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There’s one question we hear most often from those nearing retirement, is some variation on this: “How do I get my money out of my retirement plan and into my checking account?” The question is not as simple as it appears – that’s why people ask it. They’re not asking about the mechanics of a 401(k) withdrawal. They want to understand the switch from saving to spending, and it’s an entire cascade of questions covering how to decumulate assets in retirement. These include: When should I take social security? How can I ensure I’ll have enough income for my needs? How can I invest for growth without taking too much risk? What about taxes? There are a lot of decisions to make and creating a financial plan for your retirement years means taking a comprehensive look at how those decisions affect the likely path of your retirement so that you can plan for things down the road. A good plan can adapt to changing market and economic conditions. It can also be flexible enough to work efficiently if your situation or choices evolve. It needs to ensure you have enough cash to meet income needs and that there are opportunities for growth. Start with Guaranteed Sources of Income For most people, there are two sources of guaranteed income in retirement: social security and pension. They each have significant choices attached. There are trade-offs you need to understand, and these impact how much income you’ll receive. There are a lot of strategies for claiming social security. Whether you are married, if you are the same age as your spouse, who will claim first, and if one spouse is a higher earner are pieces of the puzzle when it comes to maximizing this income source. If you have a pension, you’ll have to decide whether to take it as a lump sum or a stream of income payments. It’s common to take a lump sum, but it’s a good idea to decide in the context of your entire financial picture. Getting a clear view of guaranteed income is critical because it will inform the investment strategy that makes up the rest of your retirement income plan. Social Security – the Basics of the Timing Decision The premise is simple: the longer you wait to claim, the higher your monthly benefit. The Social Security Administration (SSA) considers the benefit to be “early” if you take it between age 62 and full retirement age (“FRA,” which for most people is between age 66-67, depending on date of birth) and “late” if you begin to claim benefits between your FRA and 70. Delaying rewards you with an 8% increase in the benefit amount for each year you delay. Claiming early decreases your benefits from what you would be entitled to at FRA. However, when it comes down to making the decision, there are a lot of other factors to weigh: Your life expectancy Your health and wellness Your retirement lifestyle Sources of income until claiming Social Security Your budget The decision shouldn’t just be a financial one. The desire to retire at a younger age may outweigh the financial considerations, and social security may be a key piece of your budget. Asset Management in Retirement: Coping with Volatility While you were saving for retirement, market volatility made it unpleasant to open your 401(k) statement – but that’s as far as the damage went. You were still making regular contributions, and you weren’t taking money out. The long-term allocation set by your plan administrator was likely adequate. Retirement brings a new set of challenges. Contributions become withdrawals, and your timeframe is now shorter. This makes the impact of market volatility much greater. The key to a retirement asset management strategy is that it should be proactive and dynamic. The strategy needs to be flexible, goals-based, comprehensive across your assets, tax-efficient, and above all – you need to have confidence in it. A bucket approach, in which some of the assets are set up to provide income and capital preservation while others are focused on growth, may work well. Aligning goals to a specific timeframe and then tracking progress and outcomes can help to mitigate risk. It can also put you in a position to make necessary changes proactively instead reactively. Maximizing Tax Efficiency Creating a multi-year plan to pay less in taxes is like giving yourself a raise. And in retirement, it’s even more important than when you were working. While your overall tax rate may go down, it also may not. And tax rates tend to increase over time. Creating a tax-efficient retirement paycheck means thinking long-term and enacting strategies that work now – and in the years to come. Let’s start with tax-deferred retirement accounts. To avoid a penalty, you generally have to wait until age 59 ½ to make withdrawals. But there is an exception: if you retire at age 55 or above, you may be able to take distributions early and avoid the 10% penalty. This can be a source of income to help you delay taking your Social Security benefits. Your 401(k) plan can also be a source of tax-advantaged income in early retirement. Using these funds now will lower your account balance, which will keep the required minimum distributions (RMDs) lower. RMDs kick in at age 72, and they can be hefty. You’ll be claiming social security at that age and using Medicare, and both of those have taxable components based on your income. Another option is to roll these funds over into a Roth IRA, which allows them to grow tax-free throughout retirement and then be withdrawn with no tax consequences further down the road. The trade-off is the tax hit you’ll take when you withdraw the funds. The sweet spot for a Roth conversion is early retirement, before social security and Medicare begin. The Bottom Line Creating a retirement paycheck means building a plan that can adapt and grow with you as your retirement lifestyle and goals change. Identifying guaranteed income, creating an asset management plan designed to mitigate volatility, and being sensitive to taxes are the broad strokes. There are a lot of details and customization that make your plan work for you. Setting a solid foundation and then tracking and proactively making changes will keep your plan on pace with the lifestyle you want.  