COLA (cost of living adjustment) for Social Security has been around 1%-3% increase over many years with the exception of the last three. Because the Federal Feds Rate has gone up so much over the past three years, we all know the cost of everything has increased. COLA over the past three years has ranged from 5.9% to 8.7%, those are huge increases. Not only are current Social Security recipients getting that increase, it has also been added to the record of all of us who are still paying into the system. This gravy train is about to end.

COLA will be going back to the average of 3%, here is what the increase will look like:

3% COLA in 2024 means the average retired worker would receive an extra $55.12 in monthly benefits, while spouses would get an additional $26.79, survivors would get $43.56 more, and disabled workers would get an additional $44.59 per month.

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When preparing for retirement, then once you are retired, good cash reserves and avoiding taxes are two big topics. I cannot tell you how much cash to keep in reserves, it is a personal choice. Some clients are comfortable with $15,000, some are comfortable with $200,000. I find my retired clients sleep better at night when they have cash on the sidelines. When the stock and bond markets crater, like they did in 2022, cash on hand is a welcome relief. Generally speaking, cash can be checking, savings, or money market accounts.

Taxes are a whole other factor in retirement. Some people think that they will not have to pay income taxes in retirement, then get an unpleasant surprise. Taxes in retirement are an important consideration and can eat away at a retiree’s budget. Withdrawals from a 401(k) are taxed as ordinary income. Social Security may be taxable. Dividends and interest may be taxable. Not to mention there may be property taxes, sales taxes and other taxes that may be invented down the road. It’s a taxing problem.

Take the time to review both of these topics prior to retirement, you will enjoy your retirement more if these worries are off the table.

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I have been hearing from people at all different income levels that they are stressed about how much everything cost today. Inflation is real, we see it at the grocery store, that gas station, and if you think about a night out – you really see it. Here is one small thing I would challenge you to do that can make a big difference:
Resolve to cut out one expense that brings you neither joy nor prosperity.
Write your resolution on a piece of paper and post it prominently, so you won’t forget. Put the money that you would have spent into an envelope or a separate account, for savings.

Do this for at least 3 months then take a stress and savings assessment, you should feel mentally and fiscally better.

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I am referring to the student loan repayments that seem like they have been deferred so many times I can’t count anymore. Eventually, you have to pay the piper. Here is some new information that may be helpful. I say may be – because we do not know if this will change again.

The Biden administration launched a beta application for its new income-driven repayment plan called Saving on a Valuable Education, or SAVE, plan. This plan started at the beginning of this month.

The plan may cut many borrowers’ previous monthly payments in half and leave some people with no monthly bill. Currently, SAVE increases the income exemption from 150% to 225% of the poverty line. It also eliminates unpaid monthly interest charges if you make your monthly payment on the principal, and it ends the need for your spouse to co-sign your application. Additional benefits start in July 2024.

August 31
If you don’t plan to make a payment in September, your servicer may apply an administrative forbearance on your loan, so no payment is due. If you want to opt out of this forbearance and pay in September, you must notify your servicer by this date.

September 1
Interest begins to accrue again on your loan. If you choose not to pay in September, you will be charged interest for this month.

October 1
Your first payment is due.

I suggest you take the time to review your student loans and set up your payments.

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In the last two months I have had 6 client pass away. Many of them had lived very long lives, a couple did not. It is never easy to deal with a death, there are so many emotions, life plan, events that will all be different now. I try to make my part of this horrible life-cycle event seamless. I try to make sure all accounts that I manage, and outside of my management, are titled properly so they will transfer easily. Believe me, the last thing anyone wants to deal with is messy financial paperwork while trying to process your loss. One thing that our firm has available to help with this transition is our Financial Organizer. I recommend reviewing these topics when your family is together and everyone is healthy, it takes a lot of the stress out of the situation. If you would like a copy of this Financial Organizer please email me at n.hecht@financialgroup.com.

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I have been asked this question a lot lately as I help my clients plan for their retirement. Here are a few questions I ask to determine if you should pay off your mortgage before retiring.

