JDH Wealth Management, LLC
181 Concourse Boulevard, Suite A
Santa Rosa, CA 95403
Phone: (707) 542-1110
Fax: (707) 595-5776
info@jdhwealth.com
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Ask any worker if they’re looking forward to retirement and chances are you’ll get a hearty “yes.” However, ask those same people if they’re ready for retirement, or if they’ve even really made any financial plans for it, and there’s a good chance you’ll get a very different response. As excited as people are to retire, very few people know how to prepare for this inevitable stage in life.
By planning now, you can take steps to ensure your retirement years are comfortable and full of life. 
Here are five tips that you can do now to help you get ready for retirement down the road:
Save More Cash
Very few people actually have much cash in their accounts. Once you pay bills, get groceries and do other things, there’s very little left. However, cash stored in savings and other easy-to-access accounts is a necessary first step. Not only does it help with your day-to-day expenses after you retire, it can also help during those first few months as your finances transfer. It’s not unusual for some retirement funds to take a few weeks to kick in, so having that extra bit on hand can be very handy.
Plan How Much You Will Need
Many people reach retirement, only to find out too late that the income from their pension, Social Security and other retirement plans simply doesn’t cover their expenses. Too many people bury their head in the sand and hope things work out. Get your head out of the sand and start now by estimating how much you’ll be bringing in, and how much you’ll be paying. Will you have enough to pay bills? Buy groceries? Visit family? Planning ahead now can help you reach those financial goalposts.
Think About Taxes
Most retirement plans involve paying taxes at some point. Whether you’re going to move, cash out stock, draw from an IRA or do something else, you will most likely have to pay taxes. In addition, your change in status might change your overall tax footprint. Figure out your tax needs now so you aren’t hit with huge, unaccounted-for expenses later.
You should also think about contributing to a Roth IRA for tax-free growth. This can be a tremendous strategy for younger individuals.
Diversify
If you’ve ever talked to a financial advisor before, they’ve told you about the need to diversify your investments. The same is true as you approach retirement. The last thing you want is for your planning to take a hit because of a downturn in the markets. Diversifying your investments will lower your risk increase your odds of success down the road.
Don’t Wait to Learn
The time to start learning and planning for all this is now. If you wait until retirement is right around the corner, you’ve waited too long. Start educating yourself now about your options. Make sure you take the steps today to ensure a successful retirement in the future.
If you have any questions or think that we can help, please reach out to us today!
Written by Eric Keating
Estate planning isn’t anyone’s favorite subject, but it’s necessary if you want to protect your assets and loved ones down the road. To do so, you need the proper legal documents in place. In some cases, that might mean a living trust. Estate planning can be overwhelming. There are many different ways to navigate it and it could be difficult to pinpoint your best options. So, let’s help clarify some things and find out: do you really need a living trust?
What Is a Living Trust?
In short, a living trust is a legal document that helps you plan your estate. It puts your assets into a trust during your lifetime, hence the name. It also includes directions for where you would like your assets to go after you pass away.
Living trusts can be divided into two types: revocable and irrevocable. A revocable trust is one that you can change or cancel at any point without needing permission to do so. In an irrevocable trust, you need the consent of your beneficiary or beneficiaries to make changes.
You can name yourself as the trustee of your living trust, and you can name co-trustees too. Typically, your co-trustee will be your spouse. You will have to name a successor trustee to represent you after you have passed away.
Why Would You Need a Living Trust?
All of this likely sounds relatively similar to a will. However, a living trust has several significant benefits that a will lacks.
Chief among these benefits is the fact that living trusts don’t have to go through probate. Probate can be costly and time-consuming. If your beneficiaries are depending on you for financial support, it’s best to avoid probate. Your assets could linger in the courts for years.
Living trusts will also protect your privacy, which wills and the probate process do not. A will is a public document, meaning anyone can view it. That increases the likelihood that someone will attempt to contest it. Probate is also open to public view, which means anyone interested can see the details of your assets and estate.
The Downside to a Living Trust
Privacy and a lack of probate sound appealing, so why doesn’t everyone do a living trust rather than a will or any other estate planning option? It comes down to cost.
It’s best to have an estate planning attorney create the trust, and their fees can add up quickly. You’ll also have to change your assets, so they’re in the name of the trust rather than yourself, and you’ll need something called a pour-over will anyway. This will ensure any assets not in the trust are added if you pass away.
What Should You Do Now?