Disclaimer: The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Trusts used to be seen as an estate planning tool for only the very wealthy, who have complicated family situations to sort out, and high-value assets to protect. Times have changed. Modern lives are complicated, asset values are high, and good estate planning is for everyone. Let’s look at typical couple: Jean and Tim and are in their late 60s and have been married for 15 years. Tim is retired with a pension. Jean owns a small business. Together, they own an investment property, and their primary home is a lake house that is a family gathering place. They have a blended family of five adult children, but don’t have children together. Tim was left money by his parents for the care of a younger sister with special needs. They want their children to share equally in the real estate, and they also want to ensure that Tim’s sister will always have care. How should they sort out their estate plan? We take a look at some of the advantages of trusts over wills, and how trusts can be flexible instruments to create the estate plan you want. Probate is Lengthy, Expensive and Exposed to Public View Probate is the process by which a will transfers an estate to a beneficiary. Under the probate process, an inventory of assets is performed, and an appraisal is made. All debts are discovered and paid. Only then are remaining funds or property distributed to beneficiaries. As all of this is done under the direction of judge, probate is part of the public record. While wills are necessary in some situations, such as establishing a guardian for a minor child, using a trust to leave property to heirs can be an effective, quick and private way to transfer your estate With a revocable trust, the assets transfer into the trust during one’s lifetime and are controlled until death by the grantor (and then are passed to the designated beneficiaries by the successor trustee after death). While living, the grantor still has control over the assets and can remove them from the trust, change the beneficiary, or even add more assets. Assets in a revocable trust are subject to estate taxes because the grantor retains control, and they are considered part of the estate. What can a Trust do? An irrevocable trust, which cannot be changed once it is created, removes assets from your estate. The assets in this type of trust cannot be pursued by creditors and are not subject to estate taxes. Protection for Your Heirs Trusts can be structured so that various conditions are met before money passes to heirs. In most cases, this is to ensure that younger generations have time to mature and build their own lives before taking on the responsibility of the inheritance. The trust may be structured to provide income at younger ages, but not to allow the full inheritance to pass until they beneficiary as reached a given age or has achieved other milestones. For this type of trust, it’s important to select the trustee carefully, as they will be charged with ensuring the conditions are met. It’s also a good idea to obtain legal advice on the enforceability of the conditions being imposed. Providing for Care that Combines Inheritance with Benefits A special needs or supplemental needs trust is set up specifically to provide for the child without impacting government benefits such as Supplemental Security Income or Medicaid. Even a small legacy (as little as $2,000) can result in temporary ineligibility for federal programs, until the money is gone. For someone with complex medical needs who requires constant and lifelong care, losing Medicaid benefits can be devastating. This type of trust has complex rules that are required by the Social Security Administration and state agencies. The things that it can cover are specific, and usually, these trusts are managed by specialized companies. Charitable Trusts Can Provide Income and Create a Legacy Charitable trusts allow you to leave a legacy by continuing to support charities that are meaningful to you. They can be structured to provide income to you or a beneficiary for a period of time and then the remainder of the trust passes to the designated charity. Assets are removed from your estate when the trust is formed, so estate taxes are reduced. This type of trust can also be an excellent way to deal with highly appreciated assets such as stocks or real estate, when a large tax bill would otherwise be due if the asset were sold. Trusts in Action Let’s go back to Tim and Jean, our couple that was contemplating their estate plan. The answer was simple – the primary home went into a living trust so that the house would pass to their children without going through probate. Tim and Jean still live in the house and can sell it if their plans or their needs change. A separate trust was created for the money earmarked for the care of Tim’s sister. The inheritance will not pass directly to her, and her benefits will not be disrupted. The Bottom Line Trusts are flexible instruments that can help ensure that your privacy is maintained, your estate