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Alec Giesting

What is Sequence of Returns Risk?

By Investments, Retirement Planning

Sequence of returns risk can put your retirement portfolio in jeopardy, but what is it, and how do you fight it?

We get it. Retirement can be scary. We know this because it’s our job to help our clients plan for and seamlessly transition into what should be one of the most rewarding times of their lives. What we often find, however, is that most are worried about retirement because of the risks that come with it. But what are some of the risks that strike fear in the hearts of retirement hopefuls? Well, the first is related to longevity—it’s the possibility of running out of money as you get older, and being unable to go back to work in order to support yourself. We also find that people getting ready to retire are concerned about inflation, the cost of health care, the possibility of needing long-term care and more.

There’s one risk, however, that hides in the shadows, waiting to rear its ugly head and throw turbulence into the lives of new retirees and those right on the edge of retirement. It’s called market risk, or the possibility that you could lose your retirement money during market crashes or downturns. How might this look? Specifically, something called sequence of returns risk can be the most dangerous aspect of market risk. And while it might sound complicated, it’s a simple concept with the potential to have major implications on your retirement dreams. Let’s go over what sequence of returns risk is, as well as a few ways you may be able to fight it!

What is Sequence of Returns Risk?

Simply put, sequence of returns risk is the risk of negative market returns occurring right before you retire and/or very early in your retirement. During this time, market downturns can have a much more significant impact on your portfolio.

Again, it might sound like some buzzword the financial industry throws around to scare consumers, but sequence of returns risk is exactly what it sounds like. It’s the sequence, or the order, in which your portfolio provides market returns. It’s key to remember that sequence of returns risk is specifically associated with money directly invested in the market. That means it could apply to vehicles like employer-sponsored retirement accounts, traditional and Roth IRAs, mutual funds, brokerage accounts, variable annuities and any other assets that can lose value during market downturns.

Now, let’s think about your goals for your retirement. If you’re just starting your career, or you’re right in the middle of your working years, you may contribute to your various saving and investing vehicles with the goal of having a large pool of funds when you finally retire at, say, 65 years old. You’d hope that diligent saving and favorable returns would bring your assets to their highest total right at that point, giving you ample funds to draw from once you retire.

Sequence of returns risk is the potential of the market dipping near the end of your career, or in the first few years of your retirement, meaning those drops affect your account balances at their peak. You would then take losses on greater amounts of money, creating greater losses. While you never want to experience dips, it makes sense why you’d hope those periods of market volatility that you will likely encounter at some point during retirement occur farther down the road, especially when you’re concurrently withdrawing money to support your lifestyle.

An Example Where Both Retirees Have $1 Million Saved

Just as an example, let’s consider two retirees, and what happens during their first 10 years of retirement. Both have $1 million saved, and they both determine they need to withdraw $50,000 per year from their accounts to fund their lifestyles.

Our first retiree is lucky. They retire and then experience eight years of a bull market, growing their portfolio by 5% each year. In the next two years, however, they experience declines of 5%, bringing their balance back down.

The other retiree sees the exact opposite sequence. They immediately encounter a bear market upon entering retirement, which drops their accounts by 5% in each of the first two years. Then the market rebounds and goes up 5% each year for the next eight years.

Both retirees continued to withdraw $50,000 per year from their accounts. So, what was the result?

Even though both retirees had the same initial balance, withdrew the same amounts, experienced eight years of bull markets and two years of bear markets, the order or “sequence of returns” made a big difference.

The first retiree didn’t experience market dips at the beginning when their account balances were highest. At the end of the 10-year period, they still had $788,329 left in their account.

The other retiree, on the other hand, wasn’t so lucky. They took losses during the first two years of their retirement, on their highest balances, and by the end of the 10-year period, they only had $695,226.

Please remember this example is purely hypothetical and not reflective of real scenarios or real people. We simply used a starting balance of $1 million for each person, then subtracted $50,000 in income at the beginning of each year, then multiplied the accounts’ balances by the annual positive or negative effect on the market we imagined for this example. Actual market returns are unpredictable and tend to vary far more than in the case study shown. This is strictly to display the potential effects of the aforementioned risk.

What are Some Ways to Mitigate Sequence of Returns Risk?

You can see how the sequence of your returns can affect your portfolio. The market is unpredictable and bottomless, so it’s important to try to shield yourself from, or at least mitigate the possibility of, taking those losses at the starting gate. But how can you do that when the market is completely out of your control? Well, you have a few options.

First and foremost, you can work with a financial professional to diversify your portfolio. While diversification can never guarantee any level of protection or growth, it may give you the ability to withstand dips in certain sectors of the market. It also spreads risk across different asset classes, or even different categories within the market itself. That can potentially help you avoid taking losses in your entire portfolio, even if one sector experiences headwinds.

For instance, non-correlated asset classes, which could include annuities or life insurance policies, might be a retirement diversification option for some people. Modern policy designs like fixed-indexed annuities and indexed universal life insurance policies are typically linked to a market index, while not actually participating in the market. These products can provide the upside of market gains while still protecting the principal, or the money used to fund the policy, in addition to locking in the gains.

These solutions may not match every consumer’s situation or financial objectives, however, so it’s important to speak to your advisor to explore policies and see if they make sense for your portfolio. For some people, annuities can provide a stream of retirement income that can cover lifestyle expenses, allowing retirees to leave their assets in the market during downturns rather than being forced to make withdrawals.

Be sure to speak with a financial professional who understands your circumstances, goals and tolerance for risk. The right partner can help you develop a custom withdrawal strategy and a plan to generate a reliable stream of income with your accumulated retirement assets. Your plan may include portfolio diversification, the establishment of a liquid emergency fund, the inclusion of alternative strategies and more, all with the intention of making your money last your entire life.

If you have any questions about how you can fight sequence of returns risk, give us a call today! You can reach PCIA Denver at 1800.493.6226.

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

 

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

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Unlocking the Mysteries of Alternative Investments

By Financial Planning

Learn About Alternative Investments

So you’ve dipped your toes into the ocean of traditional investments—stocks, bonds, cash—only to find yourself nodding off at teh thought of another ETF or mutual fund. Fear not, intrepid investor! There’s a whole world out there beyond the realm of ticker symbols. Introducing the star of this blog —  alternative investments.

