• Mid-Year Retirement Planning Checklist

    Revisit, Revise, and Strengthen Your Financial Plan for the Remainder of 2024

    Planning for retirement demands a lot from us – and it’s not a one-time job. Whether it be our time, energy, or financial resources, our retirement needs are always evolving, and we must nurture our savings consistently over the years. If you’ve been taking a more hand-off, set-and-forget approach recently, the middle of the calendar year offers a timely opportunity to reflect, reassess, and make any necessary changes so that you can strengthen your financial foundation for the next six months and beyond. If you’re unsure where to start, try using this mid-year retirement planning checklist to kickstart the process.

    Mid-Year Retirement Planning Step #1. Know Where You Stand

    The first step of this retirement planning checklist isn’t focused specifically on retirement. That’s because, before you can strengthen your retirement plans, you must first gain a clear understanding of your overall financial situation. This can be a great source of anxiety, especially if you haven’t closely examined your finances in a while. However, you’ll feel better once you know exactly where you stand. Begin by collecting all relevant documents pertaining to your bank accounts, outstanding loans, debts, and any other elements contributing to your financial landscape. This will help you to compile a detailed list of your assets and liabilities, forming the cornerstone for subsequent steps in our retirement planning checklist.

    Mid-Year Retirement Planning Step #2. Clarify Your Retirement Goals

    Now that you know where you’re starting from, it’s time to determine your desired destination. That means you’ll need to clearly outline your retirement goals. Ask yourself questions such as when you plan to retire, what type of lifestyle you envision, and which activities you want to pursue. Establishing specific and measurable goals will help tailor your savings and investment strategies to meet your unique retirement objectives.

    Mid-Year Retirement Planning Step #3. Review and Adjust Your Budget

    If the first two steps were about determining where you’re beginning and ending, this step is dedicated to constructing a roadmap that will lead you to your final destination – your dream retirement! Regardless of how financially secure you believe yourself to be, adhering to a budget is imperative to remain on the right path to achieving your objectives. If you find yourself uncertain about where to begin or concerned about staying disciplined, there are numerous helpful apps and online resources available to assist you through each stage of the process.

    Mid-Year Retirement Planning Step #4. Maximize Account Contributions

    Now that you’re on your way, be sure that you’re taking advantage of any employer-sponsored retirement plans, such as 401(k)s or 403(b)s, by contributing the maximum amount allowed. These contributions not only reduce your taxable income but also grow tax-deferred until withdrawal. If you’re self-employed or your employer doesn’t offer a retirement plan, consider opening an Individual Retirement Account (IRA) and contributing regularly. Even if you think you have your contributions set, use this step in the retirement planning checklist to assess whether you can contribute more to max-out your options.

    Mid-Year Retirement Planning Step #5. Rebalance Your Portfolio

    While investing is one of the best ways to build wealth, it doesn’t come without risk. Take some time now to diversify your investment portfolio to mitigate risk. Consider a mix of stocks, bonds, and other assets that align with your risk tolerance and retirement timeline. Don’t forget to periodically rebalance your portfolio to maintain an optimal asset allocation and adjust it as needed based on changing market conditions and your risk profile. A financial advisor can be helpful as you navigate this step in the retirement planning checklist.

    Related: New Year, New Goals: Planning Your Money Moves for 2024

    Mid-Year Retirement Planning Step  #6. Fortify Your Emergency Fund

    No matter how prepared you are, there’s always the chance that something unexpected could happen, leaving you with a bill that you weren’t ready to pay. To help protect your retirement savings, it’s important that you have a solid emergency fund set aside. Generally, you want to aim to have at least three to six months’ worth of living expenses set aside in a liquid and easily accessible account. This fund will serve as a financial safety net, preventing you from dipping into your retirement savings in times of unexpected expenses.

    Mid-Year Retirement Planning Step #7. Plan for Healthcare Costs

    Health expenses often increase in retirement, making them one of the biggest threats to retirees’ financial security, so it’s crucial to plan for healthcare costs. Review your current health insurance coverage and consider supplemental insurance, such as long-term care insurance, to provide additional protection. If you’re not yet eligible for Medicare, use this step in the retirement planning checklist to explore other healthcare options to bridge the gap.

    Mid-Year Retirement Planning Step #8. Get Serious About Your Debt

    High-interest debt can erode your retirement savings, so strive to enter retirement debt-free or with minimal debt. To achieve this, develop a plan to pay off outstanding debts, focusing on high-interest debts first. This will free up additional funds for retirement savings and ensure a more stable financial future.