Whether you have a trust and it hasn’t been reviewed in a few years, or you have yet to put one together, you should reach out to an estate planning attorney. They can help get you cross this big item off of your to-do list.
If you have any questions about how trusts work, reach out to one of our advisors at JDH Wealth as we can certainly help you get your arms around these complicated instruments.
Written by Matthew Delaney
Annuities are not a new concept. They’ve been around for a long time, and many individuals have bought into them. They promise income for life. And who wouldn’t want income for life? As traditional sources of guaranteed retirement fade — like pensions, many people are doing whatever they can to ensure they have supplemental income during their retirement years. And at first glance, annuities seem to be a smart way to go.
An annuity is a contractual agreement between an insurer and an investor that states that when the investor makes an upfront lumpsum payment (or buys into an annuity) to the insurer, the insurer will, in turn, guarantee the investor future payments at regular intervals. Depending on the type of annuity the investor purchase, they may even receive income for life. There are two types of annuities: immediate and deferred, and the returns can be from a variable annuity, indexed annuity or a fixed annuity.
If an annuity sounds too good to be true, it usually is. Here are five reasons why investors should avoid annuities.
#1. High Commissions for the Seller
Even though the insurer should always have the best interest of the client at heart, sometimes the investor can be persuaded into buying into an annuity versus another type of investment, like mutual funds. This is because the seller will receive a commission from the sale of an annuity. While fiduciary responsibilities should always be in play, it’s not recommended to do this type of business with any company you know very little about. Integrity is key when it comes to an investment of this magnitude. So buyer beware; not all insurers are looking out for your best interest.
#2. High Fees
While you may not see upfront charges from the purchase of an annuity, they’re there and they can add up quickly. Annuities carry annual maintenance and operational charges, that again, can be more expensive than mutual funds. So again, buyer beware! If you don’t read the fine print on your contract, you may not learn about these additional fees until later on when you’re trying to determine what happened to some of your money.
#3. Withdrawal Charges
Additional charges (surrender charges) apply to an investor if they take money out of this account before a certain period, even if you have a financial emergency. Most annuities cannot be touched before seven to ten years. If money is taken out before this period, there is a surrender fee the investor will have to pay. Although surrender charges tend to decrease the longer you have the annuity, there is still a price to pay for withdrawing your money earlier than agreed upon in the contract. In addition, if the annuity owner is under a certain age (59 ½), they will have to pay a 10 percent penalty on any monies taken out of the account. This is information that should be known upfront, but depending on who you’re doing business with, I encourage you to read all fine print carefully.
#4. Returns May Not Match the Market
Don’t assume that your investment will match those of an equity index. Just because a specific index did well during a particular year does not mean that you will receive a return that matches that. Some insurance companies set you up to receive a little as possible with a clause called, a participation rate. This means your return is capped so that your investment can only grow by a certain amount, say 80 percent. This means you lose out on what others are receiving through other modes of investing.
#5. Stuck in an Immediate Contract
An immediate annuity can be tricky in that once you buy it, you’re stuck with it. Let’s say you have a change of heart and decide you want to pass your payments on to a beneficiary. You’re not able to make any changes to this type of annuity. Most contracts do however allow for a cash-refund feature in which your heirs will recoup the premium paid for the annuity. You can also set these contracts up as single life or joint lives. With the joint income option, your spouse will receive income payments for the rest of their life.
Conclusion
The bottom line is to make sure you always understand the fine print of anything when it comes to your financial planning. Retirement is a big deal, and the last thing you want to do is outlive your income. While annuities may seem like a smart way to not run out, you want to make sure you understand every detail of how they work. Most importantly, you want to ensure you’re dealing with a company that will always have your best interest at heart and will stand on integrity.
At JDH Wealth Management, we take the time to get to know our clients. We build relationships with our clients to know what they need based on where they’re trying to go. We also educate our clients on everything they need to know to make well-informed financial decisions.
If you ever have any questions surrounding annuities or investing in general, please reach out and we’ll help you with your retirement and investment needs.
Written by Matthew Delaney
If you’re familiar with retirement at all, you’re probably aware of IRAs. Traditional IRAs are a common mainstay for retirees, thanks to their tax benefits and growth potential. However, once you retire, you need to take money out every year, called a required minimum distribution (RMD).
The rules surrounding RMDs have changed in recent years, so we wanted to take a closer look at what that means for retirees and those who are close to retirement.
Here’s what you need to know.
What is an RMD?
