Golden Dragon China ETF pulls back after record monthly rally in November
The Invesco Golden Dragon China ETF started December with a pullback, after enjoying a record monthly rally in November amid increasing signs that China was starting to back off from the zero-COVID policy. The ETF, which tracks American depositary shares (ADS) of China-based companies that only list in the U.S., slipped 0.9% in premarket trading Thursday, after running up 9.6% on Wednesday and 41.8% in November. The pullback comes as futures for the S&P 500 tacked on 0.4%, after the index jumped 3.1% on Wednesday. The Golden Dragon ETF’s biggest decliner ahead of Thursday’s open was electric vehicle maker XPeng Inc.’s stock, which dropped 6.0% after rocketing a daily record 47.3% on Wednesday. Elsewhere, shares of Nio Inc. fell 2.0%, Alibaba Group Holding Ltd. shed 2.5%, Li Auto Inc. gave up 3.6%, Tencent Music Entertainment Inc. declined 0.9% and Pinduoduo Inc. was down 2.3%.
The two-pronged axis of employee-sponsored pension plans and individual retirement accounts is the stage where, for most Americans, the majority of retirement planning happens. Within that framework, Roth IRAs are renowned for their unparalleled ability to secure tax-free growth.
Due – Due
But there is a catch – contribution limits and restrictions on high-income individuals severely curtail these benefits. The rollover is one of the best-kept Roth IRA secrets – it allows investors to both sidestep Roth IRA income limitations and contribution limits, as well as rake in the benefits of tax-free growth.
A move like this might seem highly technical and complex — after all, with the benefits that we’ve mentioned, it would only make sense. But thankfully, it isn’t so — rollovers are simple to execute and require very little time and effort.
However, there are a fair number of points that should be kept in mind when deciding on a move like this. We’ll cover all of those considerations today – so that you can have a clear overview of the situation before deciding if a rollover is something that would interest you.
When Converting a 401(k) to a Roth IRA Makes Sense
First things first – by far, the most common scenario in which rolling over a 401(k) into a Roth IRA is considered involves an employment transition. While there are numerous choices available when leaving your job (we’ll get into those shortly), this particular method offers unique benefits – so let’s cover the situations when such a move makes sense.
For starters, for investors who expect to be in a higher tax bracket after retiring – whether due to RMDs or other sources of income, footing the tax bill now and enjoying tax-free growth and withdrawals later has some obvious benefits which are quite difficult to find elsewhere. One should also keep in mind the possibility that taxes as a whole will increase in the future – something that seems quite likely when looking at future budget proposals.
Speaking of RMDs or required minimum distributions – the mandatory payments that start at age 72 associated with traditional IRAs – well, Roth IRAs don’t have them. This helps keep down taxable income in retirement and allows for a much greater degree of control.
A lot of 401(k) programs are notorious for high fees and limited investment opportunities. In contrast with that, today, with the rising popularity of easy-to-use stock trading apps, the accessibility of Roth IRAs and the diversity of investment offerings has never been greater.
Along with that, Roth IRAs also pass tax-free to beneficiaries in the case of the holder’s death, and beneficiaries have 10 years to empty the account, while spouses have even more benefits. Those 10 years of growth potentially make them a better choice in the long term when compared to either term or even whole life insurance.
Roth IRAs Have Income Limits
While anyone can contribute to a regular IRA when it comes to Roth IRAs, the IRS does discriminate – and it does so based on annual income. The rationale behind this particular piece of regulation was that it would prevent high earners from somehow abusing the tax-advantaged nature of a Roth IRA as an investment vehicle.
The way that these income limits work is through a process of gradual phasing out. Once a certain threshold (measured in modified adjusted gross income or MAGI) is reached, individuals, can contribute less money to a Roth IRA on an annual basis than those who earn less.
As income grows, the limit grows ever tighter until, at one level of income, investing in Roth IRAs becomes impossible.
The points at which these income caps kick in and come into play aren’t set in stone – they are adjusted each year with an eye toward inflation. For example, in 2021, the phaseout range for single filers began at $125,000 in MAGI, and the point of total exclusion was set at $140,000.
In the same years, married couples who filed jointly saw phaseouts begin at $198,000, with the point of total exclusion being $208,000.
There are two crucial pieces of good news, though — the first is that converting a 401(k) into a Roth IRA sidesteps the issue of income limits completely.
The second is that the income limits have seen consistent increases over the years — with no signs of stopping. And to further sweeten the pot, from 2023 onward, the maximum annual contribution for a Roth IRA will increase from $6,000 ($7,000 if over the age of 50) to $6,500 and $7,500. Roth IRA contribution limits for business owners are also higher.
Filing Status
Phaseout Range for 2021
Phaseout Range for 2022
Phaseout Range for 2023
Single
$125,000 – $140,000
$129,000 – $144,000
$138,000 – $153,000
Married
$198,000 – $208,000
$204,000 – $214,000
$218,000 – $228,000
Remember the Five-Year Rule
The five-year rule is another bothersome piece of regulation that should be kept in mind whenever one is dealing with Roth IRAs. The main advantage of Roth IRAs is their ability to support tax-free growth and tax-free withdrawals after the age of 59 and a half. However, in order to qualify for these tax-free withdrawals, an investor must hold the Roth IRA for at least five years – hence, the five-year rule.
The existence of this rule leads to two things that should be kept in mind. First and foremost, if an investor has a need of the money in his or her 401(k) within the next five years, then rolling over a 401(k) into a Roth IRA might not be the best course of action – thankfully, we’ll also touch on a couple of alternatives below.
The second question is a matter of detail – since the penalties for breaking the five-year rule include a flat 10% fee as a penalty and possible taxes, making a mistake can end up costing you a fortune. This leads us to the second point – when does this five-year waiting period start?
Well, it will depend on your specific circumstances, and things this delicate always merit consulting your retirement advisor or a tax professional, but we’ll try to walk you through a couple of helpful points to help you navigate the issue.
If you already have a Roth IRA, the countdown began when it was opened. If you don’t have a Roth IRA and open one by converting a traditional IRA to a Roth IRA, the five-year waiting period begins once the funds reach the Roth IRA.
But, as always, there are plenty of exceptions to the rules and limitations surrounding Roth IRAs. Make sure to consult a professional whenever you intend on making early withdrawals – there are quite a lot of qualified expenses, including first-time home purchases, education, and disability, that do not incur taxes, fees, or both.
Understand the Tax Consequences
Rolling over a 401(k) into a Roth IRA always comes with tax consequences. Since 401(k)’s are funded with pre-tax dollars, while Roth IRAs are funded with after-tax dollars, any scenario where an investor rolls over a 401(k) into a Roth will result in a larger tax bill.
Thankfully, figuring out what exactly those tax consequences are going to look like is very simple – just take your taxable income and add the value of the 401(k) to it. The amount of tax that investors are liable for is determined by the marginal tax bracket of the final sum.
To figure out exactly how much of a tax bill the rollover will leave you with, simply take the marginal tax bracket of the final sum and multiply it by the value of the 401(k) that is being rolled over.
Keep in mind that 401(k) rollovers can push you up a tax bracket – but in most cases, the long-term benefits of the move far outweigh the temporary drawback of a one-time tax increase.
Let’s use a couple of examples to illustrate. A single filer with a taxable income of $57,000 rolls over a 401(k) worth $14,000. To get the tax bill, we add one to the other for a total of $57,000 + $14,000 = $71,000. This new figure is still squarely within the $41,776 – $89,075 tax bracket that comes with a 22% tax rate. Taking $14,000 and multiplying it by 22% gives us a tax bill of $3080.
The tax cost of a 401(k) rollover isn’t due as soon as the transfer happens – the IRS is perfectly content to wait for you to file your taxes when you usually do.
Investors can also choose to enter a voluntary withholding agreement with their plan administrator – doing so means that the plan administrator will withhold funds equal to the tax bill, saving investors the hassle of more complicated tax filing while being no more expensive.
Alternatives to the Roth IRA
As mentioned near the beginning, although rolling over from a 401(k) to a Roth IRA is a move that makes financial sense for a lot of people when changing jobs, for others, the process simply isn’t worth it. There are, however, plenty of alternatives – so let’s take a minute to chart the possible courses when rolling over to a Roth doesn’t make sense.
Rolling a 401(k) into a Traditional IRA
In the same way that one can roll over a 401(k) into a Roth IRA, one can also roll it over into a traditional IRA. Well, it isn’t exactly the same – the process is much simpler, and the options differ in regard to taxes.
Like a 401(k) itself, a traditional IRA is funded with pre-tax dollars. Should you choose to roll over one into the other, you will owe no additional taxes — but, like always when it comes to traditional IRAs, you will owe taxes once it comes time to withdraw the money.
Rolling a 401(k) into a SEP IRA
One possible situation that we haven’t yet discussed is switching from being employed by another party to becoming self-employed or a business owner. In this scenario, transferring the contents of your 401(k) into a SEP IRA might be the better choice.
What is a SEP IRA? The SEP part stands for simplified employee pension – and it is a self-directed individual retirement account that works quite similarly to a traditional IRA. Like a regular IRA, a SEP offers tax-deferred growth – but you will have to pay taxes when withdrawing the money.
There are two main differences that make up the advantage a SEP has over a regular IRA – for one, the contributions are tax-deductible, and two, the contribution limit is much larger. In comparison with a regular IRA’s contribution limit of $6,000 – $6,500, an SEP’s contribution limit for 2022 is $61,000 and will increase to $66,000 in 2023.
Leaving the Money Where It Is
The benefits of tax-free growth and the freedom to invest in what you choose are strong points for why a rollover could be a good move. However, if your current 401(k) account has low fees and is providing you with good returns, simply leaving the assets where they are can potentially be the most profitable course of action.
