[{"id":352,"date":"2024-03-01T13:39:40","date_gmt":"2024-03-01T13:39:40","guid":{"rendered":"https:\/\/paradigmwealthpartners.com\/do-i-need-long-term-care-insurance\/"},"modified":"2024-06-08T12:36:53","modified_gmt":"2024-06-08T12:36:53","slug":"do-i-need-long-term-care-insurance","status":"publish","type":"post","link":"https:\/\/paradigmwealthpartners.com\/do-i-need-long-term-care-insurance\/","title":{"rendered":"Do I Need Long-Term Care Insurance?"},"content":{"rendered":"<h1>Do I Need Long-Term Care Insurance?<\/h1>\n<p>While our lifespans continue to increase, there is a gap between lifespan and health span. Those who live longer often need <a href=\"https:\/\/bigthink.com\/health\/longer-life-worse-death\/\">more care <\/a>than those who die younger. And that care is getting more and more expensive. Relative to the size of the economy, <a href=\"https:\/\/www.pgpf.org\/blog\/2024\/01\/why-are-americans-paying-more-for-healthcare#:~:text=While%20the%20COVID%2D19%20pandemic,to%2017%20percent%20in%202022.\">healthcare costs<\/a> have skyrocketed from 5% of the GDP in 1962 to 17% in 2022.<\/p>\n<p>These costs are a big risk to your retirement, so how can you protect yourself? <a href=\"https:\/\/www.definefinancial.com\/blog\/long-term-care-insurance\/\">Long-term care insurance<\/a> may be a solution. We&#8217;ll break down the subject so you can decide if long-term care insurance is right for you.<\/p>\n<p>&nbsp;<\/p>\n<h2>Will You Need Long-Term Care?<\/h2>\n<p>While we all dream of a long, healthy retirement free of disease, pain, and illness, that is not the reality for the majority. Of those aged 65 and older, roughly <a href=\"https:\/\/www.singlecare.com\/blog\/news\/long-term-care-statistics\/#:~:text=What%20percentage%20of%20people%20receive,term%20care%20during%20their%20lifetime.\">70%<\/a> will need some kind of long-term care in their lifetime.<\/p>\n<p><a href=\"https:\/\/www.nia.nih.gov\/health\/long-term-care\/what-long-term-care\">Long-term care<\/a> includes unpaid caregivers, adult daycare centers, paid care, home care, and care provided in a nursing home or assisted living facility. Unpaid caregivers may be family or friends who provide some level of assistance, from minor things like doing errands to more intensive help with bathing and dressing. Home care can be provided by home health aids who, depending on their level of training, can assist with household duties, personal care, and medical aid like administering medication or tending to wounds.<\/p>\n<p>While nursing home and assisted living are often used interchangeably, they are not the same thing. A nursing home provides 24-hour monitoring and high-level medical care, while assisted living facilities help residents with daily living. Some assisted living facilities offer &#8220;step-up&#8221; wings for residents who eventually need the level of care a nursing home offers.<\/p>\n<p>The average person aged 65 and older will receive some form of long-term care for about three years. Over half, 55% of those in an assisted living facility are 85 or older. The annual mortality rate of nursing home residents is 32%, and the median survival rate is 2.2 years.<\/p>\n<h2><\/h2>\n<h2>ADL and LTC Qualifications<\/h2>\n<p>A <a href=\"https:\/\/www.usbank.com\/financialiq\/plan-your-future\/health-and-wellness\/costs-and-benefits-of-long-term-care-insurance.html\">long-term care insurance<\/a> policy begins paying benefits when the covered party suffers from cognitive impairment or is unable to perform at least two of the six activities of daily living (ADL) as long as the policyholder has met the elimination period. The elimination period is a waiting period between the time when an illness or disability begins and when they start to receive benefits.<\/p>\n<p>During the elimination period, you will be responsible for any expenses related to your care. Most long-term insurance policies have an elimination period of 30, 60, or 90 days. A longer elimination period may reduce your premium costs.<\/p>\n<p>ADLs are general activities necessary for independent living at home. The six ADLs are:<\/p>\n<ul>\n<li>Bathing<\/li>\n<li>Dressing<\/li>\n<li>Toileting<\/li>\n<li>Transferring (getting in and out of bed or a chair)<\/li>\n<li>Eating<\/li>\n<li>Continence<\/li>\n<\/ul>\n<p>These are the typical steps involved when filing a claim for long-term care insurance:<\/p>\n<ul>\n<li>Contact the insurance company for a claim packet. Many companies allow these forms to be filled out online. These forms may include a policyholder statement, an attending physician statement, a nursing assessment and plan of care, a provider statement if you are already receiving care, and an authorization to release medical information.<\/li>\n<li>Attend a phone interview. The insurance company will typically contact you to review the claim packet information.<\/li>\n<li>Await the response. It takes about 30 days to process the claim.<\/li>\n<li>If your claim is approved, the insurance company will pay the facility or provider directly or reimburse you monthly for the covered expenses you pay out of pocket.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<h2>The Average Cost of Long-Term Care<\/h2>\n<p><a href=\"https:\/\/www.genworth.com\/aging-and-you\/finances\/cost-of-care.html\/\">Genworth<\/a> is an insurance company based in Virginia that regularly publishes a cost-of-care survey. It&#8217;s a great tool. You can search by a specific location, look at estimates for future costs, and see costs broken down by the hour, day, month, or year.<\/p>\n<p>These are the median costs for yearly care in Knoxville in 2024:<\/p>\n<ul>\n<li>Homemaker Services: $62,379<\/li>\n<li>Home Health Aide: $61,829<\/li>\n<li>Adult Day Healthcare: $19,888<\/li>\n<li>Assisted Living Facility: $50,123<\/li>\n<li>Nursing Home Semi-Private Room: $93,729<\/li>\n<li>Nursing Home Private Room: $99,711<\/li>\n<\/ul>\n<p>You can see how the cost of long-term care could quickly drain even robust retirement savings.<\/p>\n<h2><\/h2>\n<h2>When to Buy Long-Term Care Insurance<\/h2>\n<p>If you want to help protect your retirement, long-term care insurance can go a long way in doing so. But when is the best time to buy it? Waiting too long can mean paying higher premiums or being deemed ineligible for coverage. Long-term care insurance is not subject to the same rules as traditional health insurers regarding refusing coverage based on pre-existing conditions under the Affordable Care Act. Buying too early can mean paying expensive premiums for much longer than necessary.<\/p>\n<p>According to the <a href=\"https:\/\/www.aaltci.org\/\">American Association for Long-Term Care Insurance<\/a> (AALTCI), the majority of those taking out long-term care insurance are between the ages of 55 and 64. The majority of claims are filed when people are in their 70s or 80s. Some 30% of applicants in their 60s are refused coverage, while about 20% of those in their 50s are turned down.<\/p>\n<p>The sweet spot seems to be the early 50s. Each time you reach another birthday in your 50s, the annual premium for long-term care insurance typically increases about 2 to 4%. Once in your 60s, premiums increase from 6 to 8% annually.<\/p>\n<p>Waiting to buy coverage until you&#8217;re 65 may mean paying more than twice the premiums for the same coverage if you&#8217;d purchased it at 55. Even paying for premiums for a longer period can save you money compared to the cost of waiting.<\/p>\n<h2><\/h2>\n<h2>Options for Covering Long-Term Care<\/h2>\n<p>As you can see, long-term care is expensive, and most of us will not be able to pay for it entirely out of pocket. Luckily, there are several options to help you cover the costs.<\/p>\n<h3>Traditional Long-Term Care Policy<\/h3>\n<p>Traditional long-term care insurance helps cover expenses not covered under regular health insurance, including Medicare and Medigap, for those who need help with ADLs or are suffering from cognitive impairment.<\/p>\n<p><strong>Pros<\/strong><\/p>\n<ul>\n<li>Coverage for long-term care expenses: LTC insurance helps cover the costs of long-term care services, including nursing home care, assisted living facilities, in-home care, and adult day care.<\/li>\n<li>Asset Protection: Having LTC insurance helps protect your retirement savings and other assets from being depleted by the expense of long-term care.<\/li>\n<li>Choice: LTC insurance offers the flexibility to choose where to receive care, at home or in a facility.<\/li>\n<li>Peace of Mind: Having LTC insurance gives <a href=\"https:\/\/paradigmwealthpartners.com\/preparing-for-healthcare-costs-in-retirement-tips-for-peace-of-mind\/\">peace of mind<\/a> to you and your family as it alleviates the worry over how to afford long-term care.<\/li>\n<\/ul>\n<p><strong>Cons<\/strong><\/p>\n<ul>\n<li>Cost: LTC insurance premiums can be expensive, particularly if you wait too long to buy coverage.<\/li>\n<li>Underwriting Requirements: To be eligible for LTC coverage, you may be required to meet certain health criteria. Pre-existing conditions or other health issues can mean higher premiums or being denied coverage.<\/li>\n<li>Limited Benefits: LTC policies often have limitations on coverage, like waiting periods, maximum benefit periods, and restrictions on what services and facilities are covered.<\/li>\n<li>Unused Benefits: As with any kind of insurance, you may never need what LTC insurance covers or only need minimal care. In this case, paying the premiums can seem like money wasted.<\/li>\n<li>Impact of Inflation: Without inflation protection, your policy&#8217;s benefits may not keep pace with the increasing costs of long-term care services, which could leave you underinsured in the future.<\/li>\n<\/ul>\n<h3>Hybrid Long-Term Care Policy<\/h3>\n<p>A hybrid long-term care policy is an insurance product that combines elements of a traditional LTC insurance policy and life insurance or annuities.<\/p>\n<p><strong>Pros<\/strong><\/p>\n<ul>\n<li>Long-Term Care Coverage: Like traditional LTC insurance, hybrid policies provide coverage for long-term care expenses.<\/li>\n<li>Death Benefit: If you don&#8217;t end up needing long-term care, hybrid policies typically offer a death benefit to your beneficiaries, similar to a life insurance policy.<\/li>\n<li>Potential for Premium Refunds: Some hybrid policies offer a return of premiums feature that gives you a portion of your premiums back if you cancel the policy or die without using the LTC benefits.<\/li>\n<li>Inflation Protection Options: Many hybrid policies offer inflation protection riders that allow you to increase the benefit amount over time to keep pace with the increasing cost of long-term care.<\/li>\n<li>Simplified Underwriting: Hybrid policies often have less stringent underwriting requirements than traditional LTC insurance policies, making them more accessible for those with pre-existing health conditions.<\/li>\n<li>Flexible Payment Options: Hybrid policies may offer flexible payment options, allowing the premiums to be paid in a lump sum or over a specified period of time.<\/li>\n<\/ul>\n<p><strong>Cons<\/strong><\/p>\n<ul>\n<li>Higher Initial Premiums: Hybrid LTC policies typically have higher initial premiums than traditional LTC insurance policies. This is because they combine both LTC coverage and life insurance or annuity benefits into a single policy.<\/li>\n<li>Limited Death Benefit: While hybrid policies offer a death benefit, it may be lower than what you would receive from a standalone life insurance policy, especially if you&#8217;ve used some of the LTC benefits.