The psychological side of spending your retirement savings

Many investors worry about outliving their savings. As a result, they sometimes underestimate what they can comfortably spend in retirement.

For years, you’ve been saving and investing for retirement.

But what happens when you finally retire and it’s time to switch gears from saving to spending?

It turns out, many people are so focused on accu­mulating assets that they never really think about actually withdrawing the money. In fact, recent studies show that many retirees aren’t drawing down their retirement portfolios, opting instead to live on Social Security and the minimum required distributions (aka RMDs) so their portfolios can continue to grow. This may lead to unnecessary sacrifices in a retiree’s standard of living. After almost two decades in retirement, most cur­rent retirees still have 80% of their pre-retirement savings, according to research from BlackRock.

The problem with uncertainty

So why aren’t these retirees spending their nest eggs? Some may be spending as little as possible to leave behind a larger sum for their loved ones or philanthropic pursuits. But in many cases, it’s because they aren’t sure how to determine a sustainable withdrawal rate that accounts for their total lifespan. They worry about the “what ifs” retirement may throw their way and want to be prepared. You may be able to relate.

This latter group understands that over the course of a long-term retire­ment, inflation can erode sav­ings. Portfolio returns can vary, and healthcare costs can quickly escalate. And they may be con­cerned about outliving their savings – only 25% of baby boomers believe their savings will last throughout retirement, according to the Insured Retirement Institute. By spending less and allowing their savings to potentially grow in the early years of retire­ment, they hope to offset some of the uncertainty.

Collaborating with your financial advisor can help increase your confidence about having enough money to live comfortably in retirement. Just like in your working years, you can estab­lish a just-in-case cash cushion or line of credit that helps put you at ease. And having a sound distribution strategy in place – one that takes into account your income sources, lifestyle, asset locations and tax situation – can help you enjoy the retirement lifestyle you envisioned.

Withdrawing your money

When it comes to withdrawing your retirement savings, here are a few things to consider:

Organize your expenses: Three typical categories include essential expenses (think food, housing and insurance), lifestyle expenses (vacations, hobbies) and unexpected expenses (healthcare costs, auto repairs). Consider paying for your essential expenses with guaranteed income sources such as Social Security or annuities. Use growth or income investments to pay for lifestyle expenses, and maintain a cash reserve for any unexpected costs that might occur.

Be flexible. For instance, a downturn in the market is a good time to tighten the reins on your spending. But if you experience some unexpected invest­ment gains, the timing might be right for that dream vacation.

There’s little doubt your income needs will fluctuate during retirement. The early years may be filled with travel and other big-ticket items that require more sub­stantial withdrawals. As time goes on, you’ll likely travel less, but your healthcare expenses may increase. Studies show that spending tends to decline in the later years of retirement, most likely the result of less travel and similar pursuits. People ages 55 to 64 spend on average $60,076 per year, while people ages 65 and over spend $45,221, according to the Bureau of Labor Statistics.

Building in flexibility allows you to go with the flow. Just be sure to regularly touch base with your advisor so your budget can stay on track.

Review your plan. Work with your advisor to develop and review your retirement income and distribution strategies. You can run hypo­thetical simulations based on different withdrawal rates, how many years you will live in retirement or any other contingencies, which will allow you to develop a better idea of how much you can comfortably and confidently spend in retirement to help achieve your goals.

Everyone’s retire­ment situation is different. You may have encountered some unexpected circumstances, such as a layoff or forced retirement that occurred ear­lier than you planned, and you weren’t able to save as much as you hoped. On the other hand, leaving a legacy may be your primary goal. Whatever the case may be, establishing a withdrawal strategy that’s right for you – while also keeping your emotions in check – is often a good plan of action.

Sources: kitces.com; forbes.com; cnbc.com; ournextlife.com; smartaboutmoney.org; thestreet.com; kiplinger.com; myirionline.org

Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

The ins and outs of nonqualified deferred compensation

A versatile tool that can help enhance the benefits package you offer your employees.

What is an NQDC plan?

While nonqualified deferred compensation (NQDC) plans can vary slightly from one another, they generally act as an agreement between employers and employees to defer a portion of the employees’ annual income to a future date – that could be one year later or once the employee retires. Deferred compensation isn't counted as earned income, so it's not subject to taxes.

Who does an NQDC plan serve best?

NQDC plans are utilized by companies with a need to recruit, retain and reward key employees. They were created as a counteraction to the cap that high-earning employees face when it comes to government-sponsored retirement plans.

Highly compensated employees are often limited in retirement savings due to federal legislative limits. Participating in an NQDC plan can allow high earners to accrue additional pre-tax savings and tax-deferred growth. Employers can harness the tax deferring benefits of NQDC plans as an incentive to entice and retain top talent.