Distributions
When you change employers, taking the money from your 401(k) as a distribution is also an option. However, we would caution against this method – for one, penalty fees and taxes might easily apply on the withdrawn sum, leaving you with less money than initially – and secondly, this would represent a wasted opportunity to take advantage of tax-free growth.
Rolling over into a New 401(k)
When transferring jobs, it might be possible to also transfer your previous 401(k) into the 401(k) plan of your new employee. The easiest way to check if this is available is by getting in touch with the plan administrator for the new 401(k) program.
There are some conditions that can apply. For example, some employers require that a certain amount of time while employed has passed before the old 401(k) can be rolled over into the new one. If you choose to go this route, you will not owe any additional taxes.
Steps Needed to Roll a 401(k) into a Roth IRA
Now that we’ve covered all the theoretical, the fine print, and the alternatives, let’s move on to something that is more practical – the very process of rolling over a 401(k) into a Roth IRA. Thankfully, while all of this might sound highly technical and complex, there are only 4 simple steps that you need to take.
1. Opening Both a Traditional IRA and a Roth IRA Account
To start with, to complete the process, you will need both a traditional IRA account and a Roth IRA account.
This leads us to two points – if you already have both, feel free to skip this step, and secondly — what is the traditional IRA used for? Well, you see, assets cannot directly be converted or transferred from a 401(k) to a Roth IRA – they first have to be transferred to a traditional IRA account.
The good news is that opening a traditional IRA account and a Roth IRA account isn’t time-consuming or expensive – the process can usually be wholly completed online and doesn’t take a lot of paperwork, lasting only around 10 minutes. On top of that, most of these accounts do not require initial funding or minimum investment.
Seeing as how the Roth IRA is the final, long-term destination of your money, taking the time to choose a custodian that meets your needs is an effort worth expending. There are two main points to consider here – favorable fees and the range of investment offerings.
2. Requesting a Direct Rollover to the Traditional IRA
Once the first step is taken care of, investors will need to contact the administrator of their current 401(k) plan and request a direct transfer of the funds in the plan to their traditional IRA account. Investors should also take care to request a direct custodian-to-custodian transfer and also emphasize to their current plan administrator that this is a non-taxable transfer.
Once that is done, the plan administrator will give investors a couple of forms. Investors will need to provide details about the account as well as the new custodians and may be required to give specific wire instructions.
Once those forms are filled and submitted, the process has begun – and there is nothing to do but wait – usually no more than a day or two. Keep in mind that wire transfers might incur a small fee – and that wire transfers are the most common method of custodian-to-custodian transfers.
3. Converting the Traditional IRA to a Roth IRA by Means of Backdoor Roth Conversion
The next step begins once the assets from the 401(k) are safely tucked away in your traditional IRA. The next thing to do is to convert or transfer the assets from the traditional IRA to the Roth IRA – and this is done via backdoor Roth Conversion.
Much like the last step, this process entails contacting your custodian or account manager for a Roth conversion form. Once that is filled out, signed, and submitted, it should only take another day or two for the funds to arrive in your Roth IRA.
4. Choose Your Investments – and Choose Wisely
Although the process of a rollover is technically finished by this point, by far the most important part of the entire gambit still lies ahead. After all, you haven’t been accruing a tax bill and doing all that paperwork for nothing.
The main advantage of a Roth IRA – the tax preferential nature of the account, offers a great opportunity. The potential for growth here – particularly for long-term, buy-and-hold investments is immense. However, there is no one-size-fits-all approach – and investors should always take current circumstances into account.
In particular, focusing on investments that will thrive in an economic downturn should be a priority. Although the time horizon for Roth IRAs is quite long, and the United States’ troubles with inflation will eventually pass, the last couple of years have been a harrowing reminder of inflation’s corrosive effect on wealth.
Investing in a way that fights inflation could entail allocating a part of your portfolio to inflation-resistant securities such as TIPS, commodities, or even precious metals.
Conclusion
The idea of rolling over a 401(k) into a Roth IRA might seem like something difficult to execute – what with all the account opening, transfers, and sidestepping of the income limits of Roth IRAs that the process entails.
However, rollovers are standard practice – they are very common, tried-and-tested processes that are one of the more powerful tools for tax-preferential retirement investing available in the United States today.
Although a rollover isn’t the right move for everyone, the pool of people who stand to benefit from such a move is quite large. In this specialized economy, changing jobs is more common than ever – so you never know when you might need to know how to properly perform a rollover.
At the end of the day, even if a 401(k) rollover into a Roth IRA isn’t the best thing to do for your specific circumstances, being able to compare all the different choices and alternatives you have at your disposal will allow you to make the wisest choice with your investments – and we hope that we’ve helped you along in that regard.
Many families struggle to come up with the cash when faced with an unexpected $400 expense.
That lack of emergency savings may force them to borrow money at high interest rates to pay for the surprise expense, putting their financial security at risk.
Now Congress has a window to address that issue by paving the way for new emergency savings plans in the lame duck session.
Three emergency savings proposals may be included in a legislative package known as Secure 2.0, which is set to amplify changes to the retirement system brought by the Secure Act in 2019.
“We’re on the cusp of a significant shift in how people save for emergencies in this country, thanks to public policy and private sector innovation,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center, during a recent web panel hosted by the Washington, D.C., think tank.
The panel discussion coincided with an open letter from the Bipartisan Policy Center Action with 40 organizations to Senate Majority Leader Chuck Schumer, D-N.Y., and Minority Leader Mitch McConnell, R-Ky., as well as House Speaker Nancy Pelosi, D-Calif., and Minority Leader Kevin McCarthy, R-Calif.
The letter called for the inclusion of three bills that would amplify emergency savings in the pending retirement package.
“We firmly believe emergency savings policy aligns with the goals of the U.S. retirement system and will help boost financial resiliency for American households,” they wrote.
Anti-eviction banners are displayed on a rent-controlled building in Washington, D.C., on Aug. 9, 2020.
Eric Baradat | AFP | Getty Images
The Covid-19 pandemic was a stress test for many Americans’ finances.
As many parts of the economy shut down, many individuals and families found their incomes were reduced or eliminated altogether.
The federal government stepped in and sent unprecedented amounts of aid through three rounds of stimulus checks, enhanced federal unemployment benefits, direct monthly child tax credit payments to parents and other policies.
Yet the pandemic still led some workers to withdraw funds from their 401(k) or other retirement savings accounts, putting their long-term financial futures at risk.
Those that had at least $1,000 in emergency savings at the height of the pandemic were half as likely to withdraw from their retirement savings accounts, according to the Aspen Institute.
“As people face that crisis, you need that liquid savings to protect your long-term investments and make sure you have a secure retirement and build wealth,” Tim Shaw, associate director of policy at the Aspen Financial Security Program, said during the Bipartisan Policy Center panel.
Covid relief measures helped push the share of families who could cover an unexpected $400 expense with cash or an equivalent method to 68% in 2021, a 4-percentage point increase from 2020. It also marks the highest level since the Federal Reserve began the survey in 2013.
Still, 1 in 3 households would need to borrow money to cover a $400 emergency, which is still “far too many,” Shaw noted.
Advocates are hoping three proposals that could help encourage emergency savings will be included in Secure 2.0.
That includes two bills proposed by Sens. Cory Booker, D-N.J., and Todd Young, R-Ind., as well as a third created by Sens. James Lankford, R-Okla., and Michael Bennet, D-Colorado.
One proposal from Booker and Young would enable employers to provide emergency savings accounts to workers in addition to their retirement savings accounts. Employees would be able to set aside up to $2,500 automatically that they could access at any time in case of an emergency.
The second proposal from Booker and Young would allow for separate standalone plans outside of retirement accounts, which would be “really important” for employees who don’t currently have retirement plans through their employer, Akabas noted.
A third, the Lankford-Bennet plan, would allow workers to take out up to $1,000 from their retirement accounts penalty-free in case of an emergency. Those withdrawals would only be allowed once per year; additional contributions would be required before making another withdrawal.
Chantel Sheaks, executive director of retirement policy at the U.S. Chamber of Commerce, said she has “fingers crossed” that all three proposals will make it into Secure 2.0 and that the legislation will pass.
“From an employer’s viewpoint, we need choice,” Sheaks said.
What may work for one employer may not work for another, she noted. The three proposals would allow for more options, including possibly encouraging employers who do not current have retirement plans to think about adopting them, Sheaks said.
Moreover, because hardship withdrawals can reduce workers’ retirement security, these emergency savings options can help prevent those stumbling blocks to building wealth.
“People have emergency needs today, and we can’t forget about those emergency needs,” Sheaks said. “We need to find a way to balance today’s needs with tomorrow’s needs.”
The Biden administration on Tuesday issued a final rule that makes it easier for employers to consider climate change and other so-called environment, social and governance factors when picking investment funds for their 401(k) plans.
The U.S. Department of Labor rule, which takes effect in 60 days, undoes regulations put in place during the Trump administration.
ESG investing is also known as sustainable or impact investing. There are many flavors of ESG funds; they may, for example, funnel investor money into wind and solar companies or those with diverse board members, or steer funds away from firms involved in fossil fuels.
ESG funds have grown more popular in recent years. Investors poured $69.2 billion into them in 2021, an annual record, according to Morningstar. Uptake in 401(k) plans has been slow, however.
The Inflation Reduction Act is expected to further bolster the popularity of ESG investing. The law, which President Joe Biden signed in August, represents the largest federal investment to fight climate change in U.S. history.
Employers have a legal duty to thoroughly assess funds’ risk and return when picking 401(k) plan investments; for example, they can’t subordinate the financial interests of workers in favor of a cause like climate change.
The new ESG rules don’t change these duties.
However, they clarify that businesses can “include the economic effects of climate change and other ESG considerations” when making investment choices — something Lisa Gomez, assistant secretary of labor for the Employee Benefits Security Administration, called “common sense.”
“While climate change is a critical issue, that’s not [just] what this rule is about,” Gomez said.
