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Financial Olympics – Going for the Gold

Financial Olympics - Going for the Gold

Originally aired 7/28/2021

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Just like training for the Olympics, being financially independent takes hard work and dedication. In this episode you’ll learn:

You’ll learn:
– How to go for the gold with your finances
– Milestones to hit in your hundred-meter dash to retirement

Links:

The Fastest Four Minutes in Finance

The Talking Cents Podcast

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SHOW NOTES

Getting to the Opening Ceremony

  • In news you might have missed if you live under a rock… The Olympics started this week.
    • July 23rd – August 8th
    • Hosted in Tokyo
  • Really the only time a year that people care about table tennis, trampoline or fencing
    • But when bragging rights are on the line and your country is competing to be the best in the world everything is interesting right?!
  • Have you thought about how much an Olympic athlete has to train to be the best in their nation and earn a spot to compete in the Olympics?
    • For example: USA gymnast Simone Biles has previously said that she trains for 32 hours a week, with one day off.
    • Michael Phelps told ESPN that he eats roughly 8,000 – 10,000 calories a day including “lots of pizza and pasta”. In addition to stuffing down carbs, he’s said that he routinely eats foods like fried egg sandwiches.
  • It’s safe to say that going for the gold isn’t an overnight journey. It takes years and years of practice and sacrifice just for the chance to compete for an Olympic roster spot.
  • The same could be said about your retirement
    • No, we’re not asking you to start eating 10,000 calories a day or obsessing 32 hours a week over your finances.
    • What we are asking you to do though is to start wherever you’re at and put in the work for your retirement to be exactly what you imagine.
    • If you’re nearing retirement, this show is specifically for you. If you’re a little younger, this show is for you too. You can never learn about these things too early, but we also have a podcast that is aimed specifically at you. It’s called Talking Cents. Click here!
  • Today
    • Even if you don’t fit in any of the age brackets we talk about in the show, you need to get started today.
    • Allowing your money the opportunity to compound over time can be extremely beneficial to your financial future. 
      • You can’t change your past, but you can take action right now to make an impact on your future!
    • The best place to get started is Moneyworks – click here to learn more.
  • Age 50
    • You’re now eligible to make “catch-up” tax-advantaged contributions to 401(k)s, other employer-sponsored retirement plans, and IRAs.
    • 2021 Catchup Limits:
      • 401(k)
        • Contribution limit is unchanged at $19,500.
        • Catch-up contribution limit is $6,500 for those age 50 and older.
        • Employer and employee contribution limit will be $58,000.
        • Compensation limit will climb to $290,000.
        • Income limits for the saver’s credit will increase to $33,000 for individuals and $66,000 for couples.
        • Contribution Deadline: 12/31/21
      • Traditional and Roth IRA
        • Contribution limit if you are below age 50 and will not turn 50 during the year: $6,000
        • Catch-up contribution limit if you are age 50 or older is an additional $1,000 (so, $7,000 total)
          • You are treated as being age 50 or older if you will turn age 50 or older at any point during the calendar year to which the contributions relate.

The Long Jump

  • Age 55
    • If you separate from service with your employer during or after the year you reach 55, you may be eligible to take a distribution from your account in the 401(k) or another employer-sponsored retirement plan without paying an additional 10% tax for early withdrawal (on top of regular income taxes).
      • These distributions are allowed only if you’ve left the employment of the company sponsoring that plan and aren’t working elsewhere.
      • It’s generally better to keep your tax-advantaged retirement savings or investments intact.
      • Continuing to make contributions to retirement plans while you’re working full time may help your retirement account balances continue to grow.
      • Just because it’s legal doesn’t mean it’s the right thing to do.
      • Planning for this is important.
  • Age 59½
    • Once you reach age 59½, withdrawals from employer-sponsored retirement plans and IRAs are no longer subject to the 10% early withdrawal tax, though you still may owe regular income tax on the distributions.
    • Opportunity for an in-service withdrawal:
      • 4 options
        • Keep the money in the plan (not required to take it out at 59½)
        • Roll it over to a new employer plan.
        • Cash out (in most cases don’t recommend)
        • Rollover to IRA accounts and begin retirement income planning process
  • Age 62
    • Age 62 is the minimum age at which you can choose to begin receiving Social Security retirement benefits.
      • However, or each year you postpone taking this benefit (until age 70), your monthly check will be larger.
      • There’s a difference between what is right and what is practical.
      • Whether to start collecting Social Security, to keep working, or to work and receive benefits depends on your personal situation.
      • If you continue to work and take Social Security, there are income limits that could reduce your benefits until you reach full retirement age.
    • Also, if you retire now and you do not work for one of the dwindling number of companies that provide continuing health coverage for retirees, you may be able to extend your group health benefits for a limited time through COBRA (or a state’s “mini-COBRA” law).
      • However, you’ll have to pay the full cost of COBRA premiums (unless your employer subsidizes all or part of the cost), and once the COBRA benefits end, you’ll probably need to purchase a private health insurance policy to tide you over until you’re eligible for Medicare.