<\/li>\n<li>Complexity: Hybrid policies can be complicated, with various features and riders that might be hard to understand. Be sure to understand how your coverage works before making a decision.<\/li>\n<li>Tax Implications: While the LTC benefits received from hybrid policies are typically tax-free, there may be tax implications associated with the death benefit or any investment gains within the policy.<\/li>\n<\/ul>\n<h3>Life Insurance with an LTC Rider<\/h3>\n<p>A life insurance policy with an LTC rider is a type of insurance product that combines the benefits of traditional life insurance with coverage for long-term care expenses.<\/p>\n<p><strong>Pros<\/strong><\/p>\n<ul>\n<li>Dual Purpose: Combining life insurance with a long-term care rider provides coverage for both end-of-life expenses and potential long-term care needs.<\/li>\n<li>Asset Protection: Your assets are protected from the expense of long-term care.<\/li>\n<li>Stable Premiums: Premiums for life insurance policies with LTC riders may be more stable than standalone long-term care insurance policies, as they&#8217;re often locked in at the time of purchase and not subject to rate increases.<\/li>\n<li>Tax Benefits: Depending on how the policy is structured and local regulations, some premiums or benefits may be tax-deductible or tax-free.<\/li>\n<\/ul>\n<p><strong>Cons<\/strong><\/p>\n<ul>\n<li>Cost: Policies with LTC riders can be more expensive than traditional life insurance policies due to the additional coverage they provide.<\/li>\n<li>Complexity: The integration of life insurance and long-term care benefits can make the policy more complicated, and it can be challenging to understand all of the terms and conditions.<\/li>\n<li>Reduced Death Benefit: Accessing the long-term care benefits may reduce the death benefit available to your beneficiaries.<\/li>\n<li>Underwriting: Qualifying for a policy with an LTC rider may require stricter underwriting standards, which could mean higher premiums or denial of coverage for those with pre-existing conditions.<\/li>\n<\/ul>\n<h3>Self-Insuring<\/h3>\n<p>Self-insuring means setting aside money to pay for long-term care expenses out of pocket. It doesn&#8217;t necessarily mean cash; you can self-insure through your HSA, IRA, 401(k), or brokerage investments.<\/p>\n<p><strong>Pros<\/strong><\/p>\n<ul>\n<li>Flexibility: Self-insuring gives you flexibility in how you manage and use your assets. You&#8217;re not tied to the restrictions or limitations of an insurance policy.<\/li>\n<li>No Premiums: You won&#8217;t have any premiums to pay, which can be expensive, especially as you age or if you have a pre-existing condition.<\/li>\n<li>No Denial of Benefits: When you self-insure, you can&#8217;t be turned down for coverage based on your age or pre-existing conditions.<\/li>\n<li>Potential Investment Growth: If you invest the money for your long-term care, there is potential for growth, which can give you more resources to cover that care.<\/li>\n<li>No Rate Increases: You avoid this risk when you self-insure.<\/li>\n<\/ul>\n<p><strong>Cons<\/strong><\/p>\n<ul>\n<li>High Cost of Care: Long-term care is expensive, especially if you need it for an extended period of time. Without insurance, you&#8217;re solely responsible for covering the costs, which could deplete your assets.<\/li>\n<li>Uncertain Future Needs: There is no reliable way to predict how much long-term care you might need or how much it will cost. Self-insuring requires setting aside substantial assets for a significant amount of time to make sure you can afford any care you may need. Not setting aside enough can mean running out of money to fund your care.<\/li>\n<li>Missed Tax Benefits: Long-term care insurance premiums may be tax-deductible, providing potential tax benefits you won&#8217;t receive when you self-insure.<\/li>\n<li>Impact of Inheritance: If your assets are depleted to pay for your long-term care, it will impact the inheritance you planned to leave to your heirs.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>What&#8217;s Right for You?<\/h2>\n<p>Having some form of long-term care insurance is one of the best tools to protect your retirement and heirs. If you would like to discuss the best option for your situation or any other aspect of financial or <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement planning<\/a>, <a href=\"https:\/\/paradigmwealthpartners.com\/contact-us\/\">reach out to us<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Do I Need Long-Term Care Insurance? While our lifespans continue to increase, there is a gap between lifespan and health span. Those who live longer often need more care than those who die younger. And&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/do-i-need-long-term-care-insurance\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":353,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-352","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Do I Need Long-Term Care Insurance? - Paradigm Wealth Partners<\/title>\n<meta name=\"description\" content=\"While our lifespans continue to increase, there is a gap between lifespan and health span. 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Long-term care insurance may be a solution.","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/paradigmwealthpartners.com\/do-i-need-long-term-care-insurance\/","og_locale":"en_US","og_type":"article","og_title":"Do I Need Long-Term Care Insurance? - Paradigm Wealth Partners","og_description":"While our lifespans continue to increase, there is a gap between lifespan and health span. 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But it can have just as much impact on your retirement as the other risks. We&#8217;ll discuss sequence of returns risk and how you can protect your retirement.<\/p>\n<h2>What is Sequence of Returns Risk?<\/h2>\n<p>Sequence of returns risk is the risk of a market downturn happening in the last few years before you retire and\/or during the first few years of your retirement. A down market in those critical years can have a negative impact on your retirement savings.<\/p>\n<p>Let&#8217;s look at an <a href=\"https:\/\/www.kiplinger.com\/retirement\/sequence-of-returns-risk-can-ruin-your-retirement\">example<\/a>:<\/p>\n<p>Two investors go into retirement with $1 million each and plan to withdraw $50,000 a year for living expenses. Over the next 30 years, they both have the same average rate of return (6.3%), but their annual returns happen in the opposite order.<\/p>\n<p>Investor A sees three years of down markets at the beginning of retirement, and it leaves him with half of his savings. The market has good years later, but his portfolio is never able to recover and he runs out of money eventually.<\/p>\n<p>Investor B experiences the opposite. Her first few years of retirement see up markets, and while there are down markets over the thirty years she&#8217;s retired, her money doubles to more than $2 million.<\/p>\n<p>If neither investor had to take withdrawals, they would have had the same $2+ million balance at the end of 30 years, regardless of the sequence of their returns. However, because they were withdrawing $50,000 each year, their real rates of return were very different from their average rate of return.<\/p>\n<p>This is what each investor experienced:<\/p>\n<p><img decoding=\"async\" class=\"alignnone wp-image-955\" src=\"https:\/\/paradigmwealthpartners.com\/wp-content\/uploads\/2024\/06\/Picture1-300x262.png\" alt=\"\" width=\"727\" height=\"635\" \/><\/p>\n<p>&nbsp;<\/p>\n<h2>Ways to Mitigate Sequence of Returns Risk<\/h2>\n<p>There are many things we can&#8217;t control, and market returns are one of them. But there are things we can do to help <a href=\"https:\/\/awealthofcommonsense.com\/2021\/02\/the-best-way-to-manage-sequence-of-return-risk\/\">mitigate sequence of returns risk<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<h3>Dynamic Spending<\/h3>\n<p>Reducing spending is one approach to deal with a down market. The less money you withdraw, the more money will remain in your portfolio to experience any market recoveries.<\/p>\n<p>Also known as the guardrails or flexible spending approach, it&#8217;s a <a href=\"https:\/\/paradigmwealthpartners.com\/what-is-the-4-rule\/\">withdrawal strategy<\/a> that allows retirees to manage their spending and portfolios during retirement. By setting specific upper and lower limits on withdrawal rates, retirees can maintain a balance between spending and preserving their assets while adapting to fluctuations in the market and their lifestyles.<\/p>\n<h3><\/h3>\n<h3>Keep Cash Reserves<\/h3>\n<p>It&#8217;s recommended to keep an emergency fund containing three to 12 months of essential expenses (depending on your personal situation), but that applies to your working life. The worst-case scenario for dipping into an emergency fund is a period of unemployment. But even in a recession, most people will be able to find a new job well within twelve months.<\/p>\n<p>Things are different when you&#8217;re retired. You need a few years of essential expenses to dip into if your last few working years or first few years of retirement see down markets.\u00a0 This allows you to leave your investments untouched so they can recover.<\/p>\n<p>The problem with cash is that there is no return, which can increase inflation risk later. A middle-ground solution is low-risk investments like bonds or CDs.<\/p>\n<h3><\/h3>\n<h3>Bond Laddering<\/h3>\n<p>Bond laddering entails buying bonds with different maturity dates. Just as the rungs on a ladder have different heights, the bonds in a ladder have different maturity dates. Bond laddering can help reduce sequence of return risk and interest rate risk.<\/p>\n<p>Here\u2019s an example of a bond ladder:<\/p>\n<p>You have a portfolio containing four bonds, each with a different maturity date. The dates are 2024, 2025, 2026, and 2027. During a down market, you may take the money from your 2024 bond maturing and buy a new rung, maybe a bond with a maturity date in 2028.<\/p>\n<p>The point of a bond ladder is you have this money when a bond reaches maturity, and you can work it into your overall investment strategy. That doesn\u2019t necessarily mean making another investment. You might need that money to top off a recently depleted cash reserve or just want to keep it as cash on hand for whatever reason.<\/p>\n<h3>Bucket Strategy<\/h3>\n<p>The <a href=\"https:\/\/paradigmwealthpartners.com\/bucket-strategy-for-retirement-planning\/\">bucket strategy<\/a> sees investors who are nearing retirement, one to three years out, split their assets into three different portfolios (buckets). Each bucket serves a different purpose and has a different time horizon, asset allocation, and risk level. Splitting up your assets into these buckets allows you to use some assets for income while other assets continue to grow.<\/p>\n<p><strong>Short-term bucket:<\/strong> Helps meet income needs and acts as your cash reserve for the first one to five years of retirement. The assets inside are conservative and won&#8217;t be severely impacted by a down market. These assets can include things like money market funds, CDs, and short-term bonds.