Employers also don’t violate their legal duty by taking workers’ ESG interests into account when crafting a lineup of 401(k) investment funds, according to the new rule; that may lead to more engagement among workers and therefore more retirement security, it said.
The Biden administration’s action Tuesday follows a March 2021 directive that it wouldn’t enforce the Trump-era rules. The administration then proposed a revision to those rules in October 2021; Tuesday’s action updates that proposal according to comments received from the public.
The new Biden regulations scrap certain elements of the Trump-era rules that Labor Department officials said stymied employers from using ESG funds.
For example, the prior rules didn’t explicitly mention ESG, and they required employers to choose investments based only on “pecuniary” factors — a term that essentially disallowed employers from selecting funds with any sort of “moral” component, Labor Department officials said.
The new Biden administration rules erase that requirement.
“Whether E, S or G, … direct or indirect, big or small, the [ESG] factor also furthers a moral component,” said a senior Labor Department official, who spoke on condition of background only. “ESG has an inherent duality of purpose.”
The new rules also erase a restriction that disallowed employers from using an ESG fund as a default option for workers automatically enrolled in their 401(k) plans — an increasingly popular avenue to boost retirement security. In legal parlance, these funds are known as a “qualified defined investment alternative,” or QDIA.
One of the things you need to prepare for when you’ve reached your retirement age is your will. It is a document that lists all your properties and assets and how you want them to be distributed when you’re no longer here. While it might seem too soon to think about this uncomfortable topic, it’s still something that needs to be carefully planned to make everyone’s life a little easier as they handle the grief of losing a loved one. In that sense, it’s good to know what things your children might or might not actually want to see as a part of their inheritance.
Due – Due
Preparing a list of things you want your kids to inherit might save you a lot of time, especially when you have a lot of things in mind that you want to pass on to them. You might think that your collection of plates and curtains might be an ideal inheritance to give, but they might not be the things that your kids expect to receive — nor want.
It’s not that including these items as a form of inheritance is bad, but there’s a high chance that they will only end up disposing of them, especially when they do not serve a specific purpose. If you want to make your children’s life a little bit easier if you pass away unexpectedly, here are 12 things that they might actually want to inherit.
#1 Cash
Cash is the classic and ideal asset to hand down to your kids. It’s convenient and easy to access, and you can earn interest over time if you have it in a savings account. Additionally, it provides a great deal of ease as cash can be easily divided depending on how many people will receive it and how much each one will have. This can make splitting the inheritance easier and avoid conflict between siblings.
One reason why your kids might want to inherit cash is because of how versatile it is—they can use it to buy anything they want or invest it to make it grow. Cash also provides an easy way to send money to others and share their wealth. They can even share and send cash to a friend if they ever need to. For example, they may invest it in other assets like properties or stocks or even a personal enterprise, which will provide an opportunity for your children to earn income from their inheritance. This freedom of use and flexibility make cash the first thing your kids will want to inherit.
#2 An annuity
An annuity is a great asset to pass down to your children. Inherited annuities have several advantages like tax benefits, especially if they’re non-qualified annuities you paid for with after-tax dollars. By annuitizing an annuity, your children can convert it into a steady and dependable income stream to help cover their living expenses either for a predefined period of time, or for life if the original annuity contract was set up as a multy-life annuity.
While annuities like the ones mentioned above can be financially complicated to set up and also quite expensive, they do offer simplicity for your heirs.
#3 Recipes
Besides the pleasure of each others’ company, there’s a reason why the family flocks together at grandma’s house during the holidays, no matter how far they are, and that’s because of the sumptuous food that tastes like no other. Whether it’s a secret recipe for your classic stuffed turkey or the chocolate chip cookies your grandkids line up for every weekend, your kids will definitely be happy to receive a cookbook full of all their favorite recipes with annotations and footnotes with all your little culinary secrets.
It is both a sentimental and useful inheritance to have, and it preserves the tradition within the family, even when you are no longer around to make the food. You’ll be surprised how many successful restaurants and gastronomic products started with “grandma’s recipe.”
That comfort-food feeling you get when you taste your mother’s food isn’t easily replicated. When it comes to good food that only the hands of a parent can make, a record of how it’s done is worth having and passing down.
#4 Family photos
As much as your kids may look like they only enjoy things that have monetary value, there are many things that they’ll consider worth having, and old family photos are one of them. While today we have thousands of pictures on our mobile phones, it’s still nice for kids to have something tangible like an old-fashioned polaroid photo that captures moments that are worth keeping for a lifetime.
Photos never fail to remind someone of something beautiful that has happened in the past, even when they are no longer there to rekindle that moment. Having a physical photograph that your kids know you held in your hands, that you had in a real photo album, is something they’ll value and cherish for life.
#5 Trust Funds
A trust fund is a type of asset that helps your kids manage their inheritances wisely. If you are going to be handing them down a huge amount of money and perhaps a couple of properties, there’s a chance that conflicts may arise. Other people might file for a claim on those assets, or your kids might end up fighting among themselves. Even if they don’t, they could splurge and dilapidate all their inheritance through reckless spending on useless things.
The biggest perk of setting up a trust fund for your kids is that it allows them to properly allocate the money over different uses so that they don’t go about spending it on things that do not matter. You can also set it up so your loved ones will only have access to the money at a certain age and point in time. They probably won’t like these limitations at first, but they’ll definitely be thankful once they’re more mature and realize the value of investing in the future.
#6 Furniture
Believe it or not, your kids may be interested in inheriting your furniture as well, especially if it’s something different and hard to find. Accent pieces that are timeless and fit the interior of almost any house. Many are definitely worth keeping, and it can save your kids a couple of hundred dollars when they’re moving to a new apartment or house.
#7 Vinyl Records
Besides the great music they contain, vinyl records are also collectible items that only gain value as time passes. Do you have an original Jimmy Hendricks album from the 70s that’s in pristine condition? I’m sure your vintage-loving millennial kids will be more than happy to keep it for years to come.
If your child grew up listening to vinyl records that have become a collection in the family, chances are they’ll want to have them. Nothing beats a classic Pink Floyd or The Beatles vinyl to take a trip down memory lane, and your kids will be more than happy to know that you have these records ready for them to take in the future.
Just like photos, music can evoke pleasant memories, and it’s always a good decision to leave something for your kids that will serve as a memento of the things you loved doing back in the day. Your children and loved ones will certainly thank you for this, and they’ll still have a piece of you with them even after you have passed on.
#8 Life Insurance
If you want to leave money for your children but worry that the taxes might take a big chunk of it, life insurance is a viable option. The main purpose of applying for life insurance is to avoid your family facing financial difficulties relative to your passing.
Because of the tax-free feature of life insurance policies, it’s a great idea to set one up with your children as beneficiaries. When the time comes, and the funds are available, they will be able to receive the amount in full, and you’ll have achieved your goal of leaving something valuable for your family without any deductions.
#9 Real Estate
After working hard all your life, you may have acquired some valuable properties. These could be the best thing you could ever leave for your kids. Real estate assets are a safe investment that has historically grown throughout the years, so passing these properties down to your kids is a surefire way to protect their financial future.
Additionally, if the property or properties you leave behind are something that stores shared memories, your kids will feel more connected with this inheritance.
#10 A Business
A family business is a common asset often passed down to children as an inheritance, sometimes while parents are still alive. An established business is a great inheritance because it not only has monetary value upfront, but it’s also a source of steady income. This alone can mean your kids will be set up for life financially. When you’re no longer around to provide for them, this can be invaluable.
You should take this with a grain of salt, though, because businesses can fail as much as they can thrive, depending on how they’re managed. So, make sure that the enterprise you are leaving behind is not something that has acquired debts through the years but is profitable and will provide the children with a steady income. Teaching your kids how to run a business from an early age will prepare them for the unlikely scenario that they may need to take care of your family business soon.
#11 Brokerage Accounts
Another form of financial inheritance that is not cash but that can provide long-term value is a brokerage account. These include stocks and bonds that you can start trading while you are still alive, then delegate to your children over time as the account’s value rises.
One of the best things about having these brokerage accounts is how easily divisible they are. If you have several children to whom you want to leave the stocks, you can easily divide the assets among them.
Stocks are also easy to liquidate or convert into cash, so if your kids ever need money, they can simply sell them through the brokerage account.
#12 Quality education fund
Quality education isn’t cheap in America. Students are often caught up in student loans by the time they graduate, and rather than spending the rest of their lives doing amazing things and checking things off their bucket lists, your children might have to work for a long time to pay off those debts.
This is why educational savings plans are a great inheritance for your children. Not only will it save them from years of financial struggle, but it will also give them a chance to take on career paths they’re passionate about. In the US, you’ll find options like the 529 plan you can apply for to save up enough money for your children’s future education. Depending on which variation of the plan you get, you will have to pay varying amounts, and your children will also be entitled to an array of benefits.
The Bottom Line
Death isn’t something most people like to think about, and it’s definitely not something most people are comfortable planning for. However, putting your children’s happiness and well-being on the table puts things into perspective. This is why you must start thinking of what you’ll leave behind immediately in case of an unwanted and unexpected early departure.
These twelve inheritance ideas are just suggestions of what your kids will likely appreciate. They’ll make their lives a little easier, and once they’re mature enough to realize their true potential, they’ll be even happier to have them. Whether it is something that carries sentimental value or an actual financial asset that can be traded in exchange for cash, what matters more is the underlying intention of leaving behind something that will help them out in times of need and remind them of you always after you’re gone.
Opinions expressed by Entrepreneur contributors are their own.
Retirement savings is crucial for everyone because relying on social security is not enough to sustain yourself through your twilight years, especially considering that without any changes, the current social security system will only be able to pay benefits at 80% in 2035 and beyond. And the sooner you start, the better off you are.