Freestyle

  • Age 65
    • This is the age at which most Americans are eligible for Medicare, the federal government’s retirement health insurance program that covers much of the cost of physician and hospital care and other health services.
      • But Medicare comes in several segments — parts A, B, C, and D — and the rules for signing up and receiving benefits through each one are complex.
      • Penalty for not signing up for parts b and d within a certain amount of time – a lifetime of higher premiums.
        • 10% surcharge on part b premiums.
      • Work with your advisor to save you a lifetime of extra cost by knowing when to sign up.
    • Getting started with Medicare on the Medicare.gov site provides basic information about the program, with links to details about premium costs, enrollment deadlines, and other important things to know.
      • A lot of information on here can be confusing. Work with your advisor for help.
    • Age 65 is also when you need to consider purchasing a private “Medigap” insurance policy to help with copayments and deductibles not covered by Medicare.
  • Age 66
    • If you were born between 1943 and 1954, age 66 is your “full retirement age” for Social Security. That’s the age at which you may first become entitled to full or unreduced retirement benefits. (Different age requirements apply to those born before 1943.)
    • For those born after 1954, the full retirement age will increase by two months a year until the current maximum of age 67, for those born in 1960 and later.
      • Everyone who was born in 54 turned 66 in 2020 – the full retirement age of 66 is now a thing of the past. Now it will increase by two months every year.

Stick the Landing

  • Age 70
    • If you’ve waited until your 70th birthday to begin taking Social Security, you’ll now get the biggest possible monthly benefit, which may be as much as 76% larger than if you had started receiving payments at age 62.
    • Any further delay in beginning payments won’t increase benefit amounts.
  • Age 70½ or 72
    • The rules have changed regarding when you must begin taking required minimum distributions, known as RMDs, from traditional and Roth 401(k) accounts or traditional IRAs.
    • As of January 2020, individuals must begin taking RMDs starting at age 72.
    • You may defer your first RMD until April 1st in the year after you turn age 72, but then you’re required to take two distributions in that year.
    • RMD amounts are calculated as a percentage of your account balances and are based on your life expectancy.
    • If you don’t take the full amount of these annual distributions within the required time frame, you’ll incur a significant additional tax of 50% of the difference between what you received and the required amount you should have withdrawn.
    • Your first distribution is actually due by April 1st of the year after you reach 72. However, if you wait until that year to take the first withdrawal, you’ll have to take a second one by December 31st of the same year.
    • The additional income from that second distribution could put you in a higher tax bracket and has the potential to substantially increase your tax bill. Subsequent annual distributions are required by the end of each calendar year.
      • The exception to RMD rules:
        • If you continue to work, and you own less than 5% of the business sponsoring the plan, the plan may allow you to delay taking distributions from the 401(k) or another employer-sponsored retirement plan until the year you retire.
        • However, you’ll still need to start RMDs from all traditional IRAs according to the normal schedule. (There are no RMDs for Roth IRAs.)
    • It might be tax-beneficial to you to take distributions earlier to avoid a build-up in IRA balance, which would lead you to be required to take a larger minimum distribution.
    • This has changed with the Secure act.

FINAL THOUGHTS

    • Knowing what deadlines you need to meet can:
      • Help you avoid unnecessary additional taxes by knowing the dates for optional and required retirement plan withdrawals.
      • Allow you to maximize your Social Security benefit.
      • Minimize your Medicare premiums and ensure coverage by understanding the program’s rules and deadlines.
  •  
    • We get it. Retirement can be confusing. We help you cut through the confusion, create a clear plan, and build toward financial independence.
  •  
    • All of this really emphasizes the importance of having a relationship with your advisor and meeting regularly.
      • Because we don’t expect you to just know these things or, quite frankly, keep up with them on your own. But if your advisor knows your personal financial situation and meets with you regularly, they can help you keep track of deadlines so that you can move on to what you love most!