<\/p>\n<p><strong>Intermediate bucket:<\/strong> Helps provide income for years 6 to 15 of retirement. This bucket can fill the short-term bucket if it&#8217;s been depleted. This bucket&#8217;s risk level is higher than your short-term bucket and can include assets like dividend-paying stocks, individual bonds, bond funds, and laddered bond portfolios.<\/p>\n<p><strong>Long-term bucket:<\/strong> Helps provide income for years 16 and beyond. This bucket has the highest-risk assets and the longest time horizon, so it has the best chance to recover from down markets. The long-term bucket can include things like equities, commodities, and real estate.<\/p>\n<h3><\/h3>\n<h3>Have a Flexible Plan<\/h3>\n<p>When dealing with any risk to your investments, sequence of returns risk, or any others, having a flexible plan that allows for adjustments is the best defense. A solid financial or <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement plan<\/a> has accounted for different circumstances, including sequence of return risks and the other four big risks to your retirement.<\/p>\n<p>That stated, any good plan also has room for tweaks and changes. While sticking to your plan is one of the most important factors in financial success, the ability to pivot when necessary is important, too.<\/p>\n<p>If you would like assistance with retirement planning or any other aspect of <a href=\"https:\/\/paradigmwealthpartners.com\/5-common-mistakes-people-make-when-creating-a-financial-plan\/\">financial planning<\/a>, please <a href=\"https:\/\/paradigmwealthpartners.com\/\">reach out<\/a> to our team.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Of the biggest risks to your retirement, behavior, inflation, taxes, longevity, and sequence of returns, perhaps the least talked about is sequence of returns risk. But it can have just as much impact on your&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/what-is-sequence-of-returns-risk\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":351,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-349","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is Sequence of Returns Risk? 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You become eligible to begin receiving Social Security benefits at age 62, so if you&#8217;re not there yet, you soon will be. So, I thought it would be a good time to review the basics of Social Security.<\/p>\n<h2><\/h2>\n<h2>COLA Increase for 2024<\/h2>\n<p>Each year since 1975, the Social Security Administration (SSA) has adjusted <a href=\"https:\/\/www.kiplinger.com\/retirement\/social-security\">Social Security<\/a> benefits for inflation. Beginning in January 2024, the <a href=\"https:\/\/www.ssa.gov\/cola\/\">COLA<\/a>, cost of living adjustment, will be 3.2%. This is a much smaller COLA than last year&#8217;s, which was 8.7%, reflecting the reduction in inflation over the past 12 months.<\/p>\n<p>This increase will make the average monthly Social Security retirement payment around $1,907, up about $59 from 2023&#8217;s monthly payment of $1,848.<\/p>\n<h2><\/h2>\n<h2>Who is Eligible for Social Security?<\/h2>\n<p>You earn credits toward Social Security benefits when you work and pay Social Security taxes. You need 40 credits to receive Social Security <a href=\"https:\/\/www.ssa.gov\/prepare\/plan-retirement\">retirement<\/a> benefits, which represents ten years of work. If you stop working before reaching 40 credits, the credits you did earn remain on your record. If you work in the future, more credits will be added as you meet the requirements.<\/p>\n<p>You can begin receiving Social Security retirement benefits at age 62, but benefits are reduced if you opt to start receiving payments before the full retirement age. For those born between 1943 and 1954, full retirement age is 66. This increases gradually for those born from 1955 to 1960 until it reaches age 67. For those born in 1960 or later, the full retirement age is 67.<\/p>\n<h2><\/h2>\n<h2>How are Social Security Benefits Calculated?<\/h2>\n<p>Social Security benefits are based on how much you earned over the course of your working years. The SSA uses a formula based on a recipient&#8217;s income during their 35 highest earning years indexed for inflation.<\/p>\n<p>Higher earnings mean higher benefits. The age at which you opt to begin receiving benefits also impacts your payment amount. The longer you wait, up until the full retirement age of 66 or 67, the higher the benefit.<\/p>\n<p>You can create a Social Security account at <a href=\"https:\/\/www.ssa.gov\/myaccount\/\">ssa.gov\/myaccount<\/a> to see how many work credits you&#8217;ve accumulated and to get an estimate of your benefits.<\/p>\n<h2><\/h2>\n<h2>Penalty for Claiming Benefits Early vs. Delaying<\/h2>\n<p>You can choose to begin taking benefits as early as age 62, but this may mean a reduction in benefits of up to 30%. With delayed retirement credits, you can receive the largest benefits by retiring at age 70.<\/p>\n<h2><\/h2>\n<h2>Spousal Benefits<\/h2>\n<p>Non-working spouses are eligible for Social Security benefits based on the working spouse&#8217;s earnings record. Social Security benefits for the non-working spouse typically equal up to 50% of the working spouse&#8217;s benefits. The percentage will depend on when the non-working spouse begins receiving benefits. It maxes out at full retirement age.<\/p>\n<h2><\/h2>\n<h2>Survivor Benefits<\/h2>\n<p>When both spouses have been claiming Social Security benefits, and one passes away, the surviving spouse will receive the higher benefit. For example, if a husband&#8217;s benefits were larger than his wife&#8217;s, the wife would receive the amount her husband was receiving but no longer the amount she was receiving.<\/p>\n<p>If the surviving spouse is at full retirement age or older, they can receive 100% of their spouse&#8217;s benefit amount. If they&#8217;re between 60 and full retirement age, they&#8217;ll receive between 71.5% and 99%.<\/p>\n<p>Others who may qualify for survivor&#8217;s benefits include:<\/p>\n<ul>\n<li>A surviving spouse who is 50 or older and has a disability<\/li>\n<li>A surviving divorced spouse who meets certain criteria<\/li>\n<li>A surviving spouse who cares for the deceased&#8217;s child under age 16 or who has a disability<\/li>\n<li>An unmarried child of the deceased who is under 18 or up to 19 if they are a full-time elementary or secondary school student or age 18 and older with a disability that began before age 22<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Ex-Spouse Benefits<\/h2>\n<p>As mentioned above, former spouses are entitled to receive Social Security benefits based on their ex-spouse&#8217;s record even if that ex-spouse has remarried as long as they meet the following criteria:<\/p>\n<ul>\n<li>The marriage lasted ten years or more<\/li>\n<li>They are unmarried<\/li>\n<li>They are 62 or older<\/li>\n<li>The benefit they are entitled to based on their work history is less than the benefit they would receive based on yours<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Social Security Earnings Test<\/h2>\n<p>It is permissible to continue working and receiving Social Security benefits simultaneously. Those in this position are subject to the Social Security earnings test before reaching full retirement age.<\/p>\n<p>The SSA will withhold some of your benefits for every dollar you make above a certain income limit. In other words, a worker who collects Social Security before the full retirement age will receive a reduced percentage of their benefits.<\/p>\n<p>This doesn&#8217;t mean leaving benefits on the table. You recoup the lost benefits once you reach the full retirement age.<\/p>\n<h2><\/h2>\n<h2>Taxation of Social Security Benefits<\/h2>\n<p>Some people will have to pay federal income taxes on their Social Security benefits. Those subject to this taxation typically have substantial income from other sources like income from a job, dividends, or other forms of taxable income that must be reported on their tax return.<\/p>\n<p>You will pay taxes on 85% of your Social Security benefits if you:<\/p>\n<ul>\n<li>File a federal tax return as an individual, and your combined income is:\n<ul>\n<li>between $25,000 and $34,000, you may have to pay income tax on up to 50% of your benefits<\/li>\n<li>more than $34,000, up to 85% of your benefit may be taxable<\/li>\n<\/ul>\n<\/li>\n<li>File a joint return, and you and your spouse have a combined income that is:\n<ul>\n<li>Between $32,000 and $44,000, you may have to pay income tax on up to 50% of your benefits<\/li>\n<li>more than $44,000, up to 85% of your benefits may be taxable<\/li>\n<\/ul>\n<\/li>\n<li>Are married and file a separate tax return, you will probably have to pay taxes on your benefits<\/li>\n<\/ul>\n<p>Every January, you&#8217;ll receive Form SSA-1099, a Social Security Benefit Statement that shows the amount of benefits you received during the previous year. You can use this form when you fill out your tax return to determine if your benefits will be taxed.<\/p>\n<p>If you do have to pay taxes on your Social Security benefits, you can make quarterly estimated payments or choose to have federal taxes withheld from your benefits.<\/p>\n<h2><\/h2>\n<h2>The Future of Social Security<\/h2>\n<p>There is a lot of concern about the future of Social Security, and for good reason. Since 2010, Social Security has brought in less revenue than it pays out and has been covering the shortfall with its reserves.<\/p>\n<p>Currently, the trust funds that disburse retirement, disability, and other Social Security benefits will be depleted by 2035, just eleven years from now. This doesn&#8217;t mean Social Security will end. It means that the system will exhaust its cash reserves and will be able to pay out only what it brings in year-to-year in Social Security taxes. This would see Social Security pay out about 80% of the benefits to which retired and disabled workers are entitled to.<\/p>\n<p>This situation could be addressed in several ways:<\/p>\n<ul>\n<li>Raise the full retirement age<\/li>\n<li>Increase the cap on Social Security payroll contributions<\/li>\n<li>Increase the income level subject to Social Security taxes<\/li>\n<li>Means test benefits<\/li>\n<li>Reduce benefits<\/li>\n<\/ul>\n<p>Whatever it may look like in the future, Social Security is not going anywhere. About half of those 65 and older live in households that receive at least <a href=\"https:\/\/www.ssa.gov\/policy\/docs\/ssb\/v77n2\/v77n2p1.html#:~:text=We%20find%20that%20about%20half,percent%20of%20their%20family%20income.\">50%<\/a> of their family income from Social Security benefits, and about 25% of those households depend on those benefits for at least 90% of their family income. For the program to end would be catastrophic.<\/p>\n<p>&nbsp;<\/p>\n<h2>We&#8217;re Here to Help<\/h2>\n<p>If you would like assistance determining how best to optimize your Social Security benefits or any other aspect of <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement planning<\/a> or overall <a href=\"https:\/\/paradigmwealthpartners.com\/5-common-mistakes-people-make-when-creating-a-financial-plan\/\">financial planning<\/a>, please <a href=\"https:\/\/paradigmwealthpartners.com\/\">reach out<\/a> to our team.