically low tax brackets. Given this fact it would make sense to take out as much as possible and satisfy your obligation to the government. This is known as your mandatory tax obligation. For example, if you are in the 25% cumulative tax bracket (state and Federal) and you have an IRA of $100,000 you own $75,000 and the government owns $25,000. This needs to be considered when planning retirement income. I have attended several conferences lately and all have suggested that taxes are likely to rise due to COVID-19 and an estimated 30 trillion of national debt. For many this is a blind spot that will surprise them when income does not last as long as projected. Imagine if you did not have to calculate the impact of taxes in your income. You would eliminate the risk associated with government increasing taxes and reducing your income. Would you consider this a good idea? There is one more hidden blind spot regarding taxes and that happens when the first of a couple dies and the survivor is faced with filing taxes as a single instead of married. The reality is that single tax rates are significantly higher than married. If you don’t factor in for this reality you will again reduce your available income or it will not last as long as before. Take that $100,000 example above and now instead of 25% tax rate it is now 33%. This is common and income suffers.

I help people see their blind spots. One way is an analysis of their tax obligation on their retirement accounts and helping them see that in addition to asset diversification you need to have tax diversification. I help them see alternatives that can minimize the risk of tax increases and other increased costs that are related to taxable income such as Medicare expenses. I will help you see how to optimize your Social Security benefits and possibly reduce the taxes you pay on your benefits. My company focuses on these issues because everyone needs to get all they can out of their retirement resources. My philosophy is if I can show you how to pay less taxes, get more income, and reduce both market and long-term care risk then it makes sense for us to work together. I do not charge for the analysis so come see what you have to lose by not knowing your blind spots.

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