    Mid-Year Retirement Planning Step #9. Choose a Social Security Benefits Strategy

    Social Security benefits can significantly boost your income in retirement, especially when you get strategic about how you claim them to begin with. For instance, delaying the start of your benefits can lead to higher monthly payments. So, take some time to familiarize yourself with Social Security benefits and strategize the optimal time to claim them based on your financial situation. You’ll want to consider factors such as your health, life expectancy, and overall financial situation when deciding.

    Mid-Year Retirement Planning Step #10. Reassess Your Estate Plans

    Estate planning helps you make certain that your assets are distributed according to your wishes, minimizing potential complications for your loved ones. Don’t forget to update or create essential estate planning documents at this point in your retirement planning checklist. This includes wills, trusts, and powers of attorney. Life changes quickly at times, so it’s important that you regularly review and designate beneficiaries for your retirement accounts and life insurance policies.

    Remaining Hands-On with Your Retirement Plan Throughout the Years

    Retirement planning is a continuous process that requires careful consideration and adjustment. By taking time mid-year to use a comprehensive checklist, you lay the groundwork for an enjoyable retirement. If this list gives you anxiety and you would like assistance, reach out to us at Lane Hipple. This checklist is part of our Client Review process, and we are happy to review it alongside you. Remember, the key to successful retirement planning is proactive and informed decision-making.

    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • Navigating College Savings: Exploring 529 Plans and Coverdell ESAs

    A Comprehensive Guide to 529 Plans and Coverdell ESAs for Education Savings

    Navigating college savings is a significant concern for many families. With rising tuition costs and the increasing necessity of higher education for career advancement, parents and guardians are keenly focused on finding effective ways to set aside funds for their children’s educational future. Two popular options for saving are 529 Plans and Coverdell Education Savings Accounts (ESAs). This article will delve into the features, benefits, and limitations of both, helping you make an informed decision based on your family’s needs.

    1. Understanding 529 Plans

    As you begin researching your options for navigating college savings, you’re likely to come across this popular option. Let’s dig into the details.

    What is a 529 Plan?

    A 529 Plan is a tax-advantaged savings plan designed to encourage saving for future education costs. Legally known as “qualified tuition plans,” 529 Plans are sponsored by states, state agencies, or educational institutions. They are authorized by Section 529 of the Internal Revenue Code.

    Types of 529 Plans

    There are two main types of 529 Plans:

    • Savings Plans work much like a retirement account, where investments can grow tax-deferred and distributions to pay for the beneficiary’s college costs are federally tax-free.
    • Prepaid Tuition Plans let savers purchase units or credits at participating colleges and universities for future tuition and mandatory fees at current prices for the beneficiary.

    Advantages of 529 Plans

    • Tax Benefits: Contributions grow tax-deferred, and withdrawals for qualified education expenses are exempt from federal tax. Some states also offer tax benefits such as deductions or credits for contributions.
    • High Contribution Limits: Most plans allow contributions until all account balances for the same beneficiary reach $235,000 to $500,000.
    • Flexible: Account owners can choose from a variety of investment options and can change the beneficiary if the original beneficiary does not need the funds for college.

    Considerations

    • Investment Options Limited: Investment options in 529 Plans are often limited to those selected by the plan.
    • Penalty for Non-Qualified Withdrawals: Non-qualified withdrawals are subject to income tax and a 10% federal penalty on earnings.

    Related: College Costs Are Rising 5x Faster Than Inflation

    2. Exploring Coverdell Education Savings Accounts (ESAs)

    Now, let’s discuss another common option you might consider as you’re navigating college savings.

    What is a Coverdell ESA?

    A Coverdell ESA is a tax-advantaged savings account designed to pay for the beneficiary’s educational expenses, from elementary to post-secondary.

    Benefits of Coverdell ESAs

    • Tax Advantages: Similar to 529 Plans, the earnings in a Coverdell ESA grow tax-free, and withdrawals for qualified education expenses are also tax-free.
    • Wide Range of Investment Choices: Unlike 529 Plans, Coverdell ESAs can be used for a range of investments, similar to those available in IRAs.
    • Use for K-12 Expenses: Funds can be used not only for college expenses but also for elementary and secondary education, including tuition, books, and uniforms.

    Limitations

    • Contribution Limits: Contributions are limited to $2,000 per beneficiary per year, regardless of the number of accounts set up in the beneficiary’s name.
    • Income Restrictions: Eligibility to contribute to a Coverdell ESA phases out at modified adjusted gross incomes between $95,000 and $110,000 for single filers and between $190,000 and $220,000 for joint filers.
    • Age Restrictions: Funds must be used by the time the beneficiary turns 30, with some exceptions for special needs beneficiaries.