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>By 2030, just six years from now, every Baby Boomer will be 65 or older\u2014all 73 million of them. You become eligible to begin receiving Social Security benefits at age 62, so if you&#8217;re not&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/the-basics-of-social-security\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":348,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-347","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Basics of Social Security - 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But your W-4 can be updated any time of the year, and there are some circumstances that necessitate an update.<\/p>\n<h2>What is a W-4?<\/h2>\n<p>A Form W-4 is an IRS form that you fill out for your employer to <a href=\"https:\/\/www.irs.gov\/individuals\/tax-withholding-estimator\">determine how much money should be withheld<\/a> from each paycheck for <a href=\"https:\/\/www.ramseysolutions.com\/taxes\/what-is-federal-tax-withholding\">federal income taxes<\/a>. Updating the information on your W-4 can help you avoid overpaying or underpaying your taxes throughout the year.<\/p>\n<h2>Reasons to Update Your W-4<\/h2>\n<p>If any of these situations apply to you, you should <a href=\"https:\/\/www.investopedia.com\/articles\/tax\/11\/signs-you-should-change-withholding.asp#toc-working-two-jobs\">update your -W4<\/a>.<\/p>\n<h3><\/h3>\n<h3>You&#8217;ve Had a Major Life Change<\/h3>\n<p>Your marital status will likely change your tax rate, particularly if both spouses are working. Married couples who file jointly will qualify for a lower tax rate and other deductions than filing as single. Getting divorced can mean going back to single or head of household status, and you&#8217;ll lose many of the tax benefits you had while married. If you don&#8217;t update your W-4 to reflect these changes, your withholdings may be inaccurate.<\/p>\n<p>Becoming a parent, whether it&#8217;s a biological child or you adopt, can be a tax event. If you&#8217;re eligible for the Child Tax Credit (For 2023, married couples with income under $400,000, families with a single parent with income under $200,000, and everyone else with income under $200,000), you can include the amount you will qualify for in your W-4 calculations.<\/p>\n<p>Keep in mind that any amount received as an advance payment during the year must be subtracted from the credit you expect to receive on your tax return, as you will have already received the money. Adopting may mean you&#8217;re eligible for <a href=\"https:\/\/www.irs.gov\/newsroom\/the-adoption-tax-credit-helps-families-with-adoption-related-expenses\">another tax credit<\/a>. Any of these benefits may allow you to reduce your withholding to account for the additional tax benefits.<\/p>\n<p>If you&#8217;ve taken a second job, you&#8217;ll need to claim extra withholdings on your W-4 to account for the extra income. Having two jobs may push you into a higher tax bracket, so you&#8217;ll need to withhold more of your income.<\/p>\n<p>If you suffered a job loss and remained unemployed for the remainder of the year, you probably had too much in taxes withheld while you were working. If you do get a new job during the same year you were unemployed, you&#8217;ll need to adjust for the period you weren&#8217;t working. To avoid overpaying, you will need to adjust your withholding on a new W-4.<\/p>\n<h3><\/h3>\n<h3>You Received a Tax Refund<\/h3>\n<p>Getting a tax refund seems like a good thing, a nice chunk of unexpected change. What it really means is that you&#8217;ve provided the government with a nice interest-free loan because you&#8217;ve been overpaying your taxes.<\/p>\n<p>This is money that you could have been getting throughout the year in your paycheck and used for investing, saving, paying down debt, or anything else that would help advance your financial goals.<\/p>\n<p>If your refund is a couple of hundred dollars, it&#8217;s not that important, but if it&#8217;s substantially more, consider discussing your withholdings and estimated payments with a tax professional so you can adjust your W-4 accordingly and retain more of your money throughout the year.<\/p>\n<h3><\/h3>\n<h3>You Owed Taxes<\/h3>\n<p>The flip side of getting a big tax refund is getting a big tax bill, an even worse problem. It means you&#8217;ve underpaid your taxes and are subject to the IRS&#8217;s underpayment penalty. You are subject to the penalty if you don&#8217;t pay enough of your estimated taxes, don&#8217;t have enough withheld from your paychecks, or are late paying your taxes. To avoid the penalty, you must generally owe less than $1,000 or pay at least either 100% of the prior year&#8217;s taxes or 90% of the current year&#8217;s taxes.<\/p>\n<p>If your adjusted gross income (AGI) for the prior year exceeded $150,000, you must pay the lesser of 110% of the previous year&#8217;s taxes or 90% of the current year&#8217;s taxes. Typically, the penalties for underpayment are 5% of the underpaid amount and capped at 25%. Underpaid taxes will also accrue interest at the rate the IRS sets each year.<\/p>\n<p>Withholdings from your paycheck or distributions from retirment accounts are considered to have happened throughout the year, but estimated tax payments should be timed to correspond with the timing of when the income was earned or distributed. A tax professional can help in cases where income is uneven throughout the year.<\/p>\n<p>This flow chart can help you navigate the situation:<\/p>\n<p><a href=\"https:\/\/paradigmwealthpartners.com\/wp-content\/uploads\/2023\/12\/Do-I-Need-To-Start-Making-Estimated-Federal-Income-Tax-Payments-2023.pdf\">Do-I-Need-To-Start-Making-Estimated-Federal-Income-Tax-Payments-2023<\/a><\/p>\n<p>And this one will help you navigate your W-4 withholdings:<\/p>\n<p><a href=\"https:\/\/paradigmwealthpartners.com\/wp-content\/uploads\/2023\/12\/Pay-Stub-Review-2023.pdf\">Pay-Stub-Review-2023<\/a><\/p>\n<p>This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. If you have any questions about <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement planning<\/a> or any other aspect of financial planning, <a href=\"https:\/\/paradigmwealthpartners.com\/\">reach out<\/a>. We&#8217;re here to help you Life the Life You Love.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>3 Reasons It May Be Time To Update Your W-4 For many of us, the only time we fill out a W-4 form is when we start a new job. But your W-4 can be&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/3-reasons-it-may-be-time-to-update-your-w4\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":344,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-343","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>3 Reasons It May Be Time To Update Your W-4 - 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The Act lowered the income tax rates for most income levels. The Act is scheduled to sunset or expire at the end of 2025. If no new legislation is passed in the meantime, the current <a href=\"https:\/\/www.putnam.com\/individual\/content\/perspectives\/9978-why-think-about-the-sunset-of-the-tax-cuts-and-jobs-act-tcja\">tax brackets<\/a> will be replaced with the higher tax brackets that were in place prior to TCJA in 2017.<\/p>\n<p>While there is still time for new tax legislation to be passed before the <a href=\"https:\/\/www.kiplinger.com\/taxes\/what-to-do-before-tax-cuts-and-jobs-act-tcja-provisions-sunset\">TCJA<\/a> expires, there is no guarantee that will happen. In order to be proactive, there are some strategies that can be used in case of an increase in taxes.<\/p>\n<h2><\/h2>\n<h2>Potential Changes or Revisions if TJCA Ends on December 31, 2025<\/h2>\n<h3>Estate and Gift Taxes<\/h3>\n<p>For 2023, individuals can transfer up to $12.92 million; for married couples, it&#8217;s up to $25.84 million either during their lifetime or as part of their estate without triggering federal <a href=\"https:\/\/www.rbcwealthmanagement.com\/en-us\/insights\/preparing-for-the-great-sunset-what-you-need-to-know-if-tax-code-provisions-expire\">gift taxes or estate taxes<\/a>.<\/p>\n<p>If there is no new legislation, these exemption amounts will be reduced by half for the 2026 tax year. If your taxable estate exceeds the existing exemption amount, there are some strategies you can explore:<\/p>\n<ul>\n<li><strong>Annual Cash Gifts: <\/strong>You can gift up to $17,000 a year or $34,000 for married couples who file jointly to as many people as you choose. These annual gifts aren&#8217;t taxed and won&#8217;t count against your lifetime exemption.<\/li>\n<li><strong>529 Plan Accelerated Gifts:<\/strong> Currently, you can accelerate five years of gifts to 529 accounts for anyone; they don&#8217;t have to be a child, grandchild, or even related to you. This means you could gift up to $85,000 a year, or $170,000 for married couples, to each person.<\/li>\n<li><strong>Dynasty Trusts:<\/strong> If you haven&#8217;t used much of your lifetime gift and estate tax exemption yet, you may want to consider creating a dynasty trust as long as it&#8217;s legal under local state laws. Any future trust asset income and appreciation can be transferred to younger generations without incurring estate or gift taxes.<\/li>\n<li><strong>Irrevocable Life Insurance Trusts (ILIT): <\/strong>Buying a survivorship policy owned through an ILIT is a common way of transferring wealth outside of a taxable estate. And the death benefit paid to beneficiaries is considered tax-free income.<\/li>\n<\/ul>\n<h3>Income and Capital Gains<\/h3>\n<p>If nothing changes, tax brackets will go back to what they were prior to TCJA, and many wealthy taxpayers will since a noticeable increase in their effective tax rate. There are some options to accelerate income to take advantage of the current, lower tax brackets:<\/p>\n<ul>\n<li><strong>Tax Diversification: <\/strong>Tax diversification means diversifying wealth by the tax status of assets during retirment. Holding assets in accounts that are taxed differently can provide flexibility when managing tax bills. Tax diversification can include <a href=\"https:\/\/paradigmwealthpartners.com\/roth-conversions-what-to-consider\/\">converting<\/a> a traditional IRA to a <a href=\"https:\/\/paradigmwealthpartners.com\/roth-401k-versus-traditional-401k\/\">Roth IRA<\/a>. By making this conversion before 2026, you can pay the income tax liability upfront when the tax rate may be lower rather than waiting until the time of the distribution when the liability may be higher. Or using municipal bonds to generate tax-free income.<\/li>\n<li><strong>Harvest Capital Gains: <\/strong>In anticipation of potentially higher capital gains tax rates in the future, you may want to consider selling some securities that have high appreciation before TCJA ends. Yes, the sale will create a taxable gain, but it may be less than in the future. Because wash sale rules apply to harvesting losses and not gains, you could then purchase the same securities at a stepped-up cost basis to help reduce future recognized gains while still owning the investment.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>There is Still Time<\/h2>\n<p>We often say no one can predict the future when it comes to investing and that&#8217;s doubly true of tax legislation. Washington can seem to creep along on all manner of issues, including taxes, and then suddenly, there are big changes announced.<\/p>\n<p>Whatever happens or doesn&#8217;t happen with TCJA, it&#8217;s wise to know your options.<\/p>\n<p>This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor. If you have any questions about <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement planning<\/a> or any other aspect of financial planning, <a href=\"https:\/\/paradigmwealthpartners.com\/\">reach out<\/a>. We&#8217;re here to help you Life the Life You Love.