Do you still get a tax deduction for the interest you are paying?
If you can still deduct interest, I think that is a good thing. Any deductions that help reduce your Federal Income Tax works in your favor.

What is your interest rate?
If you have a mortgage with a 3 or 4% rate, in my book that is a cheap loan, why rush to pay it off when you can potentially earn more through investments.

Will paying off your mortgage cut into your emergency fund?
Having good cash reserves, especially in retirement, are important. If paying off your mortgage will leave you cash poor, rethink that decision.

One tip to pay down your mortgage faster is to make bi-monthly payments. You can potentially cut ten years off the life of the mortgage.

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Recently a client asked if a sizable payment being made from their Ex-spouse’s 401k to them was taxable.

This type of distributions is called a QRDO, Qualified Domestic Relations Order. This is how it generally works:

A QDRO allows a former spouse to receive a predefined amount of their spouse’s retirement plan assets. For example, a QDRO might pay out 50% of the account’s value that has grown during the marriage. The funds, as a result of the QDRO, could then be transferred or rolled over into an IRA for the beneficiary spouse.

So to answer my client, if the QDRO is sent directly to a new IRA, no, it will not be taxable.

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Congrats! You have worked hard and saved for retirement, now what is the best way to fund all of the years and plans you have in front of you? Here is my humble opinion as to where to go to make sure you have the cash flow necessary to do what you want in retirement.

Cash accounts:
These can be checking, savings, or money market accounts set up for funding your lifestyle, not your emergency fund account. Cash accounts will not earn much, if anything in the way of interest, but these accounts are easily accessible for funding your lifestyle.

Annuities:
If you happen to have an annuity in your investment portfolio, annuities grow on a tax deferred basis, when the time comes to withdraw from them, and part of your withdrawal may be considered return of principal. Many times annuities will pay all income first, which will be taxable, then return of principal, there is also the option to have a guaranteed payment from an annuity.

Non-retirement investment accounts:
These accounts invested in mutual funds, or individual stocks will earn dividends and capital gains. If you have been reinvesting the dividends and capital gains, you can now have those paid out to you. For most people, capital gains are taxed at a lower rate than ordinary income, this is a plus in my book.

Roth IRAS:
Roth IRA accounts grow tax-free, so again, with my distain for paying taxes, I would tap into this area before Traditional IRA accounts.

Traditional IRA:
Depending on when you were born, you may not have to take a Required Minimum Distribution from your IRA until age 75. This will allow those dollars to grow as long as possible without having to pay ordinary income tax on your withdrawals.

Everyone’s situation is different, depending on your cash flow needs and income from various sources, these recommendations may work for you. Please consult your tax professional before putting your plan into action.

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If your child is graduating from high school, you have to figure out how to pay for college, if they are graduating from college, you have to pay back the loans. I am going to share with you how we dealt with this question. When I went to college I worked full time. My employer paid my Parents 80% of my college costs as long as I maintained a B average, which I did. My husband financed his college completely through loans, which I then married as I had none of my own. Paying back the loan principal and interest took a long time. When it came time for our daughter to go to college, we decided that being a student was her job and we took FAFSA loans to help fund her education. Every year FAFSA sends out a statement with the interest that has accrued for the loans, we paid the interest off annually so when she graduated there was only principal to pay back. This is my tip for those whose children are in college now. For those who have graduated and now must start paying back the loans, here is what we did. Each month we would transfer the loan payment to our daughter, then she paid the loan. This allowed her to build a credit rating. This worked well for us, please feel free to do the same. Congrats to the Grads!

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Those of us that are money managers know this, but lay people don’t always realize how true this is.
While talking to someone yesterday this came up in conversation. This person recently inherited a large sum of money from a relative that worked a blue-collar job. What this relative did was regularly save from every paycheck to invest in what they deemed to be quality companies. Initially they invested in individual stocks as mutual funds were not widely available. As the investing world changed and became more assessable, they bought mutual funds. They point this relative made to the person I was talking to was “time in the market is what matters, not trying to time the market”.

This is a statement that I have lived by in the almost 40 years I have been managing money for my clients. It may sound trite, but it has been proven to be true many times over.

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