THE FINANCIAL FOCUS

25 February 2022

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Watch for changes in RMDs

By Michael Vondra

If you’re a certain age, you’ll need to withdraw money from some of your retirement accounts each year. But in 2022, the amount you must take out may be changing more than in other years – and that could affect your retirement income strategy.

Here’s some background: Once you turn 72, you generally must start taking withdrawals, called required minimum distributions, or RMDs, from some of your retirement accounts, such as your traditional IRA and your 401(k) or similar employer-sponsored plan. Each year, your RMDs are determined by your age and account balances. This year, the life expectancy tables used by the IRSare being updated to reflect longer lifespans. This may result in lower annual RMDsthan you’d have to take if this adjustment hadn’t been made.

If you’ve started taking RMDs, what does this change mean to you? It can be a positive development, for a few reasons:

• Potentially lower taxes – Your RMDs are generally taxable at your personal income tax rate, so the lower your RMDs, the lower your tax bill might be.

• Possibly longer “lifespan” for retirement accounts – Because your RMDs will be lower, the accounts from which they’re issued – including your traditional IRA and 401(k) – may be able to last longer without becoming depleted. The longer these accounts can stay intact and remain an asset, the better for you.

• More flexibility in planning for retirement income – The word “required” in the phrase “required minimum distributions” means exactly what it sounds like – you must take at least that amount. If you withdraw less than your RMD, the amount not withdrawn will be taxed at 50%. So, in one sense, your RMDs take away some of your freedom in managing your retirement income. But now, with the lower RMDs in place, you may regain some of this flexibility. (And keep in mind that you’re always free to withdraw more than the RMDs.)

Of course, if you don’t really need all the money from RMDs, even the lower amount may be an issue for you – as mentioned above, RMDs are generally taxable. However, if you’re 70½ or older, you can transfer up to $100,000 per year from a traditional IRA directly to a qualified charitable organization, and some, or perhaps all, of this money may come from your RMDs. By making this move, you can exclude the RMDs from your taxable income. Before taking this action, though, you’ll want to consult with your tax advisor.

Here are a couple of final points to keep in mind. First, not all your retirement accounts are subject to RMDs – you cangenerally keep your Roth IRA intact for as long as you want. However, your Roth 401(k) is generally subject to RMDs.If you’re still working past 72, though, you may be able to avoid taking RMDs from your current employer’s 401(k) or similar plan, though you’ll still have to take them from your traditional IRA.

Changes to the RMD rules don’t happen too often. By being aware of how these new, lower RMDs can benefit you, and becoming familiar with all aspects of RMDs, you may be able to strengthen your overall retirement income situation.

Michael A Vondra

Certified Financial Planner Practitioner

Edward Jones

24 September 2021

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By Michael Vondra, Edward Jones

Start thinking about your retirement income plan

If you’re getting close to retirement, you’re probably thinking about the ways your life will soon be changing. And one key transition involves your income – instead of being able to count on a regular paycheck, as you’ve done for decades, you’ll now need to put together an income stream on your own. How can you get started?

It’s helpful that you begin thinking about retirement income well before you actually retire. Many people don’t – in fact, 61% of retirees wish they had done better at planning for the financial aspects of their retirement, according to an Edward Jones/Age Wave study titled Retirement in the Time of Coronavirus: What a Difference a Year Makes.

Fortunately, there’s much you can do to create and manage your retirement income. Here are a few suggestions:

• Consider ways to boost income. As you approach retirement, you’ll want to explore ways of potentially boosting your income. Can you afford to delay taking Social Security so your monthly checks will be bigger? Can you increase your contributions to your 401(k) or similar employer-sponsored retirement plan, including taking advantage of catch-up contributions if you’re age 50 or older? Should you consider adding products that can provide you with an income stream that can potentially last your lifetime?

• Calculate your expenses. How much money will you need each year during your retirement? The answer depends somewhat on your goals. For example, if you plan to travel extensively, you may need more income than someone who stays close to home. And no matter how you plan to spend your days in retirement, you’ll need to budget for health care expenses. Many people underestimate what they’ll need, but these costs can easily add up to several thousand dollars a year, even with Medicare.