is protected, and your wishes are carried out to your specifications. They can also be an effective tool to minimize taxes when deployed for charitable giving. And most importantly, if there are children or adults that require special care, a trust can ensure that the inheritance does not disrupt existing benefits. Disclaimer: The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Should you have disability insurance? A sobering statistic from the Social Security Administration (SSA) might be helpful: the SSA reports that a 20-year-old has a more than one-in-four chance of becoming disabled before reaching retirement. Social Security Disability Insurance (SSDI) is part of the social security tax you pay each year that you work. But it is difficult to qualify for, and even the SSA describes the payouts as “modest.” Many employers cover some amount of short-term disability, but longer periods or a permanent disability typically require additional coverage. If you are self-employed or a professional with specialized training or education, such as a doctor or lawyer, getting the right disability insurance in place should be a part of our overall risk management plan. What does Disability Insurance Cover? The nomenclature of disability insurance may be misleading. While homeowner’s insurance protects houses from various types of damages and violent weather, and auto insurance covers automobiles, disability insurance does not directly cover the costs associated with the disability. Instead, disability insurance’s purpose is to provide a percentage of an employee’s income when they are disabled and cannot resume their normal responsibilities. For this reason, it’s often called disability income insurance. Short-Term Disability Plans Most disabilities are temporary and sideline workers for less than a year. A short-term disability plan’s function is to replace income for brief periods during recuperation from injury or illness. The plans are typically obtained as part of an overall employer insurance benefits package. The plans are either mandatory and paid by the employer, or voluntary and employees pick up the tab. These plans typically provide benefits for three to six months. Long-Term Disability Plans For disabilities that are more acute, severe, longer lasting, or even permanent, long-term disability insurance is the preferred option. These plans feature benefits designated to last for a year or longer. Unlike short-term disability insurance that most people receive through their employer, long-term disability is usually purchased as an individual insurance policy. Most commonly, the plans are preferred by business owners and higher-income professionals who worry about the impact on their lifestyles if they can no longer work or operate their businesses. Making Up for Employers’ Benefits Most employees can rely on their company’s short-term disability insurance if they are injured or sustain an incapacitating health emergency such as a stroke or heart attack. However, these corporate plans are usually not overly generous. They typically replace up to 60% of the employee’s salary for about three to six months, and the employee will owe taxes on the payments. Another problem is that the policies only cover employees. If the employee must quit the job due to a severe disability, they forfeit the benefit. Adding Disability Insurance to the Business Owner’s Toolkit Disability insurance is crucial for self-employed workers because it’s a lifeline for obtaining income and assists in paying monthly business expenses. Business owners who want to obtain disability insurance must provide tax returns from the previous two years to confirm income. Depending on the business and the cash flow situation, it may make sense to pay a higher monthly premium to reduce the elimination period or the waiting time before receiving insurance payments. Own-Occupation vs Any Occupation Definitions of Disability Long-term disability policies distinguish between own-occupation or any-occupation benefits. These definitions address if an injury or illness prevents a worker from performing their specific occupation, but the employee may still practice another type of work. For example, a debilitating foot injury would prevent an employee from performing tasks that require mobility, but they still may be able to succeed at a desk job in the same company with appropriate training. In these cases, an any-occupation policy will suffice because the employee can return to work without a significant loss of income. However, professionals with specialized skills and training—physicians, dentists, lawyers, and independent business owners—require more comprehensive disability insurance plans or own-occupation plans. For example, a surgeon who develops arthritis and cannot work will suffer a significant loss of income, even though they may be able to do other types of work. Long-term disability insurance with the own-occupation definition of disability disburses a benefit if the professional can no longer perform their regular occupation. Since these plans are more comprehensive than any-occupation policies, they are generally more expensive. Most insurance companies offer different own-occupation policies to tailor benefits more closely in a cost-effective way, depending on the needs of the particular professional. The Bottom Line Disability insurance can be expensive – the Council for Disability Awareness reports that a comprehensive policy may cost between 1%-3% of your annual salary, depending on your benefit amount and period, policy features and options, plus other factors such as age and health. But