It’s true that tax-deferred accounts like traditional IRAs, 401(k)s, defined contribution plans and cash balance plans allow you to save a portion of each paycheck, tax-deferred, to live on once you hit retirement age. Still, everything you’ve learned about these types of accounts is wrong. And here’s the scary part — it’s not that the people spreading incorrect information are uninformed. Many of them absolutely do know that what they’re telling investors is wrong, but they continue because they have a financial incentive to do so.
So in this article, I’m going to break down why what you know about your tax-deferred accounts is wrong and what you can do to ensure your retirement is spent living the life you love rather than struggling to make ends meet.
While most tax-deferred accounts may seem like a great thing, they actually come with a lot of severe disadvantages that adversely affect your investment and retirement goals.
You’ll face higher taxes in the future
You may get a perceived tax break right now by putting money into your tax-deferred accounts, but all you’re really doing is deferring your taxes. It’s true that this does allow you to accumulate a larger balance due to compounding, but that also means you’ll pay higher taxes when you eventually do begin withdrawing your money.
As time goes on, there’s always the risk of higher tax rates when you take distributions. This alone should make you reconsider because you could easily end up paying more tax than you would now. In many cases, your tax-deferred compounding may not make up for the higher taxation, especially in the new economy of stagflation and higher interest rates.
Most people today go through their daily lives with a false sense of security in their financial decisions. That’s both because we’ve all been misinformed by many in the financial industry and because most people have delegated their financial decisions to someone who has a vested interest in them investing in certain financial asset classes.
It’s only much later in life, near or after retirement, when most people realize that they’ve made the wrong financial decisions, and by then, it’s usually too late.
Any money you place into a tax-deferred account is locked until you reach age 59.5. This means that unless you want to pay a hefty penalty to access it earlier, you’re stuck letting Wall Street handle your funds. There’s no ability to access or use the money for a better investment opportunity that may come along.
With few and limited exceptions, if you leave the workforce before age 59.5, you can’t live off of your investments if they’re all in a tax-deferred account. A Roth IRA will let you withdraw your contributions but not your earnings, providing some flexibility with those funds.
You learn little to nothing about investing
When you put your money into these tax-deferred accounts, you’re trusting your financial future to the financial advisors and money managers who have a vested interest in you following the status quo. Essentially, they make their money by getting you to invest in certain financial instruments and have no direct responsibility or liability for actual performance.
This teaches you nothing about how to make the most of your wealth, how to use your assets to generate cash flow or how to ensure you’re making solid investments. This is, in my opinion, the biggest disadvantage that no one talks about: Abdication of your own financial future.
If you discover a fund, stock or another investment that you want to buy, but your retirement plan doesn’t offer it — you’re simply out of luck. The limited choices are meant to keep administrative expenses low, but those limitations prevent you from having full control over the growth of your assets.
Other tax benefits, such as cost segregation, depreciation and long-term capital gain lower tax rates, are void inside these tax-deferred accounts. You also lose the stepped-up basis tax mitigation allowance for assets you wish to pass to heirs, which greatly reduces the ability to create generational wealth.
Ridiculous fees and costs
The small company match in your 401(k) isn’t much more than a little bit of extra compensation. If you’re only using a 401(k) for retirement, you’re doing yourself a disservice. They’re full of fees, from plan administration fees to investment fees to service fees and more. And the smaller the company you work for, the higher these fees tend to be.
Even if your fee is just 0.5%, which is the absolute bottom of the fee range, you’re still paying far more for your 401(k) than you should, and that money could be invested in other places to help fuel your retirement growth. For example, if you’re maxing out your contributions at $19,500 per year, with an additional $3,000 in employer contributions, you’ll pay about $261,000 in fees, which translates to 9.5% of your returns.
Opting out of a 401(k) retirement plan enables you to take that 9.5% and invest it in other more effective ways that will provide a higher return. But what should you do instead?
Self-direction and Roth IRA conversion
Qualified retirement accounts not tied to an employer-based plan may be “self-directed.” This means that you, the account owner, can choose from an unlimited number of investment assets, including alternatives such as real estate. Moving such accounts from your existing custodian to one that allows for full self-direction is easy to do and should be high on consideration for those who want more control over their investments.
Roth conversions can be a great way to save money on future taxation. You can convert your traditional IRA into a Roth IRA, which means you will pay taxes on the money you convert in the year of conversion, but after conversion, your money will grow tax-free. This is a great way to save money on taxes in the long run since you won’t have to pay taxes on the money you withdraw from your Roth IRA in retirement.
Don’t forget the J-Curve strategy
The idea behind the J-Curve is that if a non-cash asset is converted from a traditional IRA to a Roth IRA and it experiences a temporary loss in market value, the tax on the asset conversion can be proportionally lowered based on the reduced asset value at the time of conversion.
This strategy is available to anyone who’s invested in stocks, bonds, mutual funds and index funds and experienced a market loss. In the alternative space, however, the decreased valuation is based on information known in advance, with a plan based on a future value add to the asset. This means that while you don’t take a realized loss over the long term, you can benefit from a paper loss to reduce your tax exposure in the short term.
The J-Curve strategy is underutilized, mainly because so few people know about it, but it can save you hundreds of thousands of dollars when properly applied.
Ignore what you’ve been taught about retirement savings
If you want to dramatically change the trajectory of your retirement and create generational wealth for your family, I have a simple piece of advice — ignore everything the financial industry has taught you about tax-deferred accounts.
Take the time to learn about investing, and avoid the traditional tax-deferred accounts like traditional IRAs, 401(k)s, defined contribution plans, and cash balance plans — instead, leverage assets like Roth IRAs and real estate, which are superior in literally every way.
My boyfriend owns a house with a 30-year mortgage balance of $150,000 on a 4% interest rate. He has $275,000 in cash and retirement accounts. He is retired.
My house is paid off. I have $50,000 in cash and retirement accounts. I would like to retire within one to two years.
We wish to cohabitate but have not been able to agree on a fair “rent” to pay. He is not willing to live in my house because it has fewer amenities.
“‘He believes I should pay half of his monthly cost at his nicer, more expensive house. He could pay off his mortgage and save $600 a month, but he likes to have cash. ‘”
He believes I should pay half of his monthly cost at his nicer, more expensive house. He could pay off his mortgage and save $600 a month, but he likes to have cash.
I have forgone that luxury and paid off my mortgage. I am now working on building my savings. I don’t feel it is fair for me to pay half of the mortgage interest expense.
I don’t know what repair and maintenance costs should be expected from me, if I have no equity in his house. There are many points of view, none of which feels fair.
These are the options he set forth:
· I live in his house and thus get to rent mine out. Pay him half of what I net from that rental.
· Pay half of the actual costs of living expenses and upkeep on his house while I live there.
· Pay him what I pay to live in my current home for taxes, insurance, and utilities: $800/month.
What say you, Moneyist?
House Owner & Girlfriend
Dear House Owner,
I’m sure your house is just as nice. And just because he believes you should pay half his costs, does not make it so. If you are paying no mortgage on your own home, I don’t believe you should pay one red cent more to live in his home.
That is to say, you should not come out of this arrangement paying more, just because (a) he would like you to live in his home and (b) he would like you to help him pay off his mortgage, or his tax and maintenance.
You both made different choices: Yours was to have a home that’s free-and-clear of a mortgage, so you can spend this time building up your savings for retirement and/or a rainy day.
You have worked hard to pay off your mortgage, and you have $50,000 in savings, less than 20% of your boyfriend’s savings. He has $150,000 left on his mortgage, and that’s his choice.
“If his aim is to find help to pay off half of his mortgage, he can find a tenant to do that for him. ”
You are not the answer to his long-term financial plans, you are his partner in life. If his aim is to find help to pay off half of his mortgage, he can find a tenant to do that for him. What do you expect of you? Forget what he expects.
By the way he is approaching this arrangement, it seems like he wants the equivalent of a detergent and a fabric softener — a girlfriend and a tenant in one handy bottle to keep his financial plans smooth and clean.
Bottom line: You should not compromise any plans to build your nest egg. The lady’s not for turning. Only acquiesce to his plan if — with the help of an actual tenant in your home — it helps you too.
In other words, the desired outcome for you is more important than the suggestions he has put forward. He could save $600 a month! That’s his business. Not yours. What do you want to have in your pocket every month?
Figure out what you want, and then work your way backwards based on that goal. For instance, if you can pay him $800 a month, charge $1,600 rent for your home, and put $800 towards your savings, do that.
You’ve come a long way. Don’t let these negotiations scupper that.
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People can contribute up to $22,500 in 401(k) accounts and $6,500 in IRAs in 2023, the IRS said Friday.
For 401(k)s, that’s an almost 10% increase from 2022’s contribution limit of $20,500. For IRAs, it’s a more than 8% rise from 2022’s limit of $6,000.
As added context, the inflation-indexed bumps tax year 2023 income tax brackets and the standard deduction worked to approximately 7%.
When the IRS increased the 401(k) contribution limits last year, it came to a roughly 5% rise.
“Given the inflation we have been experiencing recently, the early announcement of this increase is encouraging,” Rita Assaf, vice president of retirement products at Fidelity Investments, said after the IRS released the 2023 contribution limits.
Seven in 10 people are “very concerned” how inflating costs will impact their readiness for retirement according to a Fidelity study, Assaf noted. “Every dollar counts, and this increase will provide Americans with the opportunity to set aside just a bit more to help fund their retirement objectives,” she said.
Older workers can save even more
The 2023 contribution limits that apply to 401(k)s — plus 403(b) plans, most 457 plans and the federal government’s Thrift Savings Plan — are even larger for workers age 50 and over.
Catch-up contribution limits rise to $7,500 from $6,500, the IRS said. Combine the catch-up contributions with the regular contribution limits, and workers age 50 and over can sock away $30,000 for retirement in these accounts during 2023, the agency said.