    3. Choosing Between 529 Plans and Coverdell ESAs

    When deciding between a 529 Plan and a Coverdell ESA, consider the following factors:

    • Contribution Amounts: If you plan to save a significant amount, a 529 Plan may be more suitable due to its higher contribution limits.
    • Investment Flexibility: If you prefer more control over your investments, a Coverdell ESA offers more flexibility.
    • Use of Funds: If you need savings for K-12 expenses, a Coverdell ESA is advantageous.
    • State Tax Benefits: Many states offer tax benefits for contributing to a 529 Plan, which might not be available with a Coverdell ESA.

    Navigating College Savings: Determining the Right Approach for Your Family’s Needs

    Navigating college savings options and choosing the right one for you involves weighing the benefits and limitations of each type of account. By understanding the differences between 529 Plans and Coverdell ESAs, you can tailor your college savings strategy to fit your financial situation and educational goals for your beneficiary. Careful consideration of the features of each option will guide you in preparing for the educational expenses ahead.

    Illuminated Advisors is the original creator of the content shared herein. I have been granted a license in perpetuity to publish this article on my website’s blog and share its contents on social media platforms. I have no right to distribute the articles, or any other content provided to me, or my Firm, by Illuminated Advisors in a printed or otherwise non-digital format. I am not permitted to use the content provided to me or my firm by Illuminated Advisors in videos, audio publications, or in books of any kind.

  • The One-Day Trade Settlement: What It Means for Investors

    Introduction

    On May 28th, 2024, a seemingly inconspicuous trade settlement change swept through the financial markets in the United States. While it might have gone unnoticed by many, this update holds significant implications for investors, both individual and institutional. Let’s delve into the details of what transpired and explore its impact on the world of investing.

    The Trade Settlement Period: A Crucial Aspect

    Before we dive into the recent change, let’s understand the concept of trade settlement. When you buy or sell a security (such as stocks, bonds, or exchange-traded funds), the actual transfer of ownership and funds doesn’t happen instantaneously. Instead, there’s a lag between the trade execution and the settlement—the moment when ownership officially changes hands and funds are exchanged.

    Traditionally, the settlement period for U.S. and Canadian securities traded on U.S. exchanges was two business days after the trade date. In other words, if you sold a stock on Monday, the settlement would occur on Wednesday. This delay allowed time for various administrative processes, including verifying the trade details, transferring shares, and ensuring the funds were available.

    The Latest Update

    As of May 28th, 2024, the trade settlement period for U.S. and Canadian securities traded on U.S. exchanges was shortened to one day after the trade date.

    The Impact on Individuals

    • Faster Processing Time – For individual investors, this change translates into speed. When you sell a security, you’ll receive the proceeds in half the time. No more waiting for two days; your cash will be available sooner. Whether you’re reallocating your portfolio, taking profits, or rebalancing, the reduced settlement period enhances your agility.

    • Reduced Transaction Risk – Imagine you’re selling a stock to fund an important life event—a down payment on a house, your child’s education, or retirement expenses. With the shorter settlement window, there’s less exposure to market fluctuations. The risk of unexpected price movements impacting your transaction diminishes significantly.

    The Institutional Perspective

    Institutions—brokerages, mutual funds, and pension funds—also benefit. The streamlined settlement process reduces operational complexities. It simplifies back-office tasks, minimizes reconciliation efforts, and enhances overall efficiency. For large-scale trading operations, this adjustment is a game-changer.

    Conclusion

    The seemingly subtle shift from a two-day settlement to a one-day settlement is anything but trivial. It aligns with the digital age’s need for speed, efficiency, and risk reduction. As investors, we welcome this change—one that empowers us to act swiftly and confidently. So, the next time you execute a trade, remember that behind the scenes, the wheels are turning faster than ever.

    For a more detailed analysis of the institutional impact, you can explore the SEC’s fact sheet. Additionally, if you have any questions or need personalized guidance, our team at Lane Hipple is here to assist you.

  • Understanding New Jersey’s Senior Freeze Program

    Navigating Property Tax Relief in the Garden State

    Understanding the importance of financial planning for seniors, the State of New Jersey offers the “Senior Freeze” Program, a property tax relief initiative designed to stabilize property taxes for eligible residents. This program is specifically for those aged 65 and older, providing them with the opportunity to freeze the amount of property taxes they pay at a level established in a base year, protecting them from future tax increases due to rising property values or rates.

