Sickle Hunter Blog | Wealth Advisors

Retirement Education

Sickle Hunter Financial Advisors — Wed, 19 Jun 2013 03:00:50 +0000

What is Provisional Income?

Sickle Hunter Financial Advisors — Sat, 15 Jun 2013 00:37:55 +0000

Tax avoidance and reduction are typically high on people’s financial lists. Understanding how your social security is taxed and your income sources are important when planning for your retirement. This is where provisional income comes into play.

Provisional income is the calculation to determine if and how much of your social security will be taxed. It’s your adjusted gross income plus 1/2 of your social security benefit and other non-taxable interest such as tax exempt bonds. If your total provisional income is below $25,000 filing individually and $32,000 jointly you will not pay taxes on your social security. There is a threshold for individuals whose provisional income is in the range of $25,000 – $32,000 and for married couples of $32,000 – $44,000 where 50% of your social security is subject to taxes. Over these thresholds and that inclusion rate goes to 85% of your social security included in taxes.

It doesn’t mean that you will pay 50% or 85% in taxes, only that 50% or 85% of your social security is included in the tax calculations. It isn’t always a good reason to keep your income lower by avoiding work in order to avoid your social security from being taxed. If you are working and electing social security before full retirement then you may be subject to your social security being taxed. For 2013, that limit is $15,120. However, you’ll get an increase in your monthly social security benefit once you reach full retirement age. If your income is one of your highest years you may also get your social security recalculated to a higher amount.

It’s important to understand your social security provisional income so you’ll be able to correctly plan your retirement income strategies. Working may reduce your social security in the short term but may have a continued positive impact on your social security in later years. Not to mention, you’ll have earned more money to supplement your retirement years as well.

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Why should I have a cash reserve?

Sickle Hunter Financial Advisors — Fri, 14 Jun 2013 01:37:10 +0000

A cash reserve isn’t so you can go on a cruise, buy a new pair of shoes or buy a lottery ticket. A cash reserve is an important part of your financial plan and your financial security. It’s an emergency fund that should be large enough to help offset and supplement the biggest of issues. Typically your cash reserve should be at least 3-6 months of your non-discretionary expenses but it can be more. This is because many disability polices have a 3-6 month waiting period before they begin paying out in the event of your disability. While a leaky roof or an unexpected trip to the doctor constitutes a use for an emergency fund to be used we believe that a disability in one of the most financially severe events. Disability can be thought of as a financial death with the addition of continued living expenses.

The larger the cash reserve in terms of how many months can be covered the more financially secure you will become. It may also afford you the ability to increase your disability wait period and thus potentially reduce your disability premiums. Of course, never reduce your coverage without first reviewing your overall financial plan and don’t change coverage until you know you have completed underwriting and approved.

While it’s good practice to have an adequate cash reserve for these potential pitfalls it can also provide for opportunities as well. Career changes and transitions may require moving expenses or waiting periods between jobs that can be supported with a cash reserve. The liquidity a cash reserve provides could help support a refinance or other financial transitions that can help you improve your overall financial standings. It’s important to have a cash reserve as a part of your financial plan. It may come in handy for better or worse.

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Sickle Hunter Financial Advisors: What We Do

Sickle Hunter Financial Advisors — Tue, 11 Jun 2013 02:59:28 +0000

Saving Strategies for Retirement Today and Tomorrow

Sickle Hunter Financial Advisors — Mon, 10 Jun 2013 22:48:03 +0000

Saving money for your future can often be a difficult task to accomplish. In the early years, you are faced with smaller paychecks that make the amount of savings seem too small. In the later years however, as our incomes increase, unfortunately so do our expenses. There are many things in life for which we are given do-overs, but retirement really isn’t one of those luxuries. Let’s take a look at retirement for today and tomorrow.

If you are in your early working years, chances are that you’re making significantly less money today than you will in 20 or 30 years. Setting aside money today that has a chance to grow over time will have a much greater impact on your retirement than increasing your savings rate later on. For example, if you were to make $60,000 this year and save 10%, you would have saved $6,000. Now, if you invested those dollars at an 8% rate of return for 30 years, you’ll have turned that $6,000 into over $60,000. If we put that into perspective and adjust for inflation, $60,000 in 30 years could purchase $24,719.20 worth of goods today.

The additional amount you would need to save if you wait to begin saving for retirement can have a significant impact on your ability to reach your goal. If you save $500. per month for 30 years at our same rate of 8% then you would have over $750,000. However, if you delayed saving for your retirement by just 5 years you would need to save an additional $283. per month or a total of $783. and if you waited 10 years you would have to increase your monthly rate of savings to $764. or a total monthly savings rate of $1265.

If you wait too long to start saving or haven’t saved enough you still have some options. You could consider reducing your retirement lifestyle if working longer is not an option. If you reduce your monthly spending over the course of your retirement if could have enough of an impact so you shouldn’t run out of money. Of course, the only way to figure it out is to do a financial plan and continue tracking your plan as you move forward. You could also work part-time and supplement the expected shortfall with this income stream. Working part-time will also reduce the depletion rate of your nest egg and this too can have a similar effect to our above example of waiting to save for retirement. It will give your nest egg more time to grow with the market.