The main appeal of a traditional IRA is tax deferment. When you contribute funds to the account, you may be able to claim that money as a deduction on your taxes. So, rather than pay taxes on it up front, you can pay them later when you finally withdraw it.
Because of this benefit, the IRS still wants that tax revenue.
So, once you reach a specific age (more on that next), you have to withdraw funds from your IRA and pay taxes. If you don’t take the distribution, you have to pay a steep penalty instead.
What are the Rules for RMDs?
The Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was passed in 2019 and became law on December 20th of that year. This act raised the age requirement for RMDs.
Before the act, account holders had to take their first distribution once they reached 70 1/2. With the change, that age is now 72. Those who turned 70 1/2 after the bill became law can now wait until 72 to take their RMDs.
The amount of these distributions depends on complicated tax tables used by the IRS. In the first year, account holders have to withdraw money by April 1st. So, if you turn 72 in 2022, you need to take funds out by April 1st of 2023. The deadline is December 31st for every year after.
If you don’t take an RMD, the penalty is 50 percent of the funds you would have withdrawn. Considering that your tax bracket will likely be less than half of that, you don’t want to pay the penalty.
Planning for retirement is one of the most crucial things you can do. Regardless of your age, it’s never too early to make a plan. If you need any help planning for your golden years, feel free to reach out to us today!
Written by Matthew Delaney
When planning for retirement, there are a lot of things to consider. One element that plays a major role in these decisions is taxes. Questions such as whether you pay taxes now or later, how much you pay and if there’s any way you can reduce that tax burden will go a long way towards what retirement planning you opt for.
One move that many have made and found helpful is a Roth IRA conversion. Doing this can help some people pay less in the long run and can have other benefits as well.
What Is a Roth IRA Conversion?
A Roth IRA conversion is when you take an existing retirement account – whether it be a traditional IRA, 401(k) or SEP – and moving the funds into a newly-created Roth IRA account. This action creates a situation where you have to pay taxes now. However, on the other hand, doing this means you don’t end up paying taxes later on when you start to draw from the account. This can be a good move for younger people and those who expect to remain in the same, or even higher, tax bracket as they begin to draw from their IRA. Plus, you don’t pay tax on the growth! Ultimately, the taxes you pay now are less than what you would have paid otherwise.
What Is the Difference?
It can be difficult knowing what is different about these various accounts, but it usually boils down to one thing: taxes. In this case, the difference between a Roth IRA and other accounts is when you pay your taxes. With tax-deferred accounts, you don’t pay taxes when you contribute, but you do pay taxes on earnings and when you draw from them in retirement.
Roth IRAs, however, are tax-exempt. This means that you pay taxes when you first contribute, but you do not owe taxes when the account grows. Simply put, every penny comes out tax free.
Benefits of Conversion
As mentioned earlier, there are several reasons why someone might consider doing a Roth IRA conversion.
The main reason why someone might want to opt for this is that it can lower your tax bill in the future. True, the conversion itself will come with a tax bill that will have to be paid first. But after that, everything that comes out of the Roth IRA is tax-exempt.
A second advantage is that Roth IRAs allow you to keep money in your account for as long as you want, unlike traditional IRAs that require you to start withdrawing money at a certain age known as a Required Minimum Distribution (RMD).
Disadvantages of Conversion
Even though there are plenty of reasons to consider a conversion, they aren’t all pros. There are cons as well.
The first, and most important, is the tax bill that comes with the switch. In pre-tax accounts, the money sitting in those accounts to date has not yet been taxed. When converting, the taxes are owed on however much is moved over. In some cases, this can be a significant amount of money, and for many it is a huge deterrent. However, remember that we’re going for long-term benefits here, not short-term.
Another disadvantage, is that Roth IRAs require the money to be untouched for at least five years, and similar to traditional IRAs, you must be at least 59 ½ before you can access those funds.
Backdoor Roth Conversions
This is tremendous opportunity that allows you to make a non-deductible contribution to an IRA and then do a full Roth conversion on these dollars. You then pay tax on any growth in the account. For example, let’s assume you have no IRA accounts to date. You make a $6,000 non-deductible IRA contribution on 1/1/2022. On 7/1/2022, the balance has grown to $7,000. You do a full Roth conversion and pay tax on the growth of $1,000. You now have $7,000 in your Roth IRA and when you pull those dollars out in the future, they will be 100% tax free.