Read More on 5280 Magazine

If you have any questions, we have answers! To see how we can help you explore your options and build a plan for your future, please contact us!

Call: (303) 771-2700

5 Things You Need to Know About Retirement

By Retirement Planning

Saving for retirement is important, but it’s also crucial to stay informed! Now that it’s Financial Literacy Month, we thought it would be the perfect time to discuss some things you need to know.

There’s an old saying that goes something like, “What you don’t know can’t hurt you.” You might have even used it, maybe when you came home past curfew without your parents finding out or poured your juice into the plant when no one was watching. And sure, no one being the wiser might have worked when you were young, but in retirement, what you don’t know actually CAN hurt you.

It’s important to stay informed about not just past trends, but also what you should expect as you make your way through that exciting phase of your life. It can give you a better chance to prepare for obstacles and implement a plan to overcome them. It can also help you take advantage of opportunities, especially as you look to make your money last for a quarter of a century or longer. Let’s go over five things you need to know about retirement.

  1. Market Downturns WILL Happen [1,2]

When you spend between 25 and 30 years or longer in retirement, it’s not a question of “if” you’ll encounter market downturn; it’s a question of “when.” These declines are typically referred to as “bear markets,” which are defined as market drops of 20% or more. If we use the S&P 500 as an indicator of bear markets, there have been 12 instances of significant market decline since the index’s inception in 1957. That means you should expect to face some adversity in the market once every five or six years. So, what are your options?

Well, historically, patience has been the best way to overcome market adversity, as long-term outlooks have always trended upward. It can also be helpful to work with a financial professional who can tailor your portfolio to your goals and tolerance for risk. If you’re more comfortable with risk or have a longer timeline to retirement, you may have more assets invested in the market, whereas those approaching retirement are usually advised to shift more of the portfolio into assets that are fixed, like bonds or bond alternatives.

Rebalancing your portfolio and creating a customized retirement plan as you approach retirement is advised, especially to mitigate sequence of returns risk. Sequence of returns risk is the risk of retirees facing market downturn in the few years prior or the first few years of retirement, meaning they take greater losses on greater asset totals. Again, working with a financial professional to find ways to mitigate sequence of returns risk can be helpful. Sometimes this is done by creating a stream of income with part of your retirement assets to cover your living expenses. This allows you to wait out bear markets with your remaining assets which might remain directly invested in the market.

  1. Decumulation is Just as Important as Accumulation

Yes, we all want to retire as multimillionaires, hitting on our investments and getting lucrative returns. That period of building your assets, investment and making growth-oriented decisions is often referred to as the “accumulation” phase. However, the fact is, it doesn’t matter how much money you accumulate if you don’t have a plan for how to spend it in the “decumulation” phase, after you retire and no longer have employment income coming in. Oftentimes, that plan includes a strategy to create income for your projected lifestyle, as well as a comprehensive budget dictating where that income will go. Additionally, many factors will play a role in decumulation, including taxation, legislation, your life expectancy, your spending habits and more.

We traditionally recommend getting a good idea of how much you plan to spend on an annual basis. That’s how much income you’ll likely need to create, along with a little bit of wiggle room giving you the freedom to cover emergencies or other unexpected expenses. The best way to do this is often by assessing your goals for retirement, then estimating the amount of money you’ll need to achieve them. Then, we can build a budget for you to strictly adhere to in retirement. It’s important to understand that if you start planning for retirement once you’re already there, it might be too late. If you’ve become accustomed to your lifestyle, it can be difficult to make cuts, especially when some retirees actually need more money in retirement than they did while they were working, leading us to our next point.

  1. It’s Never Too Early to Prepare [3,4,5]

Think about it. You reach the most exciting period of your life, your retirement accounts are as well-funded as they’ll ever be, and you have an endless list of things you want to do now that your time belongs entirely to you. Will you want to pull back? Not likely. That’s why it’s important to start preparing for retirement long before you call it a career, giving you the flexibility to course correct if you find that you haven’t saved enough to live comfortably. But how much do you need to live comfortably? Modern estimates say retirees have set that target figure at $1.3 million for a 67-year-old heading toward a 30-year retirement, but working with a financial professional may help you get a more accurate estimate for your unique situation. It might not require that much, depending on your plan.

A 2023 study found that the average person between the ages of 65 and 74 has saved a little over $600,000. Will that be enough? It depends. Working with a financial professional early in your career, developing your own personal retirement goals and consistently devoting a portion of your income to the recommended strategies in your plan can give you a better chance to reach the financial goals you have for your retirement.

  1. Social Security May Not Suffice [6,7]

Social Security figures to be one of the biggest sources of income for most American retirees. In fact, 40% of retirees rely on Social Security for more than half of their income, and 14% rely on it for 90% of their income or more. Sure, it’s a nice benefit, but it was never designed to be a primary source of funds in the first place. It was always a supplementary tool, originally created for the economic security of the elderly back in 1932, when the average life expectancy ranged from age 57 to 63. Now, relying on Social Security has never been more tenuous. Benefits are set to take a hit of more than 20% beginning in 2034 if no action is taken soon by Congress.

Still, action is where the problem lies. The choices appear to boil down to cutting payments for beneficiaries, raising the payroll tax rate or increasing the payroll tax increase limit. So far, all of those options have been met with opposition, presumably making benefits cuts the most likely solution. Granted, American taxpayers will always be contributing to the Social Security trust fund, meaning it’s unlikely the fund is drained completely, but it is running short, making it imperative to use other planning methods. Some of those methods can include saving more and creating more supplemental income streams to provide for your lifestyle.

  1. Risk Runs Rampant in Retirement [8,9,10]

Life expectancies continue to rise, which is fantastic news for anyone who plans to use their retirement years to check off bucket list items and spend time with their families. At the same time, it means spending more money, potentially for 20 years or longer. That can put you at risk of outliving your money, which is known as longevity risk. Then, even if you do save enough to provide for 20 to 30 years of a healthy retirement, you’ll start to introduce new factors that could drain your savings such as inflation, taxes, market, health care and long-term care risk.