    Eligibility Criteria: To qualify for the Senior Freeze Program, applicants must meet several criteria:

    • Age – Must be 65 years or older on December 31, 2022, or receive Social Security disability payments on December 31, 2022, and also on December 31, 2023.
    • Home Ownership – Must have owned and lived in or leased a site in a mobile home park for a manufactured or mobile home that they owned since December 31, 2019, or earlier.
    • Taxes – Must have paid all 2022 property taxes by June 1, 2023, and all 2023 property taxes by June 1, 2024.
    • Income Limit – Have an annual household income of $150,000 or less in 2022 and $163,050 or less in 2023. With some exceptions, all income must be taken into account, including things such as Social Security and pensions.

    Click here to find out if you are eligible

    Benefits: The primary benefit of the Senior Freeze Program is the ability to lock in the amount of property taxes paid at the level of a designated base year. This means that even if property tax rates increase, eligible seniors will continue to pay the amount they paid in their base year, effectively freezing their property tax burden. This can provide significant financial relief and stability for seniors living on fixed incomes.

    The program also includes provisions for reimbursement of the difference between the amount of property taxes paid in the base year and the amount paid in the current year, subject to the program’s rules and limitations. Here are some Frequently Asked Questions.

    Application Process: Interested seniors can apply for the Senior Freeze Program by completing an application form available here on the New Jersey Department of Treasury’s website. It is important to apply within the specified deadlines and provide all required documentation, including proof of age, residency, home ownership, and income. The deadline for submitting the 2023 application is October 31, 2024.

    The Senior Freeze Program is a testament to New Jersey’s commitment to supporting its senior residents, ensuring they can enjoy their retirement years without the worry of increasing property taxes. For more detailed information and assistance with the application process, seniors are encouraged to visit the official New Jersey Department of Treasury website or contact their local tax office.

  • Warren Buffett on the Importance of Holding Cash

    An unwavering belief in the timeless wisdom of “waiting for the right pitch”

    At the recent Berkshire Hathaway annual meeting held in Omaha, Nebraska on May 4th, 2024, Warren Buffett once again emphasized his steadfast belief in the value of holding cash. Shareholders gathered eagerly to glean insights from the Oracle of Omaha, known for his timeless investment wisdom and prudent financial strategies.

    Buffett’s affinity for cash was particularly highlighted during the meeting, echoing his long-standing approach to capital management. Berkshire Hathaway’s first-quarter earnings report revealed an impressive cash hoard of $189 billion, consisting of $36 billion in cash and $153 billion in Treasuries. When pressed about this substantial reserve, Buffett remained resolute in his conservative approach.

    In Warren’s Own Words

    “I don’t think anybody’s sitting at this table has any idea of how to use it effectively and therefore we don’t,” Buffett stated.

    He emphasized that they are selective in their investments, choosing only those opportunities that offer substantial potential returns with minimal risk.

    Buffett’s perspective on holding cash underscores several key principles of financial prudence:

    1. Liquidity and Opportunity

    Holding cash provides Berkshire Hathaway with liquidity, allowing the company to swiftly capitalize on lucrative investment opportunities as they arise. In uncertain times, maintaining a substantial cash reserve enables flexibility and strategic maneuverability.

    2. Risk Management

    Buffett’s reluctance to deploy excess cash stems from his disciplined risk management approach. By preserving liquidity, Berkshire Hathaway remains resilient in the face of market volatility or unexpected economic downturns. This cautious stance minimizes the potential for capital erosion during challenging periods.

    Article: Your Financial Reset Checklist: Moves to Make as we Approach Mid-Year

    3. Patience and Selectivity

    Buffett’s investment philosophy centers on patience and selectivity. He and his team exercise diligence in evaluating potential investments, opting to “only swing at pitches [they] like.” This methodical approach underscores the importance of waiting for optimal opportunities rather than succumbing to impulsive or speculative ventures.

    4. Capital Preservation

    Cash holdings serve as a buffer against unforeseen circumstances or economic shocks. In an evolving market landscape, maintaining a robust cash position safeguards against the need for immediate divestment or distressed asset sales.

    Wait for the Right Pitch

    Warren Buffett’s unwavering commitment to holding cash reflects a fundamental belief in the importance of financial prudence and risk mitigation. His approach resonates with investors seeking stability and long-term wealth preservation. Despite mounting pressure to deploy capital, Buffett’s adherence to disciplined capital allocation underscores the timeless wisdom of “waiting for the right pitch.”

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