More on this book
Kindle Notes & Highlights
by
Wade Pfau
Read between
February 16 - March 19, 2022
For income annuities and other annuitized contracts that were purchased in a taxable account, meaning that they are nonqualified annuities, the portion of payments representing interest and mortality credits is taxed as income, and the portion representing the return of premium is received tax-free.
As part of the SECURE Act from 2019, RMDs begin at 72 for anyone who turns 70 on July 1, 2019, or later.
For the first year that an RMD is due, the individual has until April 1 of the following year to take the distribution. In subsequent years, the distribution must be taken by December 31 of the same calendar year.
Finally, there is one additional exception for qualified plans that is not available to traditional IRAs. If employment ended after age 55, then distributions can be taken from the one qualified account associated with that employer without penalty. This is only allowed if employment ended after age 55 though, so that the exception does not start at 55 for those who ended employment at an earlier age. This exception may not always be useful as many employer plans do not allow discretionary withdrawals.
A basic guideline around withdrawal order sequencing is to first consider any income you receive from Social Security, pensions, and so forth, as well as any required minimum distributions you must take from qualified retirement plans and other tax-advantaged accounts. Then the order of spend down for covering remaining spending is taxable accounts, then tax-deferred accounts, and then tax-exempt accounts.
Each retiree’s situation is different in this regard, but one threshold that creates a big advantage for strategic management is the divide between the 12 percent and 22 percent tax bracket. That reflects the biggest jump in tax rates, and in 2021 the taxable income levels where this shift happens are $40,525 for singles and $81,050 for joint filers.
Sally Balch Hurme’s Checklist for My Family, Tony Steuer’s Get Ready!, and Melanie Cullen’s Get It Together.
Getting organized first involves getting your key personal information and documents gathered and stored in a safe and accessible place. A checklist of personal items in this category include: o Birth certificates o Adoption papers o Marriage license o Prenuptial agreement o Divorce documentation o Immigration or citizenship documents o Social Security cards o Military DD-214 service record o Driver’s license (copy) o Health insurance cards (copy) o Passports
Who to contact after emergencies o Contact information for close friends and neighbors o Medical and health information, list of current medications and dosages, allergies, blood type, immunization records, doctors and physicians, and medical history o Employer details: who to contact at your employer, availability of paid time-off, available employer benefits o School and day care contacts if children are attending o Pets: contact information for veterinarian, details about who should care for pets
Most individuals will work with a variety of financial and medical professionals that may need to be contacted. It is important to provide the names and contact information for any of these professionals: o Financial advisor o Attorney o Estate plan attorney o Insurance agent o Banker o Accountant o Trust officer o Executor o Guardian o Power of attorney for finance o Power of attorney for health care o Family physician and other relevant medical professionals
Regarding family, for those with an interest in genealogy, it may also be fun to include a family tree and lists of relatives, family history documents or news clippings, as well as a collection of family photos and videos with descriptive comments about who is featured, and where and when they were taken. If this information is not identified on the photos or in the filenames, it will eventually be lost to coming generations. Though such details are not needed for the estate plan, it might be something that you wish to consider organizing at the same time.
As for distinguishing what should be kept where, items that you may wish to keep in a home safe to provide for quicker access include: o Household net worth statement listing all assets and liabilities, as well as information on ownership and beneficiary designations, asset values, and cost basis o A list of ongoing bills, as well as automatic payment details or whether payments must be made manually o A list of websites, usernames, passwords for important accounts o Insurance policies o Your will o Durable financial power of attorney documentation o Advance health care directives o
...more
It is also important to note that minor children, such as children or grandchildren, cannot own more than a de minimus amount of financial assets. One should appoint a guardian or create a trust to oversee the assets until the children reach the “age of majority” in their state. Trusts can also serve as beneficiary designations, and this can provide a way to fund a trust intended for minor children after death.
Since 2011, unused exemption amounts can be passed to a US citizen spouse, using a concept called portability. To take advantage of this portability between spouses, an estate tax return (IRS Form 706) must be filed within nine months of an individual’s death, even if no estate tax is otherwise due. This process effectively doubles the exemption to $23.4 million for a couple in 2021. Estate taxes are due only if the net value of the estate exceeds these exempt amounts. An estate tax return must be filed if the gross value of the estate exceeds the thresholds, even if the net value after
...more
well, when viewed as an investment, life insurance cash value can provide an attractive alternative to holding bonds in a taxable investment portfolio.
The account could be divided into separate accounts with one beneficiary per account, which may work, for instance, if multiple children are beneficiaries.
The SECURE Act also creates eligible designated beneficiaries who can potentially apply the old rules for a lifetime stretch instead of the new ten-year window. These include the spouse, disabled or chronically-ill individuals, beneficiaries who are not more than ten years younger than the owner, and minor children of the owner.
Mike Bellah’s The Best is Yet to Be, Don Ezra’s Life Two: How to Get to and Enjoy What Used to Be Called Retirement, Fritz Gilbert’s Keys to a Successful Retirement, and Ernie Zelinski’s How to Retire Happy, Wild, and Free. This chapter benefits from their experiences.
It is a simple statement to make, but it is extremely important to recognize that being able to retire to something, instead of retiring from something, is a key starting point to retirement success. Retiring because you have grown tired of working, without having a clear idea about what you are going to do with your time after retiring can lead to depression and a lack of fulfillment for many new retirees.
George Kinder identified similar thought exercises as part of his development of life planning. He says to imagine that at the start of retirement, a doctor informs you that you have five years left to live. The nebulous potential of living 30 to 40 years in retirement is shortened in a concrete way. What would this news do to your focus in retirement? What would you want to do, to accomplish, to see, to say, and to be during these final years?
We never know just how long our health and life will last, and though on the financial side we must plan for the possibility of a long retirement, it is the non-financial side where we also need to plan for the possibility of a short retirement.
First you can visit www.retirementresearcher.com and sign up for our weekly newsletter with our latest articles, invitations to webinars, Q&A sessions, and more.
Our most recent innovation regarding this bridging is the Retirement Income Style Awareness I described in Chapter 1. If you are interested to obtain your RISA Profile as an initial step toward retirement, you can sign up without cost at www.risaprofile.com/guidebook.