Long-term care is one of the key factors that can quickly deplete your funds, and it’s easy to see why. On average, 70% of modern retirees will need some form of long-term care, and 20% will need it for five years or longer. Additionally, the cost for long-term care can run from $64,000 to $116,000 per year, and it’s not covered by Medicare because it’s a lifestyle expense as opposed to a medical expense.

That could mean enlisting in the help of long-term care insurance, which is historically expensive and useless for the 30% who end up not needing the care. Modern policies, however, can combine life and long-term care insurance, providing a pool of resources for long-term care if necessary and a death benefit to beneficiaries if not. But these policies aren’t right for everyone. We can help you compare your options and determine if they match your goals.

If you have any questions about how you can better prepare for retirement, give us a call today! You can reach PCIA Denver at 1800.493.6226.

 

Sources:

  1. https://www.forbes.com/advisor/investing/bear-market-history/
  2. https://www.investopedia.com/8-ways-to-survive-a-market-downturn-4773417
  3. https://www.wsj.com/buyside/personal-finance/how-much-do-i-need-to-retire-f3275fa7
  4. https://www.nerdwallet.com/article/investing/the-average-retirement-savings-by-age-and-why-you-need-more
  5. https://www.cnbc.com/2023/09/08/56percent-of-americans-say-theyre-not-on-track-to-comfortably-retire.html
  6. https://www.cbpp.org/research/social-security/key-principles-for-strengthening-social-security
  7. https://www.cnbc.com/select/will-social-security-run-out-heres-what-you-need-to-know/
  8. https://www.ssa.gov/oact/population/longevity.html
  9. https://www.aplaceformom.com/senior-living-data/articles/long-term-care-statistics
  10. https://www.genworth.com/aging-and-you/finances/cost-of-care

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).

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5 Reasons Financial Planning is Important for Women

By Financial Planning

It’s Women’s History Month! Let’s go over why financial planning is important for women.

While there’s little doubt women have taken major strides professionally and socially over even the past few years, it’s still all too common for them to be left out of the financial discussion. Whether that happens on their own accord or because they simply become an afterthought in the conversation, their exclusion can be extremely damaging not just to their own future but to both members of a couple or an entire family. Well, this month is Women’s History Month, so while there is never a bad time to celebrate the women who mean so much to us, this is the perfect opportunity to discuss their role in financial planning and its importance. Let’s go over five reasons why financial planning is crucial for women.

  1. It Can be Empowering

Whether a woman is a working professional, a stay-at-home parent, a single individual or a retiree, her role goes far beyond the simple financial aspect of the planning process. It should also be uplifting and empowering, giving you a sense of purpose when it comes to both your money and your dreams. It can also build confidence when you truly understand the systems our society is built around, and being financially literate has the potential to make anyone feel like their goals are achievable and they can find the right path, no matter what the future holds.

It’s also about equality. While money isn’t everything, there’s no denying its power and ability to dictate a person’s ability to live a comfortable lifestyle. As an equal partner in a couple, or even as an individual, understanding financial concepts and knowing you have an easy-to-follow roadmap toward your goals can be motivating and inspiring.

  1. Women Live Longer Than Men

According to the CDC, the average life expectancy for women is 79 years, while it’s just 73 for men [1]. While this might not sound drastic, that six-year period can feel like an eternity for those who face any sort of financial struggles. That means women must strategize for six more years of living expenses. While it might be true that if your spouse passes away first you may only have to cover yourself when it comes to costs like medical bills, food, everyday living and more, it’s important to remember new obstacles that potentially come into play. A mortgage payment, for example, might remain the same, while only one person’s retirement money might be coming in.

That’s why planning for adequate retirement income is critical for women. For instance, some pensions are only paid to one spouse. And while you might inherit retirement accounts like 401(k)s and IRAs, you will only receive one Social Security payment going forward if your spouse passes away before you. While it will be the larger of the two checks, it is still necessary to have a plan if your income were to decline.

Additionally, longer lifespans, especially after the loss of a partner, can potentially lead to the need for long-term care, which is extremely pricy and not covered by Medicare.

  1. Women Make Less on Average

In addition to longer lifespans, women tend to earn less than men for a multitude of reasons. In fact, a study from the Pew Research Center showed women earn, on average, 82% less than men, which is not much better than the 80% they earned more than 20 years ago [2]. This is true despite social advancements that have led to more women in power as well as further discussion about the gap. Of course, there are many theories about why that gap exists. For example, some women work in different industries offering lower average wages and fewer benefits.

Still, however, even choosing a different career path cannot always help, especially when pay is oftentimes determined by experience or hours worked. The obligation of caretaking, especially for children, typically falls on women, meaning they must exit the workforce and forgo work experience and potential advancement. Lower wages also mean they oftentimes have less to put away for a retirement that is already longer than the average man’s, and those lower wages might also equate to lower Social Security or pension payments. Simply put, women face more obstacles, possibly further necessitating a proper financial and retirement plan.

  1. Women Are Often Responsible for Loved Ones

As previously mentioned, women are often saddled with the responsibility of exiting the workforce to raise and provide for children, forcing them to forgo opportunities to gain experience and earn more money. Additionally, they may be forced to tap into savings, income from part-time roles or shared income with their spouse to ensure the house is properly run, a full-time job in and of itself. Again, that can leave less money for a woman to contribute to savings and investment vehicles for retirement.

Additionally, caregiving responsibilities do not always end with children. Many women between the ages of 40 and 60, which is often a high-earning period used to sock away funds as you approach retirement, are part of what’s being referred to as the “Sandwich Generation.” In this sandwich, children are one slice of bread while elderly parents are the other, forcing women to be the meat, veggies and condiments between the two to financially support both parties. Furthermore, women make up 60% of the Sandwich Generation, and they spend, on average, 45 minutes per day more than men caring for children and parents [3]. That obligation can make it even more difficult to save for retirement, whether it’s because they’re forced to step away from work or they’re using more of their funds to provide for dependents.

  1. Women Are Set to Inherit the Majority of the Wealth in the US

Presently, women control about a third of this country’s wealth, but we are heading toward a major change in financial power. In one of the biggest transitions of wealth in American history, women are set to inherit the better part of $68 trillion [4]. This should give some women a significant advantage in their own retirement plans.