Another factor that will affect your saving strategy for retirement is your target rate of return. Investing your dollars too conservatively can put an undo burden on your retirement. It can have a very similar disappointing effect as investing too aggressively. It’s important to have a financial plan in order to manage your dollars effectively throughout your life. Investing shouldn’t stop once you reach retirement as it may last upwards of over 30 years.

The point about savings strategies for your retirement today and tomorrow is not to delay. Begin saving as much and as often as possible. Every dollar saved can have a significant impact on your ability to reach your retirement goals. It’s good financial sense to have a well thought out financial plan in order save, invest and reach your financial goals successfully.

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Delaying Social Security

Sickle Hunter Financial Advisors — Sat, 08 Jun 2013 23:50:52 +0000

Social security has had a big impact on our society and the ability for many individuals to retire. The decisions of when and how to elect social security can be complex. It’s important to understand the financial impacts that social security can have on your retirement.

When making the decision to retire and elect social security electing early may seem like an easy solution to get an immediate source of income. I’m referring to electing before full retirement age and even before the maximum age of 70. However, delaying can have a much bigger impact on your overall retirement. This is because social security increases by 8% if you were born in 1943 to later. Compared to other risk averse investments this is a competitive rate of return.

If you are married, waiting can have an even greater impact on you and your spouses retirement income strategy. Consider if you or your spouse worked while the other didn’t work and earn an income. Delaying social security can have an impact on the spousal election as well as the survivor benefit. Over the course of retirement, this could add up to tens and even hundreds of thousands of dollars in lost opportunity.

The guaranteed income stream that social security creates also has a longevity feature that can make it more attractive than an equity portfolio. Social security doesn’t have the market volatility and market risks associated with investing. It’s also a part of your income stream that further diversifies your income sources.

The final point about social security that we can touch upon, but certainly not the last about social security is how you can delay social security. Delaying your election of social security may mean spending down other sources of income. It may mean the possibly of reducing your nest egg and the opportunity to leave a legacy. Health risks, ability to continue working, family, social and many other factors can have an impact on delaying your social security but it’s worth the time to be certain.

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Business Owners Financial Planning

Sickle Hunter Financial Advisors — Fri, 07 Jun 2013 03:51:47 +0000

Sickle Hunter Financial Advisors: Who We Are

Sickle Hunter Financial Advisors — Fri, 07 Jun 2013 02:57:40 +0000

What’s in a Number?

Sickle Hunter Financial Advisors — Wed, 05 Jun 2013 02:46:18 +0000

Save, Protect and Taxes

Sickle Hunter Financial Advisors — Tue, 23 Oct 2012 07:00:50 +0000

What does saving money, protection planning and your taxes have to do with each other? The short answer, more than you think. The long answer…

Often times, our clients and future clients come to us asking how they can reduce their taxes, invest and protect their families. These are all very good reasons to seek the advice of a financial advisor. Specially designed life insurance may be able to help you accomplish all three of these tasks. Very often, it’s referred to as the rich man’s Roth IRA. That’s because Roth IRA’s have contribution limits – meaning if you make too much money then you lose eligibility to contribute your hard earned money into this type of plan. However, you may be able to save into a specially designed life insurance policy while having the benefit of protecting your family in the event of your death. It’s also a great way to get permanent coverage as well.

Let’s break it down beginning with protection planning. Having a permanent life insurance policy can help you with a number of issues that arise in financial planning. The first, its payout benefit if the policyholder dies with the contract in force. The beneficiaries will receive the death benefit of the policy often tax-free. Having a death benefit helps deal with immediate liquidity needs that arise when someone dies. Paying funeral expenses, the deceased’s debt obligations such as a mortgage or the bills from lost income. It can also help offset the burden of estate taxes.

Which brings us to our next topic. In our experience, people don’t enjoy paying taxes. We suspect that you may feel this way too. The cash value in a permanent type of life insurance policy can often grow tax deferred and be withdrawn tax-free*. It’s important to note that you should consult with a financial advisor who specializes in this type of transactions in order to avoid paying hefty taxes.

Permanent policies very often have cash value that builds up and can be invested. These investment portfolios are very similar to other types of investments. They can help you diversify your portfolio and also diversify the types of tax implications that arise with financial planning and wealth management. It’s also a way to systematically save your money, as the premiums are due typically, monthly or quarterly. There are other options for paying into these policies.

It is possible to save, protect and control your tax bill all at the same time. Review these and other options with your financial advisor to see which types of plans are right for you.

*Both loans and withdrawals from a permanent life insurance policy may be subject to penalties and fees and, along with any accrued loan interest, will reduce the policy’s account value and death benefit. Assuming the policy is not a Modified Endowment Contract (MEC), withdrawals are taxed only to the extent they exceed the policy owner’s cost basis in the policy. A withdrawal reduces the cash surrender value and can affect the face amount, death benefit and net amount of risk. Withdrawals may increase the risk of policy lapse and may have unfavorable tax consequences.

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