Please note that due to the pro-rata rule, it is important to not have any other IRA balances when doing a backdoor Roth conversion. The IRS will take all of your IRA balances into account, and then determine the percentage of the conversion that is going to be taxable. If you have several IRAs with large balances, the backdoor Roth conversion isn’t for you. One way to avoid the pro-rata rule is if you have a 401(k) account. If you roll your IRA accounts over to your 401(k) account, you don’t have to consider any additional IRA balances when doing the backdoor Roth conversion. This is a win-win all around.
In Conclusion
Of course, this is only scratching the surface of Roth IRA conversions and backdoor Roth conversions. If you any questions on how these strategies work, please reach out to one of our advisors at JDH Wealth and we can walk you through the process.
Written by Matthew Delaney
A 401(k) plan is one of the best retirement savings options. However, while many people know how to use a 401(k), not everyone makes the most of their savings. In fact, some individuals can be making huge mistakes without realizing it.
No matter where you are on your path to retirement, it’s crucial to maximize your earnings. So, make sure to avoid these potential setbacks.
Not Maxing Out Your Savings Potential
In 2021, the maximum contribution limit for a 401(k) plan is $19,500. If you can afford to put that much into the account, you should. Remember, there are two primary benefits to putting as much money away as possible right now. If you are over the age of 50, you can contribute an additional $6,000.
First, you can deduct it from your taxes, reducing your overall burden for the year.
Second, your money grows in a 401(k), so the more you invest, the more you can earn.
Your 401(k) Plan may also allow for Roth contributions. This is a great option if you have a longer period of time until retirement. While you pay tax now on your contributions, the growth is tax-free down the road.
Ignoring Fees
How much do you have to pay to keep funds in your 401(k)? If you don’t know the answer, you need to find out. While most plans have low fees, they can add up. You may also be getting charged for services that you’re not using. You should consult your plan administrator if you have any questions on fees. If you feel the fees are too high and you are eligible for an in-service distribution, you can consider rolling your money into a traditional IRA to avoid them.
Putting Too Much Into Company Stock
Even if you’re working for a major enterprise like Microsoft or Google, it’s never a good idea to put too much money into a single stock. Instead, you want to spread your funds around so that you can absorb market volatility more easily. A good ratio is for about 10 or 15 percent of your account to be invested in the company.
Not Matching Funds
If your employer offers matching contributions, you need to take advantage of that program as much as possible. Why say no to free money? Keep in mind that many employers have unique requirements, such as staying with the company for a set period.
Be sure to read through these qualifications so that you can plan accordingly. In most cases, it’s best to wait until those funds are vested into your account before making any changes.
Next Steps
If you have questions about your 401(k) plan, we’re here to help. We can also assist you with other retirement planning solutions so that you can be better prepared. Just let us know how we can help.
Written by Matthew Delaney
If you’ve been paying attention to prices lately, they’re all doing one thing – going up. Inflation has always been around, but in 2021, it seems like it’s on overdrive. Usually, inflation rises at about two percent annually. This year, it’s already past five percent. What’s going on?
While many people may be pointing fingers, there are some tangible, real-world factors at play. So, let’s dive in and see why inflation is so high.
Comparing 2021 to 2020
One of the biggest reasons for a significant jump is that the country is reopening again. This time last year, many states were still under lockdowns and quarantines, and fear of the COVID-19 virus was rampant.
Simply put, a pandemic upended the economy, and overnight, everything changed. Because of that, many companies had more supply than demand, forcing them to lay off workers and shed inventory.
As the world reopens, the demand is skyrocketing, so prices are too.
Supply Chain Issues
When the world shut down, supply chains everywhere came grinding to a halt. Even though the United States is roaring back (although cases are back on the rise in summer 2021), other countries are still reeling from the pandemic.
We live in a globalized economy, meaning that issues in one location will affect prices in another. Many industries are facing shortages, leading to inflation spikes.
Shifts in Demand
If you had stock in toilet paper companies in February of 2020, you would have made a killing by April of last year. Today, toilet paper supplies are average, meaning that any price fluctuations are stable now.
In 2021, people want to get back to “normal,” which includes everything that shut down during the pandemic. Air travel, salon visits, nights out with friends – it’s all back on the table, and consumers are ready to spend. Industries that did well during the pandemic are slowing down, while those that shut down are ramping back up.
What Does All This Mean?