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How to Prepare for a TCJA Sunset in 2025 In December 2017, the Tax Cuts and Jobs Act of 2017 (TCJA) was signed into law. The Act lowered the income tax rates for most income&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/how-to-prepare-for-the-tcja-2025-sunset\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":342,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-341","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How to Prepare for a TCJA Sunset in 2025 - Paradigm Wealth Partners<\/title>\n<meta name=\"description\" content=\"While there is still time for new tax legislation to be passed before the TCJA expires, there is no guarantee that will happen. 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Ask 100 financial advisors how much money you need to retire, and you&#8217;ll get 100 different answers. There are so many variables between people; lifestyle, health, location. And there are so many unknowns; health, inflation, taxes. That&#8217;s why there is no single answer to the question of how much money you need to retire and so many ways to get a ballpark number; <a href=\"https:\/\/paradigmwealthpartners.com\/what-is-the-4-rule\/\">the 4% rule<\/a>, the rule of 25, 10 to 12 times your annual income at retirement age.<\/p>\n<p>But many Americans are well behind even the lowest end of a ballpark calculation for retirement. <a href=\"https:\/\/finance.yahoo.com\/news\/many-americans-100-000-saved-192658338.html?guccounter=1&amp;guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&amp;guce_referrer_sig=AQAAAAPQURTQyoYaPz7N8p8d7LeBe_vqwOvENEzZ874qp1wIiKZ3yfs_4JbH9_Qwl1bEHorkaAJPkNtneSSKbtY2fMPcbqYxf4N3ojFZyjp9oIbsILa4K0twCdmsLP6gkzFcEwW0GbSpWjtSRy3CUXhV6E-fsc-mOMX8kmV47HOd5-oe#:~:text=Most%20Americans%20are%20not%20saving,or%20less%20saved%20for%20retirement.\">A survey<\/a> found that only 14% have $100,000 or more in their retirement accounts, and 78% have less than $50,000.<\/p>\n<p>If you need to rev up your retirement savings, there is a tool that can help; <a href=\"https:\/\/www.bankrate.com\/retirement\/catch-up-contributions\/\">catch-up contributions<\/a>.<\/p>\n<h2><\/h2>\n<h2>What Are Catch-Up Contributions?<\/h2>\n<p><a href=\"https:\/\/www.lighthouselife.com\/blog\/catch-up-contributions-for-retirement\/\">Catch-up contributions<\/a> are additional amounts of money that those aged 50 and older can contribute to their retirement savings accounts above what the IRS allows for those under 50.<\/p>\n<p>Retirement Catch-up contributions apply to:<\/p>\n<ul>\n<li>401(k)s<\/li>\n<li>IRAs<\/li>\n<li>403(b)s<\/li>\n<li>Governmental 457(b)s<\/li>\n<li>SARSEPs<\/li>\n<li>The federal government&#8217;s Thrift Savings Plan<\/li>\n<li>HSA (Those aged 55 and older)<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Catch-Up Limits<\/h2>\n<p>Each eligible account has an annual contribution and catch-up limit set by the IRS. Some years the limits increase, but not always every year. For 2023, these are the limits and catch-up limits:<\/p>\n<ul>\n<li>401(k)s: $22,500, $7,500<\/li>\n<li>IRAs (Roth and Traditional): $6,500, $1,000<\/li>\n<li>403(b)s: $22,500, $7,500<\/li>\n<li>Governmental 457(b)s: $22,500, $7,500<\/li>\n<li>SARSEPs: $22,500, $7,500<\/li>\n<li>The federal government&#8217;s Thrift Savings Plan: $22,500, $7,500<\/li>\n<li>HSA (Those aged 55 and older) $3,850 for individuals, $7,750 for families, $1,000<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Requirements<\/h2>\n<p>The main requirement is age, to be 50 or over (55 in the case of HSAs). Those 50 and older by the end of the calendar year are typically eligible to make catch-up contributions.<\/p>\n<p>Some plans may have their own requirements. For example, employees with 15 or more years of service may be eligible to make extra contributions to their 403(b) plans in addition to the regular catch-up contributions based on age.<\/p>\n<h2><\/h2>\n<h2>Alternative to Catch-Up Contributions<\/h2>\n<p>One of the most significant expenses in retirement may be healthcare costs, particularly if you need long-term care, something typically not covered by Medicare. Long-term care insurance can go a long way toward mitigating those expenses, but it&#8217;s rather expensive.<\/p>\n<p>If you or your spouse have health issues, it may be worth considering using the money you would have used to make catch-up contributions to buy long-term care insurance.<\/p>\n<h2><\/h2>\n<h2>Are Catch-Up Contributions Worth It?<\/h2>\n<p>For most people, the answer is &#8220;Yes.&#8221; While living expenses typically decrease in retirement, the reduction may not be as much as you think. You can expect to spend <a href=\"https:\/\/www.fidelity.com\/viewpoints\/retirement\/spending-in-retirement\">55% to 80%<\/a> of your pre-retirement income each year during retirement.<\/p>\n<p>And you have inflation to consider. Between 2000 and 2020, <a href=\"https:\/\/www.worlddata.info\/america\/usa\/inflation-rates.php\">inflation<\/a> only rose above 3% five times. In 2021, it hit 4.70%, and in 2022, it skyrocketed to 8%. All those years with low inflation rates could easily lull you into thinking it would stay that way forever, but that&#8217;s not what happened.<\/p>\n<p>And inflation is a significant risk factor for retirees. Between March 2022 and February 2023, inflation ate into purchasing power by more than 7%.<\/p>\n<p>Social Security does have cost-of-living adjustments (COLAs) to help beneficiaries deal with inflation, but retirement accounts don&#8217;t. Catch-up contributions can help pad your retirement savings against inflation and other <a href=\"https:\/\/www.amazon.com\/What-Wealth-Identify-Reignite-Retirement-ebook\/dp\/B0B456ZMJD\/ref=sr_1_1?crid=8B2I2ZQHUK0Q&amp;keywords=jonathan+bednar&amp;qid=1691430375&amp;sprefix=jonathan+bednar%2Caps%2C766&amp;sr=8-1\">threats to your retirement<\/a>.<\/p>\n<p>If you have any questions about <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement planning<\/a> or any other aspect of financial planning, <a href=\"https:\/\/paradigmwealthpartners.com\/\">reach out<\/a>. We&#8217;re here to help you Create Life the Life You Love.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Why consider catch-up contributions? Ask 100 financial advisors how much money you need to retire, and you&#8217;ll get 100 different answers. There are so many variables between people; lifestyle, health, location. And there are so&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/the-power-of-catch-up-contributions\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":338,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[6],"tags":[],"class_list":{"0":"post-337","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-retirement","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The Power of Catch-up Contributions - Paradigm Wealth Partners - Knoxville, TN<\/title>\n<meta name=\"description\" content=\"- If you need to rev up your retirement savings, there is a tool that can help; 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While most of us understand the importance of having an estate plan, only <a href=\"https:\/\/www.legalzoom.com\/articles\/estate-planning-statistics#:~:text=making%20a%20will.-,Must%2Dread%20estate%20planning%20statistics,end%2Dof%2Dlife%20plans.\">33%<\/a> of Americans have one. And while an <a href=\"https:\/\/paradigmwealthpartners.com\/understanding-the-estate-planning-process\/\">estate plan<\/a> covers the big stuff, it isn&#8217;t designed to detail issues that, while smaller, is just as important. Those smaller details can be covered by a Letter of Instruction.<\/p>\n<h2>What is a Letter of Instruction?<\/h2>\n<p>Think of a <a href=\"https:\/\/www.aarp.org\/money\/estate-planning\/info-04-2009\/letter_of_instruction.html\">Letter of Instruction<\/a> as a cheat sheet for the executor of your estate or anyone else who will help settle your affairs after your death. It can serve as an easy-to-understand explanation of your overall estate plan for your executor and detail your wishes to your family for things not covered in your will.<\/p>\n<p>A will is legally binding; a Letter of Instruction carries no legal authority. It does not need to be drafted by an attorney, nor does it have to be notarized. A Letter of Instruction is not set in stone; you can change it whenever and as many times as you like. And it&#8217;s more fluid than a will. In most cases, a will doesn&#8217;t have to be updated regularly, but a Letter of Instruction may need frequent updating.<\/p>\n<p>&nbsp;<\/p>\n<h2>Topics to Cover in a Letter of Instruction<\/h2>\n<p>No rule governs what you can include in your <a href=\"https:\/\/trustandwill.com\/learn\/letter-of-instruction\">Letter of Instruction<\/a>. It can detail things as small as what song list you want to be played at your funeral. But there are some general things it&#8217;s essential to include.<\/p>\n<h3>Specific Wishes for Your Funeral and Burial<\/h3>\n<p>Do you want a funeral at all? Some people don&#8217;t. Is there a particular person you want to be excluded from the service? Do you want to be creamed, buried, to have your body donated to science? These are the kinds of details to cover in your <a href=\"https:\/\/www.ramseysolutions.com\/retirement\/letter-of-instruction\">Letter of Instruction<\/a>.<\/p>\n<h3>Digital Access<\/h3>\n<p>We&#8217;re taught to protect our usernames, passwords, and passcodes with our lives. But after you&#8217;re gone, your executor needs to be able to access your financial accounts, so include all of those things in your Letter of Instruction. Consider including the same for your social media accounts and what you want to be done with them. Do you want them archived or deleted from the internet?<\/p>\n<h3>A Summary of Assets and Debts<\/h3>\n<p>This information will be included in your estate plan somewhere! It may be scattered throughout a rather complex document, so having an overview in your Letter of Instruction can be helpful. Be sure to include all retirement and investment accounts as well.<\/p>\n<p>Your spouse or partner likely has access to and is aware of things like checking and savings accounts, but the same may not be true for your retirement and investment accounts. Be sure to include copies of your retirement account beneficiary designation elections.<\/p>\n<p>Include the details on any outstanding loans, including mortgages, credit cards, lines of credit, personal debts, and auto loans.<\/p>\n<h3>Where the Goods Are<\/h3>\n<p>If you have more than one home or a storage unit, it can be helpful to detail where things like jewelry, artwork, collectibles, and other valuables are kept. Additionally, if you have multiple real estate holdings, include the locations and details of those as well.<\/p>\n<h3>Contact Information for Professional Advisors<\/h3>\n<p>List and include contact information for your professional advisors, including your attorney, CPA, financial planner, and insurance agent.<\/p>\n<h3>Location of Documents<\/h3>\n<p>It&#8217;s great that you&#8217;ve created an estate plan, but what if those who need it can&#8217;t find it quickly? Your Letter of Instruction should include the location of important legal documents like your living trust, will, health care directive, birth certificate, Social Security card, and real estate deeds.