• Review your investment mix. It’s always a good idea to review your investment mix at least once a year to ensure it’s still appropriate for your needs. But it’s especially important to analyze your investments in the years immediately preceding your retirement. At this point, you may need to adjust the mix to lower the risk level. However, you probably won’t want to sell all your growth-oriented investments and replace them with more conservative ones – even during retirement, you’ll likely need some growth potential in your portfolio to help you stay ahead of inflation.

• Create a sustainable withdrawal rate. Once you’re retired, you will likely need to start taking money from your IRA and 401(k) or similar plan. But it’s important not to take too much out in your early years as a retiree, since you don’t want to risk outliving your income. A financial professional can help you create a sustainable withdrawal rate based on your age, level of assets, family situation and other factors.

By planning ahead, and making the right moves, you can boost your confidence in your ability to maintain enough income to last throughout your retirement. And with a sense of financial security, you’ll be freer to enjoy an active lifestyle during your years as a retiree.

Michael A Vondra

Certified Financial Planner Practitioner

Edward Jones

22 August 2021

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By Michael Vondra

Bitcoin: Investing or speculating?

Many people have decided that bitcoin is the next big thing – and they are backing up their enthusiasm with dollars. Should you, too, consider putting money into bitcoin or other cryptocurrencies?

First of all, keep in mind an essential piece of financial advice: Don’t invest in something you don’t understand. And bitcoin is not easily understandable. There’s no physical bitcoin, nor is it backed by a bank or government. It’s a digital currency, used for transactions on a decentralized network of computers. The market’s demand for bitcoin largely determines its price, though other factors are also involved.

And this price can vary widely. Since bitcoin was introduced in 2009, it has gone through periods of enormous gains and precipitous declines. Its short history has reminded market watchers of the bursting of the “dot.com” bubble in 2000 and the housing market bubble in 2007. These results have raised the following question about purchasing bitcoin: Is it investing or speculating?

There’s a big difference between the two. Speculators engage in risky transactions with the hope of profiting from short-term price fluctuations in various financial vehicles. Investors, on the other hand, stick with these practices:

• They follow a long-term strategy. Real investors follow a long-term strategy based on their goals, risk tolerance and time horizon. Generally speaking, long-term investors don’t do a lot of buying and selling, saving on fees and potential taxes. But this “buy and hold” approach doesn’t mean investors put their portfolios on autopilot. Instead, they review their portfolios at least once a year to make sure their investment mix is still appropriate for their needs.

• They focus on quality. Long-term investors stay away from the flashier – and riskier – financial instruments. Instead, these investors seek quality. When they’re considering stocks, for example, they look for companies with solid fundamentals, including strong management teams, competitive products and services and business plans that bode well for the future. When they buy bonds, they seek those with high credit ratings issued by the independent rating agencies. Focusing on quality doesn’t yield quick results, but it can instill confidence in one’s investment choices.

• They diversify their holdings. If a downturn in the financial markets affects one type of asset particularly hard, and your portfolio contains a high concentration of that asset, your financial strategy could be jeopardized. Long-term investors reduce this risk by owning a variety of investments. While diversification can’t guarantee profits or protect against all losses, it can help reduce the impact of market volatility on your portfolio.

And here’s one more difference between investors and speculators: track record. Investors put their money into companies that provide tangible goods and services, and these companies have historically grown with the overall economy. Stocks and bonds are established investment vehicles with well-defined and regulated markets. Consequently, investors can assume a certain degree of predictability, though, of course, stock prices will always fluctuate in the short term and there are no guarantees against loss of principal. Cryptocurrencies, on the other hand, are relatively new, largely unpredictable and will likely face increased regulation in the future, with the ultimate risk being an outright ban by some governments.

You work hard for your money – so think carefully about how you can best put it to use to help you reach your lifetime goals.

Michael A Vondra

Certified Financial Planner Practitioner

Edward Jones