Income phase-outs increase when it comes to possible deductions, credits and contributions
Tax rules can let people deduct contributions to traditional IRAs so long as they meet certain conditions, pegged to issues like coverage through a workplace retirement plan and yearly income. Above phase-out ranges, deductions don’t apply if a person or their spouse has a retirement plan through work, the IRS noted.
For 2023, a single taxpayer covered by a workplace retirement plan has a phase-out range between $73,000 and $83,000. That’s up from a range between $68,000 and $78,000 during 2022.
For a married couple filing jointly “if the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is increased to between $116,000 and $136,000,” the IRS said.
If an IRA saver doesn’t have a workplace plan but their spouse is covered, “the phase-out range is increased to between $218,000 and $228,000,” the agency noted.
There are also changes coming for the Roth IRA, which people fund with after-tax money and then can tap tax-free later.
The Roth IRA contribution limits also climb to $6,500. Retirement savers putting money in their 401(k) can’t also put pre-tax money in a traditional IRA, but they can contribute to a Roth account.
Still, the eligibility to contribute to Roth IRA accounts is pegged to income, subject to phase-out ranges.
In 2023, the income phase-out range on Roth IRA contributions climbs to between $138,000 – $153,000 for individuals and people filing as head of household. (That’s up from a range between $129,000 and $144,000, the IRS noted.)
With a married couple filing jointly, next year’s phase-out range goes to $218,00 – $228,000. That’s a step up from this year’s $204,000 – $214,000 range.
The income limit surrounding the saver’s credit, which is geared toward low- and moderate-income households, is also getting a lift. The credit lets taxpayers claim 10%, 20% or one-half of contributions to eligible retirement plans, including a 401(k) or an IRA. The credit’s income limits are climbing, the IRS said.
The 2023 income limit will be $73,000 for married couples filing jointly, $54,750 for heads of household and $36,500 for individuals and married individuals filing separately, according to the IRS.
I’ll be 57 next month and am divorced with three kids living with me. One is 28, she’s working, another is 21 and a senior in college (with a full scholarship) and the youngest is 15 (a sophomore in high school with a full scholarship).
I plan to retire at the end of next year with $25,000 in credit card debt and 15 more years to pay my mortgage. The credit cards have 0% interest. I have a good medical benefit when I retire and it will cover my two sons under 26 years old. My monthly expenses are $2,000, including life insurance, utilities, and a car payment.
My mortgage is around $4,000 monthly impounded. The interest rate is 2% until January 2022, then 3% until January 2023 and the remaining loan is 4.5%. Is it worth it to refinance to a lower rate? I also plan to just pay the principal and pay interest in December and April. I have two credit cards: one that totals $20,000, where the 0% promo ends in April 2021, and another with $4,500 where the 0% interest promo ends this December.
I work for the state and have a pension and 401(k) and 457 investments that total $110,000. I also have one month’s worth of expenses in an emergency fund. I can only apply for a loan to the retirement accounts while employed.
I would like to ask if retiring will be a good idea. If so, is it appropriate to take a loan with my investment to pay off the credit card debt before retiring? Based on our benefit, I don’t have to repay the debt (to the 401(k)) after my retirement unless I win the lottery or something. There won’t be a penalty. My annual gross income is $96,000.
I’m a cohabitant with my ex on the house but get no contribution from him at all. I am working with my lawyer to see if I have the right to kick him out of the house.
You have a lot to juggle, so the fact that you’re reaching out to someone for some financial guidance should be deemed an accomplishment all its own!
The truth is, you may want to hold off on retiring if you can. Having $110,000 in retirement accounts is great, and you don’t want to have to start dwindling that down while also trying to manage a way to effectively pay down credit card debt and a mortgage. Should an emergency arise, taking a big chunk out of that nest egg could end up hurting you significantly in the long run.
“I think she needs to take a hard look at her income and expenses,” said Tammy Wener, a financial adviser and co-founder of RW Financial Planning. “When it comes to retirement, so many things are out of your control, like inflation and investment return. The one thing you do have control over is expenses.” Furthermore, your pension may be enough to maintain your lifestyle — though advisers wondered what exactly you would be getting from that pension every month — but you would still be better off with a larger nest egg to fall back on.
Say you retire next year after all, but you still have credit card debt and hefty bills to pay. Any retirement income you have with and outside of your current funds may not be sufficient for your current living expenses, and if in a few years you realize this, you could end up back in the workforce — though it may be hard to get the same or a similar job you already have.
Let’s look at your 401(k) and 457 plans for a moment. You said you could take a loan and based on your benefit you don’t need to pay it back, but you should be extremely cautious about this. With 401(k) loans, employees may be required to repay that loan if they’re separated from their employers, so this is a stipulation you should absolutely verify. If there was any misunderstanding as to how a loan is treated, that remaining loan would be treated as taxable income when you left your job, Wener said.
Financial advisers usually caution investors not to take loans and withdrawals from retirement accounts if they can avoid it, and in your case, this may be especially true as you plan to retire in the next year. When you take a loan, you may be paying yourself and your account back, but your balance is reduced by the amount of the loan, which means you could lose out on investment returns. In the midst of this pandemic, many of the Americans who took a loan or withdrawal regret it now, a recent survey found. “I would not recommend ‘swapping debt’ by taking a loan from her investments,” said Hank Fox, a financial planner. “Instead, she should pay whatever amount is due each month to avoid the finance charges and continue to pay-down the balances.”
Also, consider what would happen if you continued to work: you’d still be able to contribute to a retirement account, boost your savings and, if applicable, reap the rewards with an employer match. You’d also narrow the amount of time you have between retirement and when you can claim Social Security benefits, Fox said.
Outside of the retirement accounts, you should try to build a “sizable” emergency fund, Wener said. Financial advisers typically suggest three to six months’ worth of living expenses, though you might want to strive for closer to six to offset any undesirable scenarios.
I’m not sure what the motivation was to retire next year, but if you can delay it, this may be the best solution. “The first thing I would recommend is that she reconsider retiring next year,” Fox said. “Since she will be 57 in November and assuming she is in good health, she should expect to be in retirement for 30 years or more.”
If postponing retirement is not an option, and it isn’t always, he suggests reducing or eliminating your mortgage, since it’s your largest expense by far. You could refinance, Wener said. Interest rates are very low these days, and while you may end up paying a little more every month for the next two years compared with that 2% rate you currently have, you’d end up paying the same and then less from February 2022 and on.
As for your credit cards, having a 0% interest rate is such a huge help in paying off debts faster, so you should try to extend that benefit, either by calling and asking about your options with your current credit card company or looking at alternative 0% interest cards.
A financial adviser — specifically, a Certified Financial Planner — could really help you crunch the numbers and find meaningful ways to make the most of the money you have now and will be getting in retirement, said Vince Clanton, principal and investment adviser representative at Chancellor Wealth Management.
An adviser can gather information on your current earnings and expenses, retirement savings, potential Social Security benefits and pension and create a financial plan to help you navigate retirement. “Voluntary retirement, and particularly early retirement, are very big decisions,” Clanton said. “It’s extremely important to know and understand all of the variables.”
Most financial planners advise young people to start saving early — and often — for retirement so they can take advantage of the so-called eighth wonder of the world – the power of compound interest.
And many advisers routinely urge those entering the workforce to contribute to their 401(k), especially when their employer is matching some portion of the amount the worker is contributing. The matching contribution is – essentially – free money.
New research, however, indicates that many young people should not save for retirement.
The reason has to do with something called the life-cycle model, which suggests that rational individuals allocate resources over their lifetimes with the aim of avoiding sharp changes in their standard of living.
Put another way, individuals, according to the model which dates back to economists Franco Modigliani, a Nobel Prize winner, and Richard Brumberg in the early 1950s, seek to smooth what economists call their consumption, or what normal people call their spending.
According to the model, young workers with low income dissave; middle-aged workers save a lot; and retirees spend down their savings.
Source: Bogleheads.org
The just-published research examines the life-cycle model even further by looking at high- and low-income workers, as well as whether young workers should be automatically enrolled in 401(k) plans. What the researchers found is this:
1. High-income workers tend to experience wage growth over their careers. And that’s the primary reason why they should wait to save. “For these workers, maintaining as steady a standard of living as possible therefore requires spending all income while young and only starting to save for retirement during middle age,” wrote Jason Scott, the managing director of J.S. Retirement Consulting; John Shoven, an economics professor at Stanford University; Sita Slavov, a public policy professor at George Mason University; and John Watson, a lecturer in management at the Stanford Graduate School of Business.
2. Low-income workers, whose wage profiles tend to be flatter, receive high Social Security replacement rates, making optimal saving rates very low.
Middle-aged workers will need to save more later
In an interview, Scott discussed what some might view as a contrary-to-conventional wisdom approach to saving for retirement.
Why does one save for retirement? In essence, Scott said, it’s because you want to have the same standard of living when you’re not working as you did while you were working.
“The economic model would suggest ‘Hey, it’s not smart to live really high in the years when you’re working and really low when you’re retired,’” he said. “And so, you try to smooth that out. You want to save when you have relatively high income to support yourself when you have relatively low income. That’s really the core of the life-cycle model.”
But why would you spend all your income when you’re young and not save?
“In the life-cycle model, we are assuming you are getting the absolute most happiness you can out of income each year,” said Scott. “In other words, you are doing your best at age 25 with $25,000, and there is no way to live ‘cheaply’ and do better,” he said. “We also assume a given amount of money is more valuable to you when you are poor compared to when you are wealthy.” (Meaning $1,000 means a lot more at 25 than at 45.)
Scott also said that young workers might also consider securing a mortgage to buy a house rather than save for retirement. The reasons? You’re borrowing against future earnings to help that consumption, plus, you’re building equity that could be used to fund future consumption, he said.
Are young workers squandering the advantage of time?