But with a great inheritance comes great responsibility. Without a proper plan or a firm direction for those trillions of dollars, it can be moot. That’s why it’s crucial for women to take an active role in financial planning now. They shouldn’t wait until they actually inherit the money; they should be working with those they might inherit that money from, as well as a financial professional, to gain the right tools and knowledge to purpose that influx of cash for a long, successful retirement.

If you’re ready to become more involved in the financial planning process, please give us a call today! You can reach PCIA Denver at 1800.493.6226.

 

Sources:

  1. https://www.cnbc.com/2023/03/01/why-american-men-die-younger-than-women-on-average-and-how-to-fix-it.html
  2. https://www.pewresearch.org/short-reads/2023/03/01/gender-pay-gap-facts/
  3. https://www.theskimm.com/stateofwomen/sandwich-generation-costs-women
  4. https://www.cnbc.com/2023/12/12/why-the-68-trillion-great-wealth-transfer-is-an-opportunity-for-women.html

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities are offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated.

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6 Financial Tips for Couples

By Financial Planning

Money can be a major obstacle for couples. Here are a few ways to overcome it.

Do you remember when you first met your partner? So many things about them might have captivated you. Maybe it was their eyes, their hair or their smile. Maybe you started talking and you fell in love with their outlook on life, their fun-loving attitude or their sense of humor. We’re willing to bet, however, it wasn’t your aligned financial philosophies that initially drew you to each other, even if financial stability was high on your list of priorities for potential partners.

At the same time, maybe that should be something you look for in your other half. Nearly 50% of Americans say they argue with their significant other about money, while 41% of Gen Xers and 29% of baby boomers attribute their divorce to financial disagreements [1]. One of our goals is to give you the stability that can eliminate financial stress, trimming your worries when it comes to your happily ever after. Here are six tips for couples looking to achieve their financial goals together!

  1. Communicate Effectively

Of course, communication is the key to a healthy relationship. It’s no secret. In fact, you’ve probably heard this old adage your entire life, but hearing it is different from comprehending it and acting upon it. Additionally, while it’s important when sharing your needs and overcoming conflict, it’s just as important to have open, honest, confident communication about your finances. In our experience, the majority of the battle is normalizing the conversation. Remember, you’re not just combining finances; you’re combining your entire lives, so this discussion shouldn’t be taboo. To make it easier, it can be a good idea to start with simple topics. Go over things like income, how you feel about different retirement accounts, your experience investing or how comfortable you feel with risk. You can then let the conversation naturally evolve to encompass more complex topics, or you can tackle new problems as they arise. It’s key to consider that you’re equal partners, both in life and in money, and it’s crucial to have these discussions before and during a serious relationship.

  1. Choose a Strategy

Once you’ve broken the barrier to financial discussion, it can be helpful to choose a strategy for how you’ll combine your finances. Some couples, for example, find it easiest to simply combine all their assets, giving meaning to the phrase, “What’s mine is yours.” Others, however, may feel more comfortable keeping their assets separate and handling their own personal expenses. Most commonly, a couple will land somewhere in the middle with a few select combined accounts and some solo accounts. This can help each person maintain some of their individuality and independence while also offering some guidance as to who’s responsible for different financial obligations. Spend some time discussing these options with your partner, and be completely open and honest to foster healthy communication in the present and future.

  1. Set Measurable, Realistic Goals

Identify goals that are important to both of you, especially if you want to achieve them together. Whether those are short- term goals or long-term, this gives you something to work toward, unifying your vision and objectives to keep you on the same page. It can also help you maintain control over your financial decisions and your priorities. Ensuring those goals are measurable and realistic is also important. In addition to the satisfaction that comes with watching yourself climb toward your objectives, reaching measurable milestones can be motivating, pushing you and your partner to continue saving and spending with the future in mind.

  1. Budget Effectively

As a couple, you’re a team. That means working together to reach common goals. There’s also power in finding financial strength together, so constructing a budget, controlling your spending, and expressing your thoughts freely can help you grow as a duo. When building that budget, it’s important to start by having a conversation about your priorities. Lay them out clearly, and work together to determine which expenses are “needs” and which expenses are “wants.” You’ll probably want to prioritize essentials, like food, your home, your transportation, and other necessary living expenses. You may want to move on to outstanding debt, determining how much you can realistically pay down in a given period. As partners, you should also hold each other accountable, knowing that sticking to the budget is what’s better for both. Then, know you can tweak your budget as your circumstances change and evolve.

  1. Choose the Right Financial Partner

The right financial partner or professional can help you develop and work toward your goals. Oftentimes, this means finding someone who understands your current circumstances, is able to read you and your partner as people, and is willing to work in your best interests. This can be tricky, but remember, this is your livelihood we’re talking about. It’s more than understandable if you’re skeptical when choosing someone to control your assets. Additionally, if you think it’s the right time to start working with a professional, ask many questions to determine if they’re the right person to help you achieve your goals. While you may feel like you’re on the hot seat as they ask about your saving and spending, it’s just as much of an opportunity for you to assess how effective or helpful they will be in the construction of your plan or portfolio.

  1. Develop an Actionable Plan

Once you understand your cashflow, habits, budget and goals as a couple, it’s time to develop a plan that offers specific direction and sets you into motion. Oftentimes, this is the blueprint for your future, giving both you and your partner rules to adhere to. It should also be comprehensive, meaning that it accounts for each aspect of your life. Determine how you’ll utilize specific retirement accounts, as well as if you’re comfortable having your money exposed to market risk. You can also explore options for insurance policies, which can be crucial if you want to protect your loved ones in the event of the worst. Furthermore, revisit your plan on a regular basis. Maybe your risk tolerance has changed, you feel you can contribute more to your savings vehicles, your beneficiaries have changed, you need different levels of insurance coverage, or you’re ready to graduate into retirement. Your plan plays a key role in achieving both your short- and long-term goals, and having one that you believe in can make all the difference.

We believe that money should never hinder your relationship. If you have any questions about how you can effectively combine and develop a plan for your finances as a couple, give us a call today at  (303) 771-2700!