<\/p>\n<h3>Safe Deposit Box Information<\/h3>\n<p>A safety deposit box is a great place to keep sensitive papers, but only if those needing them know where the box is and how to access it.<\/p>\n<h3>Pet Care<\/h3>\n<p>Pets are part of our families, and we want to ensure they will be properly cared for after we&#8217;re gone. Furthermore, be sure to include who will take custody of any pets and any special details related to their care.<\/p>\n<h2><\/h2>\n<h2>How to Compose a Letter of Instruction<\/h2>\n<p>Because you don&#8217;t need a professional to draw up a Letter of Instruction, you can find and use an <a href=\"https:\/\/www.template.net\/business\/sample-letter-of-instruction\/\">online template<\/a>. However, save the letter as a PDF; that way, you can edit it as needed, but anyone you share it with will have read-only access. Keep a copy in a home safe or your safe deposit box.<\/p>\n<h2><\/h2>\n<h2>Dot Your T&#8217;s and Cross Your I&#8217;s<\/h2>\n<p>Having a Letter of Instruction is the final piece of the estate planning process. Your estate plan protects your family, and your Letter of Instruction helps make it easier for them to carry out your wishes.<\/p>\n<p style=\"text-align: center;\">If you have any questions about estate planning or any other aspect of financial planning, <a href=\"https:\/\/paradigmwealthpartners.com\/begin-your-journey\/#calendly\">reach out to us<\/a>. We&#8217;re here to help you Create the Life You Love.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is a Letter of Instruction? If you have an estate plan, congratulations! While most of us understand the importance of having an estate plan, only 33% of Americans have one. And while an estate&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/what-is-a-letter-of-instruction\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":336,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-335","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>What is a Letter of Instruction? - Paradigm Wealth Partners<\/title>\n<meta name=\"description\" content=\"Explore the purpose and importance of a Letter of Instruction in estate planning. 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While there are several ways to do it, <a href=\"https:\/\/www.investopedia.com\/articles\/basics\/11\/due-dilligence-on-dividends.asp\">dividend investing<\/a> is perhaps the least talked about. Let&#8217;s change that and take a deep dive into dividend investing.<\/p>\n<h2><\/h2>\n<h2>What is a Dividend?<\/h2>\n<p>Dividends are periodic payments made to shareholders by a company they own stock in either as an individual stock or inside a mutual fund or ETF. When a company makes a profit, it can choose to divide some of that profit among shareholders in the form of dividends. Dividends can be either a cash payment or reinvested as additional shares of stock.<\/p>\n<p>When you choose to reinvest dividend payments to buy additional shares of stock, your portfolio can benefit from enhanced compounding effects. Essentially, each dividend you reinvest entitles you to more dividend payments in the future.<\/p>\n<p>Not all companies pay dividends. Typically, it&#8217;s the board of directors that determines if dividends will be paid. Dividends are usually paid via cash distributions monthly, quarterly, or yearly.<\/p>\n<p>There are a few factors that determine how much an investor can expect to earn in dividends; the company they&#8217;ve invested in, how many shares they own, and how often the company decides to pay out dividends. Dividends can fluctuate based on how much profit a company makes and in some cases, broader market and economic conditions.<\/p>\n<p>There are two types of dividends, and the significant difference is the rate at which they&#8217;re taxed.<\/p>\n<h3>Ordinary Dividends<\/h3>\n<p>Ordinary dividends are taxed at the same rate as the shareholder&#8217;s ordinary income. The IRS requires taxpayers to report taxable ordinary dividend amounts above $1,500 on Schedule B of Form 1040.<\/p>\n<h3>Qualified Dividends<\/h3>\n<p>Qualified dividends have a lower capital gains tax rate of no higher than 20%. Depending on your income level and tax-filing status, the IRS taxes qualified dividends are either 0%, 15%, or 20%, just like net capital gains. Each dividend payer of at least $10 will provide you with Form 1099-DIV.<\/p>\n<p>To receive the lower long-term capital gains tax rate i.e., and to be considered qualified, dividends must be paid from a U.S. corporation or qualified international corporation and meet the minimum holding period, which is 60 of the last 121 days beginning 60 days before the ex-dividend date.<\/p>\n<h2><\/h2>\n<h2>Preferred and Special Dividends<\/h2>\n<p>There is a hierarchy when it comes to paying out dividends. If a company cuts its dividends, the cuts start at the bottom and work their way up. Bondholders are paid first followed by preferred shareholders, and if there is anything left, it goes to common stockholders.<\/p>\n<p>When things are flush, companies will often pay preferred shareholders first and give them a bigger dividend than they give to the common shareholders.<\/p>\n<p>Special dividends are another type of dividend. They are a one-time dividend payment a company might make after an especially good quarter or if it wants to change its financial structure. Special dividends are usually cash payments and may be larger than regular dividend payments.<\/p>\n<h2><\/h2>\n<h2>Why Companies Pay Dividends<\/h2>\n<p>Investors can be attracted and share price can be increased by paying dividends. Dividends can be seen as a sign of a healthy company. If a company has generated enough profit to spend a portion of it on dividend payments, it&#8217;s a marker of financial health.<\/p>\n<h2><\/h2>\n<h2>What is Dividend Investing?<\/h2>\n<p><a href=\"https:\/\/www.bankrate.com\/investing\/how-to-invest-in-dividend-stocks\/\">Dividend investing<\/a> sees investors buy stock in companies that regularly make cash payouts to shareholders to reward them for buying the company&#8217;s stock. Dividend stocks historically have outperformed the S&amp;P 500 with less volatility as they offer two sources of returns, regular income from the dividend payments and capital appreciation of the stock price.<\/p>\n<p>These are some common terms you&#8217;ll see around dividend investing:<\/p>\n<ul>\n<li><strong>Dividend yield:<\/strong> The annual dividend per share divided by the share price<\/li>\n<li><strong>Record date:<\/strong> The date a company will check and record who is eligible for a dividend payment<\/li>\n<li><strong>Ex-dividend date: <\/strong>The cut-off date on or after which if you buy shares, you won&#8217;t be eligible for the next payment scheduled.<\/li>\n<li><strong>Declaration date:<\/strong> The day a company&#8217;s board of directors formally announces upcoming dividend payments, including the amount, ex-dividend date, and payment date.<\/li>\n<li><strong>Payment date:<\/strong> The day dividend checks are sent to shareholders or credited to their brokerage accounts.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>What are Dividend Stocks?<\/h2>\n<p class=\"pb-2\" data-private=\"redact\" data-wt-guid=\"7713a824-5252-4956-a9e6-1869a3bcc43e\" data-pm-slice=\"1 1 []\">Dividend stocks are securities in which the issuing company distributes a regular stream of dividends. They can be bought and sold, <span class=\"issue-underline underline text-gray-darkest font-body decoration-2 underline-offset-4 transition decoration-primary-light hover:bg-primary-lightest\" data-issueid=\"92345c07-1f31-4d14-a00e-d44537069381\" aria-label=\"open issue for the following text and the prices\" data-testid=\"issue-underline:undefined\">and the prices<\/span> can rise and fall like any other stock. The issuing company distributes a regular stream of dividends from dividend stocks, which can be bought and sold, and their prices can rise and fall like any other stock.<\/p>\n<p class=\"pb-2\" data-private=\"redact\" data-wt-guid=\"2d7b7ae4-65ff-49a9-8bca-99f96e2e0e40\">Not all companies pay dividends. Those that do are typically established, stable companies that regularly turn <span class=\"issue-underline underline text-gray-darkest font-body decoration-2 underline-offset-4 transition decoration-primary-light hover:bg-primary-lightest\" data-issueid=\"37821096-9ad3-4111-8de2-ca4fed513463\" aria-label=\"open issue for the following text a net profit.\" data-testid=\"issue-underline:undefined\">a net profit.<\/span> They are also companies that don&#8217;t need to devote a <span class=\"issue-underline underline text-gray-darkest font-body decoration-2 underline-offset-4 transition decoration-primary-light hover:bg-primary-lightest\" data-issueid=\"81abbe08-bad9-4b79-863d-1f94378ebf9a\" aria-label=\"open issue for the following text considerable portion\" data-testid=\"issue-underline:undefined\">considerable portion<\/span> of their profits to innovation. <span class=\"issue-underline underline text-gray-darkest font-body decoration-2 underline-offset-4 transition decoration-primary-light hover:bg-primary-lightest\" data-issueid=\"bf579f3d-7f0e-4fc5-b03b-4a5323594def\" aria-label=\"open issue for the following text The sectors that typically pay dividends include\" data-testid=\"issue-underline:undefined\">The sectors that typically pay dividends include<\/span> healthcare and pharmaceuticals, energy, banks, and finance. Dividends are less likely to be paid in sectors like technology.<\/p>\n<h2><\/h2>\n<h2>What Are Dividend Aristocrats?<\/h2>\n<p>Dividend aristocrats are companies in the S&amp;P 500 that have increased dividend payments for at least the last 25 years, even during downturns, and have a minimum float-adjusted market capitalization of at least $3 billion and average at least $5 million in daily share trading value for the previous three months. Some of the aristocrats include:<\/p>\n<ul>\n<li>Procter &amp; Gamble: 66 continuous years of dividend growth<\/li>\n<li>Coca-Cola: 60 continuous years of dividend growth<\/li>\n<li>Johnson &amp; Johnson 60 continuous years of dividend growth<\/li>\n<li>Abbott Laboratories: 50 continuous years of dividend growth<\/li>\n<li>S&amp;P Global: 49 continuous years of dividend growth<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>How Does Dividend Investing Help to Fight Inflation?<\/h2>\n<p>Inflation, low for decades, has surged recently to its highest levels in forty years. <a href=\"https:\/\/paradigmwealthpartners.com\/income-now-vs-income-later-dividend-investing\/\">Dividend investing<\/a> can help insulate you from the impact of inflation.<\/p>\n<p>Dividend stocks, dividend aristocrats, in particular, are generally less volatile than the wider market. Some companies will even increase dividends in response to inflation, and the steady income from dividend payments can help even out a stock&#8217;s total return.<\/p>\n<p>Dividends have made up 40% of stock market returns since 1930 and 54% in decades when inflation was high.<\/p>\n<h2><\/h2>\n<h2>The Reliability of Dividends<\/h2>\n<p>While no investment is 100% risk-free, dividend stocks are considered safer and more reliable than some other types of investments, especially the dividend aristocrats. But dividends are not guaranteed, not even for the aristocrats.<\/p>\n<p>During the 2008 financial crisis, the dividend yields of some stocks were artificially inflated because of the decline in stock prices. But as the crisis went on and worsened, profits fell off a cliff, and many dividend programs were cut. The cut to the programs then sent stock prices falling, a double loss for dividend investors.