Right now, it’s hard to say how long this inflation spike will last. A labor shortage certainly isn’t helping, and rising cases may cause further lockdowns or quarantines in the coming months. Historically, the Federal Reserve has had to raise interest rates to cool the economy down, but it’s unclear if that will have to happen now.
If you’re concerned about inflation and the impact to your financial future, contact us today at (707) 542-1110 and we can help you navigate these stressful times.
Written by Matthew Delaney
July 9, 2021
Sssssnap!
That was the sound of the proverbial camel’s back breaking in September 2017, after Equifax announced a data breach that exposed the personal information of an astounding 147 million people. A steady drumbeat of data breaches had occurred prior to this time, yet nothing of the magnitude and severity of Equifax’s knockout punch.
If the 2008 financial crisis was when we lost our innocence regarding the financial system’s safeguards, in similar fashion the Equifax breach was when we said goodbye to any default trust that our identities would remain secure. This breach was the last straw for me and countless millions of people. I finally began taking more proactive measures to protect my identity and personal data.
When I began sharing the steps I was taking, and offering to assist others in the same, I was wholly unprepared for the reaction. There was an overwhelming response and acute interest; a raw and exposed nerve had evidently been struck. I spent the better part of two weeks dedicated to helping those around me avoid being the next casualty of a data breach.
Ever since that time, I have woven identity theft prevention into the financial planning process. After all, where does financial planning end and identity theft prevention begin? It is all tied together and, as I see it, these two elements cannot be separated one from another. Following are the preventative measures that I have personally taken, and regularly incorporate into the financial planning process.
Credit freeze
Sure, I had read and heard about credit freezes (sometimes referred to as a security freeze), but said warnings flew in one ear and out the other. Yet after the Equifax breach occurred, it seemed I couldn’t implement the freezes for my wife and I fast enough.
A credit freeze essentially slams the door shut on many types of fraud that an identity thief may attempt, such as opening a bank account or credit card in your name. For example, if you were to apply for a new credit card, the credit card company would run a credit background check on you. If your credit was frozen, the credit check could not be completed, and thus you would be denied the credit card unless you temporarily unfroze your credit. In similar fashion, if a fraudster attempted to obtain a credit card in your name (unbeknownst to you), the application process would be halted if your credit was inaccessible.
You can freeze your credit at the three major credit bureaus (Equifax, Experian and TransUnion) as well as at the lesser-known credit bureau Innovis. Once you have completed the freezes, you will sleep better at night.
Credit report
Although establishing a credit freeze may prevent identity theft in the future, it will not alert you of fraudulent activity that may have occurred in the past. To uncover that, you will need to periodically review your credit report for suspicious activity, such as the opening of a bank account or credit card that you don’t recognize.
I review my credit report using www.annualcreditreport.com, which allows one free credit report per year from each of the three main credit bureaus. Although I have never found any suspicious records on my credit report, I have discovered long-lost and unused credit cards, which prompted me to close the accounts. There is no reason to have unnecessary accounts and data floating around in cyberspace, so go ahead and cancel that JCPenney card you activated 15 years ago in order to save $27.
Credit monitoring
At this point, I have no formal stance on purchasing a credit monitoring service (such as LifeLock or Identity Guard). These services monitor the internet and dark web for instances of identity theft and will alert the user of potentially suspicious activity. They typically also provide assistance for victims of identity theft, as well as identity theft insurance coverage.
Personally, I choose to use a credit monitoring service. The peace of mind that it gives me is well worth the cost, yet others may come to a different conclusion after performing their due diligence. For me, the most valuable aspect of this service isn’t in the monitoring itself (although I do value that, to be sure). Rather, it is access to a partner with the specialization necessary to assist me in the rare event that my identity is stolen. Identity theft can take years to unravel and may be both financially and emotionally devastating, so I consider using a credit monitoring service to be a form of “sanity insurance.”
It is likely that your financial life plan takes into account risk management, yet have you considered how identity theft prevention fits into your risk management program? If not, think about the three items I’ve raised as a starting point: credit freeze, credit report and credit monitoring.
This commentary originally appeared June 7 on thestreet.com.
The opinions expressed by featured authors are their own and may not accurately reflect those of Buckingham Strategic Partners®. This article is for general information only and is not intended to serve as specific financial, accounting or tax advice. Individuals should speak with qualified professionals based upon their individual circumstances. The analysis contained in this article may be based upon third-party information and may become outdated or otherwise superseded without notice. Third-party information is deemed to be reliable, but its accuracy and completeness cannot be guaranteed.
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