Many institutions and advisers recommend just the opposite of what the life-cycle model suggests. They recommend that workers should have a certain amount of their salary salted away for retirement at certain ages in order to fund their desired standard of living in retirement. T. Rowe Price, for instance, suggests that a 30-year-old should have half their salary saved for retirement; a 40-year-old should have 1.5 times to 2 times their salary saved; a 50-year-old should have 3 times to 5.5 times their salary saved; and a 65-year-old should have 7 times to 13.5 times their salary saved.
Scott doesn’t disagree that workers should have savings benchmarks as a multiple of income. But he said a high-income worker who waits until middle age to save for retirement can easily reach the later-age benchmarks. “Savings for retirement probably is more in the zero range until 35 or so,” Scott said. “And then it is probably faster after that because you want to accumulate the same amount.”
Plus, he noted, the home equity a worker has could count toward the savings benchmark as well.
So, what about all the experts who say young people are best positioned to save because they have such a long timeline? Aren’t young workers just squandering that advantage?
Not necessarily, said Scott.
“First: saving earns interest, so you have more in the future,” he said. “However, in economics, we assume that people prefer money today compared to money in the future. Sometimes this is called a time discount. These effects offset each other, so it depends on the situation as to which is more significant. Given interest rates are so low, we generally think time discounts exceed interest rates.”
And second, Scott said, “early saving could have a benefit from the power of compounding, but the power of compounding is certainly irrelevant when after-inflation interest rates are 0% – as they have been for years.”
In essence, Scott said, the current environment makes a front-loaded lifetime spending profile optimal.
Low-income workers don’t need to save either
As for those with low income, say in the 25th percentile, Scott said it’s less about the “income ramp that really moves saving” and more that Social Security is extremely progressive; it replaces a large percentage of one’s preretirement income. “The natural need to save is not there when Social Security replaces 70, 80, 90% (of one’s preretirement income),” he said.
In essence, the more Social Security replaces of your preretirement income, the less you’ll need to save. The Social Security Administration and others are currently researching what percent of preretirement income Social Security replaces by income quintile, but previously published research from 2014 shows that Social Security represented nearly 84% of the lowest income quintile’s family income in retirement while it only represented about 16% of the highest income quintile’s family income in retirement.
Source: Social Security Administration
Is it worth auto-enrolling young workers in a 401(k) plan?
Scott and his co-authors also show that the “welfare costs” of automatically enrolling younger workers in defined-contribution plans—if they are passive savers who do not opt-out immediately—can be substantial, even with employer matching. “If saving is suboptimal, saving by default creates welfare costs; you’re doing the wrong thing for this population,” he said.
Welfare costs, according to Scott, are the costs of taking an action compared to the best possible action. “For example, suppose you wanted to go to restaurant A, but you were forced to go to restaurant B,” he said. “You would have suffered a welfare loss.”
In fact, Scott said young workers who are automatically enrolled into their 401(k) might consider when they’re in their early 30s taking the money out of their retirement plan, paying whatever penalty and taxes they might incur, and use the money to improve their standard of living.
“It’s optimal for them to take the money and use it to improve their spending,” said Scott. “It would be better if there weren’t penalties.”
Why is this so? “If I didn’t understand that I was being defaulted into a 401(k) plan, and I didn’t want to save, then I suffered a welfare loss,” said Scott. “We assume people figure out after five years that they were defaulted. At that point, they want their money out of the 401(k), and they are optimally willing to pay the 10% penalty to get their money out.”
Scott and his colleagues assessed welfare costs by figuring out how much they have to compensate young workers at that five-year point so that they are OK with having been inappropriately forced to save. Of course, the welfare costs would be lower if they didn’t have to pay the penalty to cash out their 401(k).
And what about workers who are automatically enrolled in a 401(k)? Are they not creating a savings habit?
Not necessarily. “The person who is confused and defaulted doesn’t really know it’s happening,” said Scott. “Maybe they’re getting a savings habit. They’re certainly living without the money.”
Scott also addressed the notion of giving up free money – the employer match — by not saving for retirement in an employer-sponsored retirement plan. For young workers, he said the match isn’t enough to overcome the cost of, say, five years of below-optimal spending. “If you think it’s for retirement, the match-improved benefit in retirement doesn’t overcome the cost of losing money when you’re poor,” said Scott. “I’m simply noting that if you are not consciously making the choice to save, it is hard to argue you are making a saving habit. You did figure out how to live on less, but in this case, you did not want to, nor do you intend to continue saving.”
The research raises questions and risks that must be addressed
There are plenty of questions the research raises. For instance, many experts say it’s a good idea to get in the habit of saving, to pay yourself first. Scott doesn’t disagree. For instance, a person might save to build an emergency fund or a down payment on a house.
As for the folks who might say you’re losing the power of compounding, Scott had this to say: “I think the power of compounding is challenged when real interest rates are 0%.” Of course, one could earn more than 0% real interest but that would mean taking on additional risk.
“The principle is about, ‘Should you save when you are relatively poor so you can have more when you are relatively rich?’ The life-cycle model says, ‘No way.’ This is independent of how you invest money between time periods,” Scott said. “For investing, our model does look at riskless interest rates. We argue that investment expected returns and risks are in equilibrium, so the core result is unlikely to change by introducing risky investments. However, it is definitely a limitation of our approach.”
Scott agreed there are risks to be acknowledged, as well. It’s possible, for instance, that Social Security, because of cuts to benefits, might not replace a low-income worker’s preretirement salary as much as it does now. And it’s possible that a worker might not experience high wage growth. What about people having to buy into the life-cycle model?
“You don’t have to buy into all of it,” said Scott. “You have to buy into this notion: You want to save when you’re relatively rich in order to spend when you’re relatively poor.”
So, isn’t this a big assumption to make about people’s career/pay trajectory?
“We consider relatively rich wage profiles and relatively poor wage profiles,” said Scott. “Both suggest young people should not save for retirement. I think the vast majority of median wage or higher workers experience a wage increase over their first 20 years of working. However, there is certainly risk in wages. I think you could rightly argue that young people might want to save some as a precaution against unexpected wage declines. However, this would not be saving for retirement.”
So, should you wait to save for retirement until you’re in your mid-30s? Well, if you subscribe to the life-cycle model, sure, why not? But if you subscribe to conventional wisdom, know that consumption might be lower in your younger years than it needs to be.
This week Freddie Mac said the average interest rate on a 30-year mortgage loan in the U.S. had climbed to 6.70% from 6.29% the week before and 6.02% two weeks ago. The average rate a year ago was 3.01%.
Would-be sellers who have low-rate mortgage loans are reluctant if it means they need to take out a new loan to fund their next home. Would-be buyers are forced out of the market, as the monthly principal and interest payment for a new 30-year loan, based on Freddie Mac’s figures, has increased 53% from a year ago.
Home-sale contracts are being canceled at a record pace in some areas.
The dollar has strengthened as the Federal Reserve has taken the lead among central banks in raising interest rates. This is reverberating across the world, making it more costly for countries to make interest payments on dollar-denominated debt and increasing the cost of any commodity traded in dollars.
The rising dollar lowers prices on imported goods for Americans and can also lower their international travel costs. But Michael Wilson, Morgan Stanley’s chief equity strategist, warns that earnings for the S&P 500 SPX, -1.51%
would decline as a direct result of the strong dollar and called the current foreign-exchange backdrop an “untenable situation” for the stock market.
This is what happens when bearish sentiment runs high
Michael Brush interviews David Baron, co-manager of the Baron Focused Growth Fund BFGFX, -0.76%,
who describes opportunities cropping up as institutional investors dump stocks. He also explains his winning long-term strategy, which has included a very long-term investment in Tesla Inc. TSLA, -1.10%.
When interest rates rise, bond prices fall. But it also means that if you have money to put to work, bond yields have become much more attractive.
Khuram Chaudhry, a European equity quantitative strategist at JPMorgan in London, makes the case for buying bonds now.
What about preferred stocks?
Getty Images/iStockphoto
Preferred stocks feature stated dividend yields and prices that move the same way bond prices do. That means prices for many issues are now heavily discounted to face value and that current yields are much higher than they were at the end of 2021. Here’s an in-depth guide on how to research preferred stocks and make your own selections.
Stanley Druckenmiller predicted a “hard landing” in 2023 for the U.S. economy while speaking at CNBC’s Delivering Alpha Investor Summit on Sept. 28.
Bloomberg
Stanley Druckenmiller predicted a U.S. recession in 2023 as a result of monetary policy tightening by the Federal Reserve. That may not be much of a stretch, considering that the U.S. economy contracted during the first half of 2022, according to revised GDP figures from the Bureau of Economic Analysis.
After the new U.K. government of Prime Minister Liz Truss announced a massive tax cut along with a new spending program to help counter rising fuel costs and new borrowing, the pound hit a new low against the dollar on Sept. 26 as investors and money managers panicked and sold-off U.K. government bonds. Steve Goldstein explains how and why the Bank of England came tot the rescue.
After Tesla CEO Elon Musk said the upcoming Cybertruck would be sufficiently waterproof to “serve briefly as a boat,” the San Francisco Bay Ferry offered this advice to patrons.
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NEW YORK, April 21, 2022 (Newswire.com)
– Zoe, a wealth platform that connects potential clients with the best-suited advisors to build and grow their wealth, announced its partnership with Hiley Hunt Wealth Management.
Hiley Hunt Wealth Management was founded by Jason Hiley, CFP®, and Andrew Hunt, CFP®, in 2012. Jason and Andrew founded the firm to help women and family stewards achieve their lifelong dreams through prudent wealth management. Their inspiring mission comes from Jason’s own life story. Growing up, Jason observed the unique financial challenges that widows, like his mom, often face. As a result, their firm works with female breadwinners and business leaders, divorcees, and widows. They are known for working collaboratively with their clients to define their values, develop their goals, and create unique plans to position them for success. The firm currently manages $165 million in Assets under Management.