 

Sources:

  1. https://www.marketwatch.com/story/this-common-behavior-is-the-no-1-predictor-of-whether-youll-get-divorced-2018-01-10

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities are offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated.

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Beyond Numbers: Why Your Financial Advisor Should Be Open & Accountable

By Financial Planning

We’re getting smarter with our money. It’s true!

Recent research shows that Baby Boomers typically started saving for retirement when they were 35, Gen X began around 30, millennials started socking away their coins around age 25 and Gen Z, the oldest of whom are now in their early 20s, beat us all by starting to save at 19. If the average retirement age in the United States is about 64, that’s at minimum 30 years of diligently putting away money for our future selves and as much as 45 years of saving for those Gen Zers among us!

That’s up to 45 years of getting up and grinding despite a splitting headache, or a son or daughter playing in the championship game, or aging parents needing care. More than four decades of balancing your life on the head of a pin so that one day you could enjoy what you built. What type of person earns the privilege of being near something as precious as your nest egg?

Sean Clancy, a Denver native and Wealth Advisor at Prime Capital Investment Advisors, helps individuals, business owners, and families to achieve their financial goals through a comprehensive planning approach. What sets Sean apart is his genuine love for connecting with people from all walks of life. Digging into each person’s unique story and understanding who they are and seeing the challenges they’ve faced to reach success is what truly fuels his passion.

In his role, Sean meets clients where they are, recognizing that everyone’s financial situation is unique, with individual stressors and aspirations. Listening to his clients’ concerns, Sean crafts personalized solutions tailored to their specific needs and goals. Clients appreciate Sean for his confidence in financial recommendations, clear communication, adept handling of challenging discussions, and, above all, his commitment to their best interests.

Read More on 5280 Magazine

If you have any questions, we have answers! To see how we can help you explore your options and build a plan for your future, please contact us!

Call: (303) 771-2700

5 Things You Should Know if You’re Retiring in 2024

By Retirement Planning

Heads up! If you plan to retire this year, you should know these five things.

Are you planning to enter the most exciting phase of your life in 2024? A phase where you get to do what you want to do, not what you have to do? With the right planning and preparation, it’s possible, but you should be aware of the year-over-year changes that occur for retirees, especially if this is your first year. Here are five changes you should know about if you plan on entering retirement in 2024.

  1. Higher Income Tax Brackets [1,2]

Traditionally, tax brackets rise with inflation on an annual basis, and 2024 is no different. For instance, the top end of the 0% capital gains bracket is up from $44,625 to $47,025 for single filers and from $89,250 to $94,050 for those who are married and filing jointly. Retirees who expect to withdraw from accounts subject to income tax—like traditional 401(k)s—may also expect to see a bit more relief this year in their income. See below for 2024’s ordinary income tax brackets.

Rate (%) Filing Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 to

$11,600

$0 to

$23,200

$0 to

$11,600

$0 to

$16,550

12% $11,601 to $47150 $23,201 to $94,300 $11,601 to $47,150 $16,551 to $63,100
22% $47,151 to $100,525 $94,301 to $201,050 $47,151 to $100,525 $63,101 to $100,500
24% $100,526 to $191,950 $201,051 to $383,900 $100,526 to $191,950 $100,501 to $191,950
32% $191,951 to $243,725 $383,901 to $487,450 $191,951 to $243,725 $191,951 to $243,700
35% $243,726 to $609,350 $487,451 to $731,200 $243,726 to $365,600 $243,701 to $609,350
37% $609,351 or

more

$731,201 or

more

$365,601 or

more

$609,350 or

more

 

  1. Higher RMD Ages [3]

As of Jan. 1, 2023, retirees must begin taking required minimum distributions at age 73 unless they’ve already started. This was part of a gradual change made by SECURE Act 2.0 that will again raise the RMD age to 75 in 2033. This change can offer more flexibility to retirees who don’t need the money from their qualified accounts and otherwise would have incurred unnecessary income taxes. It also gives them an extra year to find other sources of income or to convert those funds to tax-free money. If this will be your first year taking required minimum distributions from your qualifying accounts, those funds must be withdrawn by Apr. 1. In subsequent years, they must be withdrawn by the end of the year, or you may incur a 25% excise tax, which may be dropped to 10% if corrected in a timely manner.

  1. Elimination of RMDs for Roth 401(k)s [4]

One of the perks of the Roth IRA is that it does not come with required minimum distributions because you purchase them with already-taxed money. Roth 401(k) accounts through your employer were the same—except for the employer matching part. Before the passage of the SECURE 2.0 legislation, if your employer offered matching contributions and you chose a Roth 401(k) instead of a traditional 401(k) account, employer matching funds had to be placed into an entirely separate pre-tax traditional account which was taxable. Then, upon reaching RMD age, withdrawals were mandated for both accounts, even though taxes were only due on the matching portion.

Now, as of the passage of the SECURE 2.0 legislation, employers at their discretion can offer their matching amounts on an after-tax basis into Roth 401(k)s or Roth 403(b)s. If your employer offers this option and you choose it, you will owe income taxes on the employer match portion in the year you receive the money, but RMDs will no longer be due.

  1. Preparation for 2026 Tax Cut Sunsets [5]

Though tax cuts sunsetting at the end of 2025 won’t immediately impact 2024 retirees now, it may be crucial to begin preparing for the 2026 tax year. While the federal estate and gift tax exemption amount is currently $13.61 million per individual, it’s expected to drop back down to below $7 million in 2026. For those with larger estates, that could slice the amount of tax-free money going to beneficiaries in half. Income tax rates could also revert to what they were prior to 2018, meaning that it may be helpful to convert taxable income to tax-free income—for instance, by using Roth conversions—in the next two years. Additionally, those impacted by this change could also look to work with a financial professional to implement long-term tax strategies that give them the opportunity to pass their wealth to their beneficiaries as efficiently as possible.

  1. Higher Medicare Costs but Increased Social Security Payments [6,7]

Medicare costs are also up in 2024. Though Part A is free to beneficiaries, it does come with an annual deductible, which is up $32 from $1,600 to $1,632. Medicare Part B premiums are also up in 2024 from $164.90 to $174.40, an increase of roughly 6%. It’s important to know that those premiums are traditionally deducted from Social Security payments, which typically also rises with a cost-of-living adjustment determined by the Consumer Price Index for Urban Wage Earners and Clerical Workers, or the CPI-W. In 2024, that increase is 3.2%, so while the adjusted checks won’t be entirely proportionate to the higher Part B premiums, the COLA may help to offset the extra costs.