for business owners, those in specialized professions, or high-earners with a significant amount of income to protect, making a disability policy part of your financial planning may make sense. Disclaimer: The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Growing your business across every measure is the priority for business owners, no matter their stage. Every stage brings different things to tackle, but they all have one thing in common – taxes. Business owners have unique tax advantages. The key to maximizing them is not leaving it until your annual meeting with your tax accountant. It means creating a multi-year strategy that works as your business grows and your profits, activities, plant and equipment, strategies, etc., evolve. An effective tax plan will be flexible and customized to your own business and personal situation, but there are some areas common to all good tax strategies that will help you get started. Start With the Right Structure – or Convert Whether to incorporate or not often comes down to two aspects: tax planning and personal liability. For many businesses, the simplicity of a sole proprietorship or partnership is appealing, or the limited protection of an LLC is enough. Corporations offer robust protection from personal liability and can make raising capital and attracting top talent easier. An “S” corp can offer similar advantages but comes with additional tax benefits. As defined by the IRS, an S corp is a corporation that elects to pass corporate income, losses, deductions, and credits through to its shareholders for federal tax purposes. Shareholders of an S corp report the flow-through of income and losses on their tax returns and are taxed at their individual income tax rates. This allows S corporations to avoid double taxation on the corporate income compared to the C corp. S corporations are responsible for tax on certain built-in gains and passive income at the entity level. It is possible to convert from one structure to another after you’re already up and running. It’s a process, so you’ll need to weigh the costs and benefits carefully. Retirement Plan Benefits are Business and Personal Setting up a retirement plan for your business has many benefits. From the simplest IRA or Solo 401(k) to a traditional administered 401(k) plan for all employees, there’s a plan that’s right for your business: Attract and retain employees Business tax deductions and /or tax credits Maximize personal tax-deferred retirement savings Attracting and retaining top talent is one of the key pieces in building a successful company. In today’s economy, employees who can now often work from home are much more focused on financial benefits than in previous years, and retirement plans are at the top of their lists. Betterment recently sponsored a survey that asked respondents if they would leave their current job for one that offered a high-quality 401(k) plan, and 65% of them said yes. In addition, 56% indicated they could be lured away by a 401(k) with an employer matching contribution to a retirement plan. Company matching contributions are considered tax-deductible business expenses, and if you’re concerned about the administrative costs- those may be deductible too. There are also tax credits for small business owners that offer a 401(k) plan. There are several plans to choose from. If it’s just you and your spouse, the Solo 401(k) functions like a regular 401(k), except as the business owner, you are considered to wear two hats. You can contribute both as an employee and as an employer. Both of these have tax advantages built in. If you have more employees, a SEP or SIMPLE IRA may be right for you. With a SEP IRA, the business owner contributes on behalf of the employee up to $61,000 in 2022. One key benefit: SEP-IRAs permit employers to omit contributions during years that the company is not generating a profit or is experiencing declining sales. A SIMPLE IRA is typically for 100 or fewer employees, and the employee is always 100% vested in all the SIMPLE IRA funds. The employer has a choice about contributing annual funds to the plan: Non-elective contributions: The employer contributes 2% of each employee’s salary into the plan each year, even if the employee does not contribute. Elective contributions: Dollar-for-dollar matching contribution, up to 3% of the employee’s salary. Maximizing Both Sides of the Tax Equation: Deductions and Credits Tax deductions reduce the amount of income that is subject to taxes. Tax credits reduce your tax bill. Both are available to business owners. Deductions Retirement plan contributions Health insurance premiums Marketing expenses Business insurance premiums Legal and professional services Home office expenses Self-employment taxes Interest on business loans Some personal expenses There are many opportunities to maximize deductions. So many that it’s worthwhile to think through the advantages and disadvantages. You’ve probably heard the “tax tail waving the business dog” analogy. For good reason – claiming too many deductions can open you to an audit and make it difficult to raise funds or get a personal mortgage if your business income is too low. It’s all about balance. Tax Credits These are incentives. The government uses tax credits to reward business behaviors that it feels are beneficial, help businesses out in certain industries, or promote hiring underserved populations. Health insurance premiums Paid family and medical leave Work opportunity credit Research activities Disabled access Childcare facilities and services Alternative energy While some of these may seem like they are for larger