Zoe, recently recognized as one of Fast Company’s most innovative companies, accepts only the top Registered Investment Advisors (RIAs) into its Advisor Network. After vetting Hiley Hunt Wealth Management, Zoe recognized the firm as one of the top 5% of RIAs nationwide. Clients can connect with Hiley Hunt advisors through the Zoe Platform, thanks to the partnership.
“Part of what makes the role of wealth advisors so challenging is the great responsibility their job entails. Not just because of the amount of money they manage on their clients’ behalf, but because of the impact the plans they make may have on people’s lives. Hiley Hunt Wealth Management advisors understand this, which makes them the right partner to have in our exclusive Advisor Network,” said Andres Garcia-Amaya, CFA®, Zoe’s Founder & CEO. “They recognize wealth management as the convergence point where money and values meet,” he added.
Hiley Hunt’s philosophy is that the true measure of wealth is not the sum of one’s financial assets, but the life experiences made possible by those assets. They leverage their expertise and many years of experience to help widows, divorcees, and family stewards make the right financial decisions to increase the value of their wealth. As a fee-only wealth management firm, Hiley Hunt prioritizes transparency throughout the wealth planning process. Under this fee structure, their advisors are compensated solely by the client instead of receiving third-party commissions for selling products.
“Partnering with Zoe was a strategic decision. We like working with people we trust and who are as invested as we are in helping female clients achieve what they dream and deserve,” said Jason Hiley, CFP®, Partner & Co-Founder at Hiley Hunt Wealth Management.
Andrew Hunt, CFP®, Partner & Co-Founder at Hiley Hunt Wealth Management, also referred to the partnership: “We want every single one of our clients to feel peace of mind. This is why our partnership with Zoe makes sense. We want to continue helping more clients nationwide build towards a better future,” he said.
Zoe was founded with one mission: to accelerate wealth creation through exceptional client experience and innovative technology. The company’s human experts, alongside powerful technology, remove the friction from the process of finding and hiring a financial advisor. Through Zoe’s Platform, you will be matched with Zoe-Certified Financial Advisors across the United States, based on your unique financial situation and objectives. Zoe’s thoughtfully curated Network of interest-aligned financial advisors includes only the top 5% in the country.
Money manager Matt Patsky stood at the window of his hotel on the Portuguese island of São Miguel in March last year, looking out over the Atlantic, and thought: I’m not sure we can retire here after all.
He told his husband, “I don’t know [if] we could live here. It looks like the people are crazy. There are people going in the water, swimming in the ocean. How crazy do you have to be to go swimming in the Atlantic in March?”
Patsky, 56, mentioned this to a local real-estate agent later that day. The man didn’t understand the issue. The water, he said, was probably no cooler than 65 degrees.
How these Americans save money in retirement: They live in Spain
As Boston-based Patsky adds: In New England you’re lucky if the water gets that warm in August.
It’s “one of the great selling points of the Azores,” he says. “It is rarely below 60. It is rarely above 80. And the water temperature tends to be steady between 65 and 75 degrees.”
Patsky says he and his husband, a retired businessman who’s 66, are “80%” sure they are going to live outside the United States when they retire. They are tired especially of the politics and the racial tensions.
The No. 1 thing that attracted them to the Azores — which lie barely more than twice as far from Boston as from Lisbon — wasn’t the weather. It was the emigration.
Portugal, they discovered, offers the all-round fastest, cheapest, easiest way to get a so-called golden visa, putting the recipient on a fast track to permanent residence and citizenship.
You have to have means, but this is not purely for Rockefellers. If you want to get Portuguese residency, and a passport, you need to buy a home in the country and generally to put at least some money into fixing it up, and spend at least seven days a year in the country for the next five years.
After six months, you get a residency card. After five years, a passport.
The threshold prices vary, depending on the type of home you buy and where you buy it, but they start at €280,000 (about $310,000).
As part of the deal, says Patsky, you have to buy the home with cash. You can’t take out a Portuguese mortgage. But you can always raise the cash by remortgaging a U.S. home. The money thresholds are lower than in many other countries. And the seven-day requirement lets Patsky continue his job in Boston, as the CEO of socially responsible investing company Trillium, during the five years.
Europe is by far the most popular destination by continent, with about a quarter of a million U.S. retirees, based on Social Security direct deposits. That includes nearly 13,000 in Portugal.
“Portugal has been so welcoming to the LGBT community, that you are seeing a huge number of LGBT couples looking at Portugal,” reports Patsky. On their trips to the Azores, Patsky says he and his husband have been bumping into other LGBT couples from the U.S. looking at golden visas as well.
On a recent trip they overheard four American women at the next table in a restaurant. It was “two lesbian couples from Philadelphia, looking at the ‘golden visa’ and looking at property in the Azores. We ended up sitting with them with my iPad open looking at property.”
You can see the islands’ attraction. There are regular flights from various North American and European cities, Patsky says. “It’s a 4½-hour flight from Boston, and, because of our large Azorean population [in New England], there are actually daily flights,” he says.
Pretty much everyone on the island speaks some English, which is taught in schools as a compulsory second language.
“It’s like living in a Portuguese fishing village,” Patsky says of Ponta Delgada, the main city on São Miguel. “It has a lot of the same feel as Provincetown [on Cape Cod], in terms of being a fishing village. It’s quaint.” The population is about 70,000. “It’s a good size, and it’s got a very vibrant economy.”
Thanks to some spectacular cliffs, São Miguel — one of the nine islands that the Azores comprise — has hosted the Red Bull World Cliff Diving World Series on several occasions, including last year.
Patsky and his husband love the island’s natural beauty. “January, we were swimming, we were at the hot springs. Incredible. This really is nice weather year round. There is no traffic. There is no rush hour.” The longest distance you could drive on the island, from one point to another, would take you an hour, he says.
And unlike in Boston, he adds with a laugh, you don’t see snow.
Both members of the couple are equally eager to retire abroad, Patsky says, in no small part to flee America’s rising racial tensions and poisonous politics. Last year Patsky’s husband, originally from the Philippines, was run over at a pedestrian crossing in Boston, Patsky recalls, and was left lying on the pavement with multiple fractures. When a policeman arrived at the scene, he asked the prone 65-year-old for his Social Security number to determine whether he was in the U.S. illegally, Patsky says.
“My husband and I want to make sure that our retirement is spent in a country that respects the dignity of every person,” Patsky says, “and that treats access to health care as a human right.” Portugal has a public health service, modeled after Britain’s National Health Service, which is available to all residents.
They are hardly alone in looking at the Azores. This is starting to turn into a well-trodden exit route. “There are hotel chains that are selling villas at exactly the price point you need to get the golden visa,” Patsky says. They’ll even rent the villa out for you to tourists, to generate income, and say they’ll buy it back after the five years are up.
Patsky says the couple won’t be moving for at least five years. Patsky’s remaining at the helm of Trillium following its takeover by Australia’s Perpetual Ltd. PPT, -1.13%.
He says one of the key appeals of Portugal’s visa program is that he can carry on working full time in the U.S. while at the same time completing the steps needed to get his Portuguese passport.
Naturally, there are forms to fill out. You’ll need the usual financial and employment records. You’ll also need an FBI report to prove you have a clean rap sheet. (Pro tip from Patsky: Don’t get your fingerprints done at the police station on card. Get them done electronically at the post office and apply online. It will save you weeks.)
As for that major retirement headache, health care, you will need to prove you have health insurance in your home country every year during the initial five years, Patsky says. Medicare counts.
And when you finally retire to the country full time? After your five-year period you’ll have a Portuguese passport. And that means an EU passport. And so you can move anywhere in the EU, including those places with the most lavish, generous public health insurance.
“You can pick wherever you want to retire because it’s the EU,” Patsky says.
NEW YORK, April 12, 2022 (Newswire.com)
– Zoe, a leading wealth platform recently recognized as one of Fast Company’s most innovative companies globally, announced their ongoing partnership with nationally ranked JNBA Financial Advisors. The Minneapolis-based firm qualified for and passed Zoe’s rigorous due diligence process as one of the country’s top five percent advisory firms, allowing clients to connect with JNBA advisors through the Zoe Platform.
Founded over 40 years ago with a mission to help guide people through life’s most important decisions, JNBA’s advisory team puts clients first by delivering customized financial life planning and investment strategies that help maximize their resources. The independent firm currently manages $1.4 billion in investable assets for nearly 1,000 clients and has maintained a 97% client retention rate since it began tracking in 2001.
The fee-only firm has received industry recognition, most recently CEO Richard S. Brown and JNBA being ranked by Barron’s as the top financial advisor in Minnesota for the second year in a row. This was in addition to being named to Barron’s Top 100 Independent Advisors in the country for the past seven consecutive years.
“Wealth advice should come from professionals who truly know you. Forming a deep understanding of a person’s pain points, passions, principles, and pursuits is the first and most important way to set a solid foundation for quality advice. JNBA has kept this at the core of their advice-driven by advocacy® approach for over four decades, which is why we partnered with them and are confident when connecting our clients with their advisors,” said Andres Garcia-Amaya, CFA®, Zoe’s Founder & CEO. “They strive to not only be financial advisors; they seek to be their clients’ financial advocates. This mindset translates into wealth advisors who are devoted to the clients’ best interests at all times, consistently striving to find ways to use wealth as a tool to improve overall well-being.”
JNBA Financial Advisors leverages a team approach, reviewing client portfolios every 10 business days and driving the planning process, including strategy development and implementation with estate, tax, and risk professionals as appropriate. To help create a customized and integrated experience, each client works with a dedicated advisory team composed of professionals with diverse backgrounds and expertise. JNBA’s guidance can cover all the aspects of a person’s financial life, including estate and legacy planning, investment and risk management, retirement planning, and ESG investing.
“More and more, individuals and families are turning to online tools and resources to help find the right financial advisory team for their unique situation. We understand the positive impact forming a long-term relationship with a financial advisor can have on an individual and family’s life. Our partnership with Zoe supports that philosophy and has allowed us to meet clients nationwide,” said Kim Brown, President of JNBA Financial Advisors.