To read more about retirement topics like evolving legislation and what it takes to prepare for the next stage of your life, please contact us here at PCIA Denver by calling (303) 771-2700. 

Sources:

  1. https://www.nerdwallet.com/article/taxes/federal-income-tax-brackets
  2. https://www.bankrate.com/investing/long-term-capital-gains-tax/
  3. https://www.milliman.com/en/insight/required-minimum-distributions-secure-2
  4. https://smartasset.com/retirement/how-roth-401k-matching-works-with-your-employer
  5. https://www.thinkadvisor.com/2022/12/07/the-estate-and-gift-tax-exclusion-shrinks-in-2026-whats-an-advisor-to-do/
  6. https://www.cms.gov/newsroom/fact-sheets/2024-medicare-parts-b-premiums-and-deductibles
  7. https://www.ssa.gov/cola/

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities are offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated.

#011624005 JG

 

Your 2023 Year-End Financial To-Do List

By Financial Planning

The end of the year is upon us. Here are some tasks to check off before 2024 arrives!

It’s that special time of the year when the holiday spirit is in the air, good friends are always near, and family time fills up our schedules. It’s also the perfect time to take financial inventory and reassess your plan to see if it still aligns with your goals. You may need to make tweaks, as your circumstances have almost certainly changed. Maybe that’s because of a major life event or an unexpected expense, which most people experience or incur over the course of a year. It’s only normal, but it can be helpful to ensure that you’re still on track toward the future you idealized. Here are a few things you can do to prepare for the turn of the calendar!

  1. Review Your Financial Plan

Your financial plan is never meant to be a “set-it-and-forget-it” type of document. Just like the economic landscape, it’s supposed to change, and the end of the year can be the perfect time to make necessary adjustments that get you back on track toward your goals. Sometimes, those changes can even be for the better or because you had a successful year. For example, maybe you are quickly approaching or have already surpassed a goal you set at the beginning of the year. You can recalibrate your approach for both the short and long term to keep yourself motivated. If you find that you’ve suffered an unfortunate setback, that’s also okay. Your plan is a great place to start when trying to get back on track toward your ideal destination.

  1. Adjust Your Monthly Budget

As we near the end of the calendar year, you may have a better idea of your current income and expenditures. Sometimes, that can help you create a more accurate budget, especially if that budget aligns with your financial plan. Additionally, you might have received a nice annual bonus or raise, giving you some more leeway or freedom in your budget, or giving you extra funds to save or create an emergency fund. On the other hand, maybe you had a baby or accrued unforeseen home, auto or medical bills, forcing you to take a moment and reprioritize. Whether you believe you’ve taken a step forward or a step back, mapping out your expenditures and tweaking your budget accordingly can be helpful as we head into 2024.

  1. Review Your Investments

How did your investments perform this year? If you can’t answer that question, it’s probably a good idea to look, especially if you plan on using that money in retirement. Remember, the years leading up to retirement and the first few years of retirement are the most dangerous times to experience market volatility, as you likely take those losses when your asset totals are the highest. It can also be helpful to further diversify your portfolio or build a new asset allocation that aligns better with your goals. Though diversification certainly doesn’t promise either growth or protection, different asset classes can offer different features, potentially giving you the opportunity to achieve protection through varying and potentially less volatile investment or saving vehicles.

  1. Recalibrate Your Retirement Account Contributions [1,2,3,4]

No matter which stage of your career you’re currently at, it’s important to know how much of your income you can contribute to your various retirement accounts, such as 401(k)s, IRAs, 403(b)s, 457 plans, SEP IRAs and SIMPLE IRAs. For example, in 2023, the contribution limit for traditional and Roth IRA accounts is $6,500. That amount will increase to $7,000 for the 2024 tax year. If you’re older than 50, you can also make catch-up contributions up to $1,000. The contribution limit for a 401(k) participant is $22,500 for the 2023 tax year; however, that will rise to $23,000 in 2024. Catch up contributions of up to $7,500 can also be made to 401(k) accounts for those 50 and older. NOTE: These limits are imposed on individuals, not accounts, so the limits are on total contributions to all of your different employer-sponsored accounts or IRAs. It’s also important to remember that you can contribute to your IRA for 2023 until Tax Day of 2024, which is on Monday, Apr. 15. 401(k) contributions, however, must be made by the end of the year.

  1. Take Your RMDs [5,6]

If you must begin taking RMDs in 2023 or you’ve already begun taking RMDs, those funds must be withdrawn by the end of the calendar year to avoid incurring a 25% excise tax. That makes right now the perfect time to ensure that you’ve withdrawn an adequate amount, as there is still time to pull from your qualified retirement accounts. It can also be beneficial to speak to your financial advisor who can help you calculate your RMDs, as they’re typically determined by your expected lifespan and asset total. To see when you must begin taking RMDs, please refer to the chart below!

Date of Birth RMD Age
June 30, 1949, or Before 70 ½
July 1, 1959, to Dec. 31, 1950 72
Jan. 1, 1951, to Dec. 31, 1959 73
Jan. 1, 1960, or After 75
  1. Spend Money Left in Your FSA [7,8]

Flexible savings accounts, or FSAs, are accounts funded by pre-tax money that allow you to use tax-free funds to pay for qualifying health expenses. They can be extremely helpful for those looking for tax advantages for services that are not covered by their health care plan, including deductibles and co-pays. While you may have a grace period provided by your employer, with most FSAs you must spend the money for qualifying health expenses by the end of the year or risk losing it. Some expenses that traditionally qualify include general wellness appointments, annual physicals, visits to specialists, dental cleanings, eyeglasses or in-home care equipment.

Similar to FSAs, HSAs, or health savings accounts, can be used for medical expenses, but the accounts are permanent and stay with the owner. HSAs are tax-deductible and can grow and build up tax-free to cover a long list of medical, health, dental and vision expenses, usually in retirement. In order to open and begin contributing to an HSA, you must purchase a high-deductible health plan that qualifies, or be offered an HDHP through your employer. You cannot contribute to an HSA when you are over the age of 65.