firms, qualifying may be easier than you think. Since they reduce your tax liability without impacting your taxable income, they are worth exploring. It’s an Ongoing Process Your business will change from year to year, throughout economic and market cycles, and you’ll have a natural business cycle as you and your business mature. Planning for taxes should be regarded like cash flow planning. You should identify short- and long-term tax savings opportunities and match them to your business planning. Keeping business goals and taxes aligned adds to your bottom line now, helps you build personal wealth, and when it’s time for an exit, you’ll have an advantage in a clean, tax-efficient business. The Bottom Line Tax planning should be top-of-mind for every business owner and goes way beyond throwing receipts in a shoebox (or the electronic equivalent). Take your tax planning seriously, incorporate it into your business goals, and you’ll increase the value of your biggest asset. Disclaimer: The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.

Planning for the 5 Big Tax Challenges in Retirement Creating a retirement paycheck that generates the income you need while keeping you in the lowest possible tax bracket isn’t as easy as it seems. All the planning you did while working – like saving retirement funds in tax-deferred accounts and diversifying by purchasing a second home, can turn into tax bombs as you move through retirement. The consequences of higher income aren’t limited to a bigger tax bill – they can also include expensive Medicare surcharges. What’s the solution? There are some areas where multi-year tax planning can pay off: Roth conversions in early retirement Delaying social security Managing required minimum distributions (RMDs) Sale of second home Surviving spouse income planning Roth Conversions in Early Retirement Withdrawals from tax-deferred accounts are taxed at ordinary income rates. Later in retirement, when RMDs kick in at age 72, the years of compounding that have resulted in a hefty balance can mean a big tax bill. For a point of reference, AARP has a convenient RMD calculator. A $1 million 401k account would have an RMD of $36,496 if the owner turned 72 in 2022. Add in taxable social security income for both spouses, pensions, and income from other sources, and you can quickly move up into higher tax brackets. There are several benefits to a Roth conversion in the early years of retirement: Taxes are historically low and are likely to increase in future Doing a conversion before social security or Medicare means you avoid taxation Removing funds from a tax-deferred account can mean lower or no RMDs at age Delaying Social Security as Long as Possible Delaying social security increases the amount of your annual benefit by 8% per year for every year after your full retirement age, until age 70. Since 15% of social security benefits are tax-free, the higher the benefit, the greater the tax-free income. For a married couple, several strategies can make delaying work for the budget now and for long-term income and tax benefits. For example, the higher-earner may delay while the lower-earner claims early. It can be complicated to think through, but it’s worth it to create a social security claiming strategy in the context of taxes and all other sources of income. Managing Required Minimum Distributions If you’ve converted tax-deferred assets to a Roth early in retirement, you’ve already lowered or eliminated your RMDs. But if you still have an account balance that you are using for an asset location strategy, you may want to offset your RMDS through charitable giving. A qualified charitable distribution (QCD) of up $100,000 annually can be used to offset your RMD. The funds go directly to the charity and are counted as your RMD but not as income. This can be more beneficial from a tax perspective than taking the distribution, donating the funds, and taking the tax write-off. Which is Your Primary Home? Switching Can Make a Big Difference If you sell your primary residence, you can exclude up to $500,000 from capital gains taxes for a married couple. This replaced the one-time exclusion of all capital gains. The exclusion is lower, but you can use it more than once. If you have a second home, it may make sense to follow the IRS rules and make it your primary residence for at least two of the five years before the sale. If you want to downsize from your family home in the future, you’ll need to wait at least two years for another sale, as you can only qualify for the exemption every other year. Preparing for a Surviving Spouse After the death of a spouse, the surviving spouse’s tax status will change to either single filer or qualifying widow/widower. While income may be lower, the change in tax status can result in a bump up to a higher tax bracket. Planning can ease the tax burden and make the transition easier. Reviewing assets and developing a plan across the estate is a sound strategy. Consider: Step-up in basis on assets held outside retirement plans. These include real estate, stocks, bonds, funds, and other real property Rolling over retirement accounts Sale of primary home within two years of spouse for the maximum exemption Filing federal taxes to inherit any unused portion of the estate tax exemption The Bottom Line Income and taxes go hand-in-hand in retirement, even more than in your working years. Planning ahead with a multi-year approach to lowering lifetime taxes – instead of taxes in any one year – can keep your retirement on track, lifestyle in place, and legacy secure. Disclaimer: The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.