Zoe was founded with one mission: to accelerate wealth creation through exceptional client experience and innovative technology. The company’s human experts, alongside powerful technology, remove the friction from the process of finding and hiring a financial advisor. Through Zoe’s Platform, you will be matched with Zoe-Certified Financial Advisors across the United States, based on your unique financial situation and objectives. Zoe’s thoughtfully curated Network of interest-aligned financial advisors includes only the top 5% in the country.
*As seen in the 2/22/10, 2/21/11, 2/20/12, 2/18/13, 2/24/14, 2/23/15, 8/24/15, 3/7/16, 8/29/16, 3/6/17, 9/18/17, 3/12/18, 9/17/18, 3/11/19, 9/16/19, 3/16/20, 9/14/20, 3/15/21, 9/20/21, & 3/14/22 issues of Barron’s magazine. Barron’s is a trademark of Dow Jones & Company, Inc. All Rights Reserved. Please Note: Limitations: Neither rankings and/or recognitions by unaffiliated rating services, publications, media, or other organizations, nor the achievement of any professional designation, certification, degree, or license, membership in any professional organization, or any amount of prior experience or success, should be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if JNBA is engaged, or continues to be engaged, to provide investment advisory services. Rankings published by magazines, and others, generally base their selections exclusively on information prepared and/or submitted by the recognized adviser. Rankings are generally limited to participating advisers (see link as to participation criteria/methodology, to the extent applicable). Unless expressly indicated to the contrary, JNBA did not pay a fee to be included on any such ranking. No ranking or recognition should be construed as a current or past endorsement of JNBA by any of its clients. ANY QUESTIONS: JNBA’s Chief Compliance Officer remains available to address any questions regarding rankings and/or recognitions, including the criteria used for any reflected ranking. Please see important disclosures information at www.jnba.com/disclosure
NEW YORK, October 13, 2020 (Newswire.com)
– Well-planned financial goals, whether they’re for the next week or 5 years from now, are integral to a person’s financial growth. These goals are what drive us to make savings plans, budget, and investment strategies in order to reach them. Without a proper plan in place, achieving these goals is nearly impossible. This is especially true when it comes to retirement planning. Zoe Financial understands that a comfortable retirement is one of the top financial goals a person will have in their lifetime.
Everyone’s retirement plan will differ depending on their financial situation, age, and goals. For instance, retirement planning for small business owners will be much different than employees of big corporations. Since business owners won’t have as much access to traditional retirement accounts, they should familiarize themselves with the different options available. It’s essential to choose the retirement account that’s best for their unique situation.
What are the different retirement plans available for small business owners?
Each business owner’s situation is different. To better understand which retirement plan is ideal for each situation, it’s important to consider every option. These are the 5 main retirement plan options for those that are self-employed:
1. Traditional or Roth IRA
Individual Retirement Accounts (IRAs) are best for new business owners who don’t plan on saving more than $6,000 a year. In a Traditional IRA, individuals can contribute pre-taxed dollars. The money then grows tax-free and is taxed as income after the age of 59 1/2. Roth IRAs, on the other hand, contain taxed dollars that are able to grow tax-free in the account. They can then be withdrawn tax-free after the age of 59 1/2.
2. SEP IRA
Simplified Employee Pension Plans allow business owners to contribute to traditional IRAs (SEP-IRAs) that have been set up for their employees. This type of retirement account is ideal for business owners with few to no employees. An SEP IRA is similar to a traditional Roth IRA, except the owner can make larger contributions; up to 25% of an employees compensation.
3. SIMPLE IRA
A Savings Incentive Match Plan for Employees (SIMPLE) plan is beneficial for large business owners who have up to 100 employees. SIMPLE Plan contributions are made to an employees traditional IRA account. Contributions to employee’s SIMPLE IRA accounts are deductible as a business expense.
4. Defined-Benefit Plan
A Defined-Benefit Plan is beneficial for self-employed people with high income and no employees. Employee benefits within a Defined-Benefit Plan are calculated by taking into account several factors, such as employment length and salary history.Employees become eligible to withdraw defined-benefit plan funds as a lifetime annuity or in some cases as a lump-sum at an age defined by the plan’s parameters. A business is responsible for managing the plan’s investments, unless they hire an outside wealth manager to take on the task.
5. Solo 401(k)
A Solo 401(k) is best for business owners with no employees, not including their spouse. Business owners can contribute to this account both as an employee and an employer, therefore maximizing retirement contributions.
What is the best retirement plan if you are self-employed?
All of the accounts listed above can be great options depending on the dynamic of the individual’s business. One of the best options for small business owners is the solo 401(k). This account offers many advantages over other retirement accounts, such as high contribution limits.
The other advantage is increased flexibility for an account owner regarding when they want to be taxed. Contributions made as an employer will be tax-deductible to the business. The money inside the account will then grow tax-free until it’s withdrawn. Employee contributions, alternatively, have a different set of rules. When the business owner makes a contribution as an employee, their taxable income for the year is typically reduced. These contributions can then grow tax-deferred and be taxed as ordinary income when they’re withdrawn during retirement.
How much can I contribute to my 401(k) if I’m self-employed?
As stated above, individual 401(k) plans have high contribution limits. This is because it allows individuals to make contributions as employees, as well as employers. As of 2020, contributions made as an employee cannot exceed $19,500 for anyone under 50 years old. Those that are 50 or older can contribute $26,000. Contributions made as an employer, though, allow the business owner to add 25% of their compensation from the business to this account. The yearly limit to this amount is $57,000, or $63,500 for individuals 50 or older.
Planning for Retirement with Zoe Financial
A comfortable retirement should be a goal for all business owners, whether you’re just getting started or quickly approaching retirement. Advisors in the Zoe Financial network help their clients build a large enough “nest egg” so they can save and retire comfortably, in line with their financial goals.
Zoe Financial helps small business owners plan for retirement by connecting them with top financial advisors. Since every situation is different, Zoe Financial takes the entirety of a business owner’s financial life into account during the matching process. Financial advisors in the Zoe Network are adept at helping clients choose retirement accounts that are ideal for their specific situation.
About Zoe Financial
Zoe Financial’s award-winning algorithm enables individuals to discover and connect with highly vetted, top fiduciary advisors in their area. All financial advisors in the Zoe Network are vetted and verified fiduciaries, along with having top credentials, education, and experience. Zoe’s service provides support from start to finish during an individual’s financial advisor search. All consultation calls and interviews with Zoe’s network of advisors are completely free and are offered via video chat or traditional phone call depending on an individual’s preference.
LEXINGTON, Va., February 11, 2019 (Newswire.com)
– Kendal at Lexington has been awarded two new industry-leading, five-year accreditations for its Shenandoah Valley Life Plan Community,
The 18-year old Life Plan Community and comprehensive care campus reached the high level of achievement required to be recognized by the Commission on Accreditation of Rehabilitation Facilities (CARF) as both a “Person Centered Long Term Care Community” and a “Person Centered Long-Term Care Community with a Dementia Care Specialty.”
Kendal at Lexington scored exceptionally well on the performance benchmark assessment, achieving a perfect score in 24 out of 26 measured categories including Stakeholder Satisfaction, Health and Safety, Strategic Planning, Risk Management, Technology, Financial Planning and Management, Accessibility and Rights of Persons Served.
CARF Reviewers identified nine areas of distinct strength including “Strong and Stable Financial Performance,” “Comprehensive and Thorough Risk Management,” “Strong Leadership Team” and a “Remarkably Robust Dementia Care Program.”
Community residents also communicated high levels of satisfaction; citing they felt “empowered and engaged.”
“In Kendal’s earlier days, as a resident and later board member, I spent many hours working with staff towards the goal of achieving our first CARF accreditation,” Kendal at Lexington resident Ruth Woodcock said. “Great was our satisfaction when we received it. Now, I am so happy and proud that we have been accredited for the third time.”
Kendal at Lexington’s strong leadership team and highly engaged board of directors also received exemplary scores during the extensive CARF accreditation process.
“At Kendal, a CARF accreditation is also a manifestation of our culture,” Sean Kelly, president and CEO of The Kendal Corporation said. “The process demands evidence of the deployment of best practices. It’s a process that is fueled by inclusion and teamwork and exemplifies an intention to continuously improve.”
To merit a Life Plan Community accreditation such as the one Kendal at Lexington just received, organizations must aspire to meet about 1,200 standards, which are reviewed annually and are updated and revised as appropriate. Main areas of evaluation include “Care Process for Persons Served,” “Aspire to Excellence” and “Specialty Population Designations.”
The CARF accreditation process starts with a provider’s commitment to continuous improvement and culminates with an external review and recognition that the provider’s business and service practices meet international standards of quality.
“We are an organization intent on the continuous pursuit of identifying and implementing ways to improve the quality of life for our residents,” Executive Director Mina Tepper added. “We are proud when Kendal communities achieve their accreditation goals and really grateful for the significant effort and teamwork (among staff and residents) that helps it happen.”
Kendal at Lexington
Kendal at Lexington is a CARF-accredited, not-for-profit Life Plan Retirement Community located in the heart of the Shenandoah Valley. The 85-acre campus sits just one mile from Main Street in beautiful Lexington, Virginia, and features a farmland setting with panoramic views of the Blue Ridge Mountains. Known for its celebration of lifelong learning, engaged residents and Quaker values, the Kendal at Lexington community offers high-quality independent living cottages, assisted living and skilled nursing care. In 2018, Kendal at Lexington began construction on a much-anticipated $40 million campus upgrade and expansion program designed to enhance on-campus care capabilities at the Borden Health Center and the Webster Assisted Living Center, expand the Anderson Dining Room and add 30 new independent living cottages to the community. This project is scheduled to be substantially complete at the beginning of 2020.