<\/p>\n<p>Dividend investors also have to choose between yield and reliability. The dividend stocks that generate the most income for your invested dollar aren&#8217;t always the most reliable, and the most reliable may not offer the highest payouts.<\/p>\n<h2><\/h2>\n<h2>The High-Yield Trap<\/h2>\n<p>Often, those new to dividend investing will choose stocks that offer the highest dividend yields. High-yield stocks aren&#8217;t necessarily bad investments but a high yield can result from a stock&#8217;s price falling because of the risk of the dividend being cut.<\/p>\n<p>A yield that seems too good to be true frequently is. There are better ways to choose dividend stocks, keep reading!<\/p>\n<h2><\/h2>\n<h2>How to Assess Dividend Paying Stocks<\/h2>\n<p>Some ratios will be helpful when choosing which dividend stocks to include in your portfolio.<\/p>\n<h3>Dividend Payout Ratio<\/h3>\n<p>The dividend payout ratio measures how much of a company&#8217;s profits are paid out as dividends. To calculate a company&#8217;s dividend payout ratio, divide the number of dividends it has paid over X period by the number of profits it generated over the same period.<\/p>\n<p>The dividend payout ratio is useful because it can indicate how reliable a company&#8217;s dividends are and how much room there is for growth in the future. A high dividend ratio, above 70%, may mean the dividend payout is riskier because it takes up so much of a company&#8217;s profit. If profits fall, there may not be enough to continue paying the dividend. Companies with payout ratios below 60% can be a more reliable dividend investment.<\/p>\n<h3>Free Cash Flow<\/h3>\n<p>Free cash flow is calculated using the company&#8217;s statement of cash flows. To calculate free cash flow, subtract a company&#8217;s capital expenditures from its cash flow from operations.<\/p>\n<p>Without free cash flow, a company won&#8217;t have the money to pay out dividends.<\/p>\n<h3>Return on Invested Capital<\/h3>\n<p>Return on invested capital is a calculation that can help assess a company&#8217;s ability to allocate capital to profitable investments. To calculate ROIC, divide net operating profit after tax by invested capital.<\/p>\n<p>A consistent double-digit ROIC over many years shows a company is profitable and efficient.<\/p>\n<h3>Operating Profit Margin<\/h3>\n<p>To calculate a company&#8217;s operating profit margin, divide its operating profits by its total sales. Operating profits typically represent a company&#8217;s earnings before interest and taxes. A higher operating profit margin can be a sign of stability for dividend investors.<\/p>\n<h3>Asset Turnover<\/h3>\n<p>To calculate asset turnover, divide a company&#8217;s total sales by its total assets. This number shows how many dollars of sales each dollar of assets has generated and shows a company&#8217;s efficiency.<\/p>\n<p>If a company can generate more sales from its assets, it&#8217;s more profitable.<\/p>\n<h3>Sales Growth<\/h3>\n<p>To calculate sales growth, subtract one period&#8217;s revenue from another period&#8217;s revenue. The differences are expressed as a percentage of the former. Although profits are what matter the most, sales growth trends can provide information about the stability or volatility of a company&#8217;s business model and its ability to continue growing.<\/p>\n<h3>Price-to-Earnings Ratio<\/h3>\n<p>The P\/E ratio is calculated by dividing a company&#8217;s stock price by the number of earnings per share generated over 12 months. Historically, the long-run average P\/E multiple for the market is about 15. Companies with more stable earnings and faster earnings growth potential typically trade at higher earnings multiples than the general market.<\/p>\n<h2><\/h2>\n<h2>Types of Accounts for Dividend Investing<\/h2>\n<p>You can buy individual dividend stocks through a brokerage account or own them inside an ETF or mutual fund. There are ETFs and mutual funds that specifically hold dividend stocks.<\/p>\n<p>For those who want to buy dividend stocks to provide <a href=\"https:\/\/paradigmwealthpartners.com\/a-guide-to-retirement-planning\/\">retirement<\/a> income, an IRA may be the best option.<\/p>\n<p>If you expect your tax rate in retirement to be higher than your current rate, a Traditional IRA may not be the best choice. You&#8217;ll avoid paying taxes on the dividends for many years but when you start making withdrawals, you&#8217;ll be taxed at ordinary income tax rates.<\/p>\n<p>Buying dividend stocks through a Roth IRA means the dividends can accumulate tax-free and you&#8217;ll never pay taxes on them. This may be the best solution if you plan to use dividends as income during retirement and expect your retirement tax rate to be higher than your current rate.<\/p>\n<h2><\/h2>\n<h2>Possible Advantages of Dividend Investing<\/h2>\n<ul>\n<li>A great source of passive income\/retirement income<\/li>\n<li>Safer investment than high-growth stocks<\/li>\n<li>Can choose to reinvest dividends<\/li>\n<li>Double benefit of dividends and value appreciation of the stock<\/li>\n<li>Can help protect you from inflation<\/li>\n<li>Less prone to market volatility<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Possible Disadvantages of Dividend Investing<\/h2>\n<ul>\n<li>Double taxation: You&#8217;re essentially taxed twice as a dividend investor. The first taxation happens before you receive your dividend payment because the company issuing them from its net income must pay taxes on its annual earnings and those earnings are where the dividend payments come from. The second taxation happens when you pay personal income tax on the dividends you earn over a given tax year. So in essence, you pay taxes both as a partial owner of the company and as an individual.<\/li>\n<li>A company can make changes to its dividend policy at any time including cancelling dividend payments entirely.<\/li>\n<li>Lack of diversification: All investors know that the best way to protect your portfolio is to diversify, the adage of not putting all of your eggs in a single basket. Dividend stocks tend to be clustered in certain industries and sectors. You can correct this by choosing dividend stocks in divergent sectors but it is something you have to do consciously.<\/li>\n<\/ul>\n<p>If you have questions about dividend investing or any other aspect of financial planning, <a href=\"https:\/\/paradigmwealthpartners.com\/schedule-meeting\/\">we&#8217;re here to help<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>Tracking #453231<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Dividend Investing: A Deep Dive Income investing is an essential part of retirement planning. While there are several ways to do it, dividend investing is perhaps the least talked about. Let&#8217;s change that and take&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/dividend-investing-a-deep-dive\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":334,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-333","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Dividend Investing: A Deep Dive - Paradigm Wealth Partners<\/title>\n<meta name=\"description\" content=\"Dividend Investing: A Deep Dive Paradigm Wealth Partners While there are several ways to do it, dividend investing is perhaps the least talked about. 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Tax planning is an important component as well. That&#8217;s where a Roth conversion can come into play.<\/p>\n<h2>Traditional IRA<\/h2>\n<p>A Traditional IRA is an individual retirement account that allows pre-tax contributions. The contributions give investors a tax break for the year the contribution was made. However, withdrawals made after retirement are subject to income tax.<\/p>\n<p>There are yearly contribution limits. For 2023, the limit is $6,500, with an additional $1,000 allowed for those aged 50 and older. There are no income limits for contributing to a Traditional IRA. Required minimum distributions (RMDs) are required for Traditional IRAs beginning at age 73<\/p>\n<h2>Roth IRA<\/h2>\n<p>A Roth IRA is an individual retirement account that requires taxes to be paid on the contributions. Withdrawals during retirement are tax-free.<\/p>\n<p>There are yearly contribution limits. For 2023, the limit is $6,500, with an additional $1,500 allowed for those aged 50 and older. There are income limits for contributing to a Roth IRA. For 2023, the limits are a modified adjusted gross income (MAGI) of less than $153,000 for single tax filers and less than $228,000 for those married who file jointly.<\/p>\n<p>There is no RMD for a Roth IRA.<\/p>\n<p>Investors can have both a Traditional and a Roth IRA, but both accounts combined are subject to the $6,500 contribution limits, $1,500 for those 50 and older.<\/p>\n<h2><\/h2>\n<h2>What is a Roth Conversion?<\/h2>\n<p>A Roth conversion means transferring retirement assets from a Traditional IRA (or SEP, SIMPLE IRA, or 401(k)) into a Roth IRA. The account holder must pay income tax on the money converted but is then eligible to make tax-free withdrawals during retirement from the account going forward.<\/p>\n<h2><\/h2>\n<h2>How to do a Roth Conversion<\/h2>\n<p>Doing a Roth conversion is simple. Open a Roth IRA if you don&#8217;t already have one. To make sure you don&#8217;t fall foul of IRS Roth IRA conversion rules, convert your existing account one of the below ways:<\/p>\n<ul>\n<li><strong>Indirect rollover:<\/strong> You&#8217;ll receive the distribution from your Traditional IRA (or other accounts) and contribute it to your Roth IRA within 60 days.<\/li>\n<li><strong>Trustee-to-trustee or direct rollover:<\/strong> Tell the custodian of your Traditional IRA to transfer the amount in the account directly to the trustee of your Roth IRA.<\/li>\n<li><strong>Same trustee transfer:<\/strong> If both accounts are with the same custodian, tell the trustee to transfer the funds from your Traditional IRA to your Roth IRA.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>What are the Benefits of a Roth Conversion?<\/h2>\n<ul>\n<li><strong>Tax-free withdrawals in retirement:<\/strong> No one knows what tax rates will look like in the future, but it&#8217;s not too far-fetched to think they will be higher than the current rates.<\/li>\n<li><strong>No RMDs: <\/strong>Traditional IRAs force you to take RMDs once you are 73, regardless of whether or not you need the money, which means you lose the tax-free growth on the money you have to withdraw. Roth IRAs don&#8217;t require RMDs during your lifetime, so the money can remain in the account and continue to grow tax-free.<\/li>\n<li><strong>Estate planning: <\/strong>Heirs can generally withdraw money from an inherited Roth IRA tax-free as long as they follow the IRS&#8217;s distribution rules, including the five-year rule that states the account must have been open for at least five years at the time of the original account holder&#8217;s death.<\/li>\n<li><strong>Backdoor Roth IRA strategy:<\/strong> The <a href=\"https:\/\/paradigmwealthpartners.com\/retirement-plans-mega-backdoor-roth\/\">backdoor Roth IRA strategy<\/a> is a type of conversion that allows those with high incomes to fund a Roth IRA despite the IRS income limits. You put money you&#8217;ve already paid taxes on into a Traditional IRA and then convert the contributions into a Roth IRA, where the money grows tax-free.