  1. Review Your Workplace Benefits and Beneficiaries

Most benefits plans change on a year-to-year basis, and those changes are typically outlined by your human resources department during the open enrollment period. If your employer provides benefits packages, be sure to go through your benefits guide to know exactly what you’re entitled to and how you can leverage those perks to your advantage. For example, you may be able to select from different health care packages, or you might be able to opt into an HSA or FSA. It’s also important to review beneficiaries who are on your plan, as their needs may differ on a year-to-year basis.

  1. Talk to Your Financial Professional or Advisor

Your financial professional, planner or advisor is meant to be your personal advocate and consultant when it comes to your financial and lifestyle goals. That means they can help you determine whether you’re on track to reach your goals. If not, they can work with you to set more reasonable expectations, but if you find yourself on the right track, they can help you further purpose your money for both the short- and long-term future. Additionally, your advisor should soon be calling to set up an annual meeting with you to discuss updated options, new regulations, developments in the marketplace and more. As we close out the year, now is the perfect time to have that meeting and prepare for new circumstances and the new year.

If you have any questions about your year-end financial to-do list and how you can prepare for the year ahead, please give us a call today! To reach PCIA Denver, call (303) 771-2700, use this form, or contact an individual advisor. 

 

Sources:

  1. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits
  2. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
  3. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-catch-up-contributions
  4. https://www.thinkadvisor.com/2023/09/27/smaller-401k-ira-contribution-limit-increases-expected-in-2024/
  5. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-required-minimum-distributions-rmds
  6. https://www.orba.com/what-is-your-required-minimum-distribution-age/
  7. https://www.goodrx.com/insurance/fsa-hsa/hsa-fsa-roll-over
  8. https://www.investopedia.com/articles/personal-finance/082914/rules-having-health-savings-account-hsa.asp

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities are offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated.

121323011 MKS

Why Long-Term Care is an Important Part of a Financial Plan

By Financial Planning, Long Term Care
It’s National Long-term Care Awareness Month, so it’s the perfect time to discuss the importance of preparing for the potential need for care.

Financial planning can be a complex process, especially for those looking for a comprehensive plan that accounts for every aspect of their life. That comprehensive plan traditionally includes budgeting, investing, tax-mitigation, estate planning, and as you get closer to retirement, should even include Medicare and Social Security. One aspect that often goes overlooked, however, is planning for long-term care, or the potential of needing this extremely intricate, intimate and pricey care. Let’s go over why it’s important to include long-term care planning as part of your holistic financial plan, as well as a few ways you might be able to mitigate the potential of it draining your savings.

It Can Help You Preserve Your Hard-Earned Assets [1,2,3]

The unfortunate reality is that seven in 10 of today’s 65-year-olds will need some type of long-term care, and 20% will need it for longer than five years. When long-term care can cost more than $100,000 per year for a private room in a nursing home, it’s easy to see how even a short-term stay be detrimental to a financial plan by draining savings and upending long-term plans. Preparing early for the possibility of needing long-term care can help you avoid the stress and pressure of scrambling for the funds or clearing out the savings accounts you’ve worked so hard to grow.

It’s Not Covered by Medicare

A common misconception is that long-term care or extended stays in assisted living or nursing home facilities are covered by Medicare. It does cover some stays in skilled nursing care if, for example, a medical condition has necessitated that level of service; however long-term care is considered a lifestyle expense rather than a medical expense, so it’s not covered by the federal program. That means that even if you work with a financial professional to find the right Medicare or Medicare Advantage plan for you, you may still be lacking the coverage you need, again forcing you to foot a bill that can quickly deplete funds for even the most diligent savers.

It May be Able to Extend Your Independent Lifestyle

Planning for long-term care is about so much more than just the care itself. It’s about giving yourself the opportunity to make life-altering decisions in any scenario. A clearly defined plan to pay for long-term care can help you retain your agency and decision-making power, even if you’re no longer capable of living on your own. It can also be helpful to know that you have a plan in place in the event of the worst, potentially giving you confidence and saving you from the stress that can come with having to make a decision and arrange for your care at the last possible moment.

You Can Shoulder the Burden for Loved Ones

Just as your plan is about more than the care itself, your plan is also about more than you. If you create a comprehensive plan that determines how you’ll be cared for as well as how you’ll pay for that care should you need it, your family may not be subjected to the emotional and financial burden that can come with making those decisions at a moment’s notice, especially if your health and capabilities have deteriorated beyond being sound of mind. Additionally, a plan can give your family the same assurance it gives you, as they can potentially gain confidence that you’ll be in capable hands should you need high-level care for an extended period.

You May Prepare and Gain Access to Better Care

The flexibility you offer yourself by preparing early can also give you access to the quality of care you need, whether that be at-home care or assistance in a long-term living or nursing facility. It can also help you build the financial resources or secure a spot if you need a specific level of care, such as memory care, that often sees openings fill quickly at the best facilities. Furthermore, depending on the saving vehicle you use, you might be able to build more assets you can use to fund your stay. Those funds might help you relieve the stress of finding new methods of payment, relocating to a different facility or falling into the hands of a family member who likely isn’t capable of providing you with the assistance you need.

There Are Modern Options to Pay for It

Modern times have brought about innovative solutions to pay for long-term care. Long-term care policies of old still exist, giving policyholders the option to pay premiums for a service they may never use, but now, long-term care insurance can be tacked onto other types of insurance products, such as permanent life insurance policies, to combine benefits. This means that your long-term care policy can come with the same features as permanent life insurance. This is important because it can potentially eliminate the “use-it-or-lose-it” aspect of long-term care policies of old. The cash value portion of the hybrid policy that is protected and guaranteed by the claims-paying ability of the issuing insurance carrier can be used to pay for long-term care if you need it or as a death benefit for your beneficiaries if you don’t. It’s still important to work with a financial advisor to see if one of these hybrid policies matches your goals.

If you have any questions about how you can prepare to fund long-term care, please give us a call today! You can reach PCIA Denver at 800.493.6226.