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Minimizing Taxes on a Roth Conversion<\/h2>\n<p>You can&#8217;t entirely avoid taxes when doing a Roth conversion, but you can minimize the taxes you&#8217;ll owe on the rollover. It&#8217;s a matter of timing when you do the conversion:<\/p>\n<ul>\n<li><strong>A year during which you fall into a lower-than-normal tax rate:<\/strong> Maybe you took a job with a lower salary, were unemployed for a time, or didn&#8217;t earn a bonus.<\/li>\n<li><strong>Your Traditional IRA account balance is down:<\/strong> A year the market hasn&#8217;t been kind to your Traditional IRA.<\/li>\n<li><strong>Early in the tax year:<\/strong> Taxes aren&#8217;t due until April of the following year, so converting early in the calendar year gives you more time to pay them.<\/li>\n<li><strong>A little at a time as you can afford the taxes: <\/strong>You don&#8217;t have to convert your entire balance, but you can&#8217;t convert only the portion that would be taxed, like non-deductible contributions.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Who Should Consider a Roth Conversion?<\/h2>\n<ul>\n<li>You believe your tax bracket will be higher during retirement than your current rate. You might be in a higher bracket because tax rates have been increased, or you currently live in a state that doesn&#8217;t require income taxes. However, you may retire in a state that does.<\/li>\n<li>You don&#8217;t expect to need to make withdrawals from your account to pay for living expenses and want to maximize tax benefits for your heirs.<\/li>\n<li>Your income is lower this year, and you can minimize taxes on a conversion.<\/li>\n<\/ul>\n<h2><\/h2>\n<h2>Who Should Not Consider a Roth Conversion?<\/h2>\n<ul>\n<li>Those who won&#8217;t have the money to pay taxes on the converted amount.<\/li>\n<li>You&#8217;re planning to utilize a <a href=\"https:\/\/paradigmwealthpartners.com\/are-qualified-charitable-distributions-right-for-you\/\">qualified charitable distribution<\/a> (QCD). QCDs are a way to make tax-free donations to a qualified charity and have the donation count towards your annual RMD.<\/li>\n<li>You&#8217;re close to retiring and need the money in your Traditional IRA to pay for living expenses.<\/li>\n<\/ul>\n<p>&nbsp;<\/p>\n<p>If you have questions about Roth conversions or any other aspect of financial planning, <a href=\"https:\/\/paradigmwealthpartners.com\/schedule-meeting\/\">we&#8217;re here to help<\/a>.<\/p>\n<p>&nbsp;<\/p>\n<p>&nbsp;<\/p>\n<p>Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals before age 59 \u00bd may result in a 10% IRS penalty tax in addition to current income tax.<\/p>\n<p>A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 \u00bd or before the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.<\/p>\n<p>Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA.<\/p>\n<p>This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.<\/p>\n<p>Tracking# 433399<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Roth Conversions: What to Consider A Traditional IRA is an important part of retirement planning. Tax planning is an important component as well. That&#8217;s where a Roth conversion can come into play. Traditional IRA A&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/roth-conversions-what-to-consider\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":332,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-331","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Roth Conversions: What to Consider - Paradigm Wealth Partners<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/paradigmwealthpartners.com\/roth-conversions-what-to-consider\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Roth Conversions: What to Consider - Paradigm Wealth Partners\" \/>\n<meta property=\"og:description\" content=\"Roth Conversions: What to Consider A Traditional IRA is an important part of retirement planning. 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Should Millennials Prepare for a Generational Wealth Transfer?"},"content":{"rendered":"<h1>How Should Millennials Prepare for a Generational Wealth Transfer?<\/h1>\n<p>Soon the Millennials will be able to afford all of the <a href=\"https:\/\/www.theguardian.com\/lifeandstyle\/2017\/may\/15\/australian-millionaire-millennials-avocado-toast-house\">avocado toast<\/a> they want. Baby Boomers are set to pass more than $68 trillion to their Millennial children, the biggest transfer of wealth in history. How can Millennials prepare for this massive windfall?<\/p>\n<h2><\/h2>\n<h2>How Did This Transfer of Wealth Come to Be?<\/h2>\n<p>Baby Boomers are the generation born between 1944 and 1964, and Millennials are those born between 1981 and 1996. The Boomers accumulated a massive amount of wealth thanks to the strong post-war economy they were born into, which saw extraordinary economic growth, declining tax rates for high-income households, and a strong stock market.<\/p>\n<p>The average net worth of a Baby Boomer is <a href=\"https:\/\/www.businessinsider.com\/typical-baby-boomer-net-worth-debt-real-estate-retirement-2021-12#the-typical-boomer-has-a-median-net-worth-of-206700-6\">$1.2 million<\/a>, and the generation controls <a href=\"https:\/\/blog.ccminvests.com\/millennials-and-the-great-wealth-transfer\/\">70%<\/a> of the disposable income in the US.<\/p>\n<h2><\/h2>\n<h2>The Impact on Millennials<\/h2>\n<p>Millennials aren&#8217;t going to go to sleep one night with $20 in the bank and wake up to millions. The Baby Boomers will continue to reign as the wealthiest generation until at least 2030, when Gen X takes over. But the Millennials will see the fastest growth rate of net wealth accumulation over the next few decades.<\/p>\n<p>Possibly because Millennials entered the workforce in the middle of the recession caused by the 2008 Financial Crisis, are possibly living through another one thanks to rapid interest rate increases, have high levels of student loan debt, and are far behind where their parents were at the same age, they want to focus on financial wellness.<\/p>\n<p>&nbsp;<\/p>\n<h2>What Makes Millennials Different<\/h2>\n<p>They have shunned many of the traditional markers of adulthood, buying cars, getting married, having children, and buying homes. In some cases, they simply couldn&#8217;t afford those things, but many don&#8217;t embrace the typical American Dream that those things represent. They don&#8217;t want to take on such huge financial burdens when they&#8217;ve seen, twice now, how fragile finances, jobs, the market, the economy, and the world really are, and they prefer experiences to things.<\/p>\n<p>And they see how little loyalty to an employer is rewarded, opting to frequently change jobs and even careers, or opt out of traditional career routes altogether as they no longer offer job security in favor of the gig and freelance economies, which provide more freedom and flexibility.<\/p>\n<p>Millennials are also <a href=\"https:\/\/en.wikipedia.org\/wiki\/Digital_native\">digital natives<\/a>, those who were born into or came of age during the digital age. They have a high comfort level with technology and expect to be able to do most anything from an app, including banking and investing.<\/p>\n<p>Millennials have a high level of social awareness. Many prefer to invest in companies whose values align with their own, particularly in the areas of environmentalism and social justice.<\/p>\n<p>All of this means that Millennials will spend, save, work, and invest differently than their parents. More vacations, smaller homes, fewer cars, small businesses, investing apps, and alternative investments.<\/p>\n<h2><\/h2>\n<h2>How to Prepare if You Have Boomer Parents<\/h2>\n<p>First of all, don&#8217;t count your chickens just yet. More than half of Millennials who expect to receive an inheritance are expecting at least $350,000, but more than half of their Boomer parents say that number will be less than $250,000.<\/p>\n<p>As people expect to live longer and the cost of healthcare, including long-term care, continues to rise, Boomers want to make sure they outlive their money. They&#8217;ve also been spooked, as we all have, by high inflation, increasing interest rates, and a tumultuous market.<\/p>\n<p>And only <a href=\"https:\/\/www.cnbc.com\/2022\/12\/09\/great-wealth-transfer-why-millennials-may-inherit-less-than-expected.html\">37%<\/a> of people have a plan to transfer their wealth. That means much of what they planned to leave can be eaten up by taxes and fees.<\/p>\n<p>All of these factors mean it&#8217;s more important than ever to speak to your parents about their financial plans and encourage them to speak to a financial planning professional.<\/p>\n<h3>Life Expectancy<\/h3>\n<p>Speak to your parents about their wishes when it comes to things like medical intervention and what kind of living situation they want if they can&#8217;t live totally independently eventually. Ask if they have long-term care insurance and have given someone durable power of attorney for healthcare decisions.<\/p>\n<h3>Estate Planning<\/h3>\n<p>People often mistakenly think that an <a href=\"https:\/\/paradigmwealthpartners.com\/understanding-the-estate-planning-process\/\">estate plan<\/a> is only for the wealthy, but everyone needs an estate plan. An estate plan allows you to control the distribution of your assets and possessions.<\/p>\n<p>An estate plan also spares your family from dealing with what can be a long and expensive probate process.<\/p>\n<h3>Tax Planning<\/h3>\n<p>Without proper tax planning, a big chunk of your estate is going to the government. Tax planning is an integral part of a solid estate plan. Estate tax rules are in play depending on the size of the estate.<\/p>\n<p>For 2023, you can pass on up to $12.92 million in assets without owing federal estate taxes, and you don&#8217;t pay estate tax if the assets are transferred to your surviving spouse.<\/p>\n<h3>Charitable Planning<\/h3>\n<p>There are tax planning strategies, including Qualified Charitable Distributions and Donor Advised Funds, that can help not only put more money into the coffers of the charities you care about but lower your tax burden too.<\/p>\n<p>&nbsp;<\/p>\n<p>Giving away or coming into large sums of money is a complex thing. If you have questions from either side of the equation, <a href=\"https:\/\/paradigmwealthpartners.com\/schedule-meeting\/\">we&#8217;re here to help<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>How Should Millennials Prepare for a Generational Wealth Transfer? Soon the Millennials will be able to afford all of the avocado toast they want. Baby Boomers are set to pass more than $68 trillion to&#8230; <br \/><a class=\"read-more\" title=\"FULL STORY\" href=\"https:\/\/paradigmwealthpartners.com\/how-should-millennials-prepare-for-a-generational-wealth-transfer\/\">Read More<\/a><\/p>\n","protected":false},"author":1,"featured_media":329,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"inline_featured_image":false,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","footnotes":""},"categories":[1],"tags":[],"class_list":{"0":"post-328","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-uncategorized","8":"entry"},"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.8 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>How Should Millennials Prepare for a Generational Wealth Transfer? 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