Sources:

  1. https://www.genworth.com/aging-and-you/finances/cost-of-care.html/
  2. https://acl.gov/ltc/basic-needs/how-much-care-will-you-need
  3. https://www.theseniorlist.com/nursing-homes/costs/

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite #150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”). Securities are offered by Registered Representatives through Private Client Services, Member FINRA/SIPC. PCIA and Private Client Services are separate entities and are not affiliated.

111723003 MKS

 

Why Estate Planning is About More Than Money

By Estate Planning

October is National Estate Planning Awareness Month! Here’s how the right plan can help you protect your family.

Estate planning is only for the extremely wealthy. I don’t have enough assets to need a will. My family will figure it out. Things will sort themselves out. I’m way too young to start thinking about a legacy plan. Making an estate plan is just too expensive right now. These are just some of the most commonly believed myths about estate planning we hear directly from our clients. But the fact is, they’re just that: myths. They hold little weight and don’t account for the true value of estate planning, which goes beyond asset total, age and what’s going to happen to your possessions after you pass.

An estate plan is about so much more than money. It’s about retaining your autonomy and continuing to have a positive influence on your family, your business and the world. You also might be surprised to discover just how easy and affordable it can be to develop an efficient and effective estate plan. Here are just a few ways a legacy plan can provide more than just financial protection.

  1. Peace of Mind for Your Family

It can be extremely difficult to lose not just a provider but a valued, trusted and loved head of a household. An estate plan can give your loved ones a bit of peace of mind when you pass, no matter how much money or which assets you plan on transitioning to them. Your estate plan can save them from being thrust into the emotional turmoil that can come with facing costly and time-consuming probate courts and distributing what remains of any assets themselves. It can also prevent potential inter-family battles over property, money and possessions. While it’s not uncommon to find that heirs would rather receive items with sentimental value than monetary value, disputes can happen within even the most normally-agreeable family members during this stressful time. An estate plan can give final directives that outweigh any arguments between beneficiaries.

  1. Protection for an Uncertain Future

It’s important to remember that no one can predict the future, and while we can weigh options and place ourselves in advantageous positions or mitigate the potential of risk, there’s always at least a semblance of uncertainty. An estate plan can protect against the worst-case scenario, especially for those who are newly married, just starting their careers or in the beginning stages of building a family. Of course, it can be difficult to have the conversation about what will happen if a provider unexpectedly passes, but it might be worth it to know that you won’t be caught off guard. It can also be helpful during periods of uncertainty in tax legislation and regulation. One of the most common uses of an estate plan is to mitigate tax obligation, and it may offer strategies that can help more of your hard-earned wealth land in the hands of those who are important to you.

  1. Security for Your Dependents [1,2]

Though the last will and testament is the most well-known document in an estate plan, your plan should also include medical powers of attorney, guardianship, durable powers of attorney (related to financial decisions), and potentially a trust or trusts depending on your situation. These features of an estate plan offer different protections and levels of security for your dependents in a variety of ways. A revocable living trust, for example, is a trust that allows assets to be added or removed at any time while you are still living. Often included in an estate plan, it can give the trust owner full control over their assets, potentially making it easier to manage and update. A trust can continue to distribute assets to heirs based on a time schedule created by the original trust owner, as it also includes a successor trustee who would manage the assets after the owner passes or if the owner were unable to make decisions on their own behalf. Another popular type of trust that can potentially act as a tax mitigation strategy is an irrevocable life insurance trust, or an ILIT, which is a trust that holds life insurance policies. Though the policyholder would no longer be able to leverage the policy for living benefits, it can pay out a tax-free death benefit by excluding the policy from the grantor’s estate, saving beneficiaries from the stress that could come with being forced to sell major assets to cover estate taxes.

  1. Direction for Your Business

An estate plan isn’t just for your family. It can also offer directives for your business should something happen to you by appointing a financial power of attorney, which can be important even if you haven’t passed. Maybe your health has rendered you unable to make financial decisions on behalf of your business. In that case, the person with financial power of attorney can make those choices. This gives you even more say when it comes to your business, as you can appoint someone who follows your thought process and philosophy. An estate plan can also include a plan for succession, dictating who will be entrusted with your business when you pass or exit. Furthermore, your business might be your legacy, so being able to choose who takes over in the CEO chair can give you the power to hand the keys to someone who you know will keep your business moving in the direction you always envisioned.

  1. Commitment to the Causes You Care About

While a key objective of an estate plan can be helping your family navigate a tumultuous period, it’s also possible to help the organizations and foundations you believe in with a significant financial contribution. You can make the decision to contribute to different charities or support causes you’re passionate about like education, the environment, social initiatives or animals. Again, this allows you to have even more decision-making power over your own estate while also amplifying your voice in the fight to make a difference, even when you can no longer lend your valuable time. For some, this is the greatest legacy of all, opening the door for change on any scale. At the same time, it’s possible that charitable contributions can trim your tax obligation and help your family avoid estate taxes on major transitions of wealth, which again, alleviates some of the pain that comes with losing a loved one.

If you have any questions about estate planning and how you can plan to protect your family or business, we have answers! To see how we can help you explore your options and build a plan for your future, please contact us!

Call: (303) 771-2700

Sources:

  1. https://www.metlife.com/stories/legal/revocable-vs-irrevocable-trust/
  2. https://www.northwesternmutual.com/life-and-money/what-is-an-irrevocable-life-insurance-trust/

This article is not to be construed as financial advice. It is provided for informational purposes only and it should not be relied upon. It is recommended that you check with your financial advisor, tax professional and legal professionals when making any investment decisions, or any changes to your retirement or estate plans. Your investments, insurance and savings vehicles should match your risk tolerance and be suitable as well as what’s best for your personal financial situation.

Advisory products and services offered by Investment Adviser Representatives through Prime Capital Investment Advisors, LLC (“PCIA”), a federally registered investment adviser. PCIA: 6201 College Blvd., Suite#150, Overland Park, KS 66211. PCIA doing business as Prime Capital Wealth Management (“PCWM”) and Qualified Plan Advisors (“QPA”).


7800 E Union Ave., Suite 940
Denver, CO 80237

1800.493.6226