Nonqualified plans also offer more flexibility than qualified retirement plans in that savings can be accessed before an employee reaches retirement. While NQDCs are a popular component of a retirement planning strategy, deferred compensation can also be used in a variety of other situations: toward education expenses, to cover a home remodel, or even to supplement income during an extended period off from work. That said, nonqualified plans don’t simply function like a savings account. They require the employee to pick the distribution date they will receive their funds in advance. The main benefit here for employers is that it affords the freedom to offer plans to a more specific subset of employees, such as higher earners.

SECURE 2.0 Act changes

The SECURE 2.0 Act is a recent regulatory update designed to encourage more employers to offer retirement plan benefits through practices such as automatically enrolling eligible employees and allowing catch-up contributions, among other measures.

Most highly compensated employees take advantage of catch-up contributions in their qualified retirement plans, but things are about to change.

Starting in 2024, if the employee has income of at least $145,000 for the year, the catch-up contributions under 401(k), 403(b) or governmental 457(b) plans must be treated as a Roth contribution, which is a change to the current pre-tax contribution. That means these funds will be saved as after-tax dollars, no longer reducing taxable income but allowing for tax-free withdrawals in the future. Note that the $145,000 income threshold will also be indexed for inflation in future years.

An NQDC plan gives highly compensated employees the option to defer an unlimited amount of their income on both a pre-tax and tax deferred basis – providing greater flexibility with distributions.

For people with access to a nonqualified deferred compensation plan there’s a bigger question: Is it more beneficial to contribute the catch-up amount to the NQDC plan for the pre-tax deferral or a Roth contribution to the qualified retirement plan? Everyone’s circumstances are different, but a financial advisor can offer guidance.

What can business leaders do to prepare?

Recent legislative changes mean that, for companies and business leaders, now is a great time to review your benefit packages. If an NQDC plan is the right fit for your needs, it’s worth considering implementing one to help highly compensated employees effectively prepare for retirement.

Before you begin to leverage the flexibility NQDC plans offer, it’s important to weigh your options. NQDC plans can be a useful tax deferral tool, but there’s a strong likelihood that employees who qualify have maxed out their employer-sponsored retirement plan contributions. Therefore, offering different investment options from those typically found in a standard retirement plan can diversify employee retirement holdings and differentiate your NQDC plan as an enticing benefit.

Talk to your financial advisor to determine whether the addition of NQDC plan types could be beneficial for your business.

Raymond James and its advisors do not offer tax advice. You should discuss any tax matters with the appropriate professional.

Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

Chicken Saltimbocca with Spinach and Potatoes

SERVES
4 to 6
INGREDIENTS
1 pound chicken cutlets
1 teaspoon dried sage
1 teaspoon kosher salt, divided
1/4 teaspoon freshly ground black pepper
3 teaspoons olive oil, divided
12 ounces small red potatoes, cut into 1/4-inch-thick rounds
1 (6-ounce) bag baby spinach
1 clove garlic, minced
6 thin slices prosciutto
4 ounces fontina cheese, shredded

INSTRUCTIONS
Arrange a rack in the middle of the oven and turn on the broiler to high. Meanwhile, cook the chicken and vegetables.

Pat the chicken with paper towels, then season both sides of the cutlets with the sage, 1/2 teaspoon of the salt, and pepper.

Heat 2 tablespoons of the oil in a 10-inch or larger cast iron skillet over medium-high heat until shimmering. Add the cutlets in a single layer without crowding the pan, working in batches if needed. Sear the chicken until the bottom is browned, 3 to 4 minutes. Flip the cutlets and continue searing until the other side is browned and the chicken is cooked through, 3 to 4 minutes more. Transfer the cooked cutlets to a plate, tent with aluminum foil, and repeat cooking any remaining pieces.

Reduce the heat to medium and add the remaining 1 tablespoon of oil. Add the potatoes, season with the remaining 1/2 teaspoon salt, stir to coat with the oil, and arrange in a single layer. Cook until the bottoms just start to brown, 3 to 4 minutes. Flip with a spatula and continue cooking until lightly browned and tender, about 3 minutes more. Stir in the spinach and garlic and cook until just wilted, about 2 minutes.

Remove the skillet from the heat. Place the chicken on top of the vegetables in a single layer. Top each cutlet with a slice of prosciutto, then sprinkle with the cheese. Broil until the cheese is melted and bubbling, about 1 minute.

https://www.thekitchn.com/recipe-chicken-saltimbocca-with-spinach-and-potatoes-240607

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

From the Desk of Dale Crossley and Evan Shear

On behalf of our entire team, we would like to extend our sincerest gratitude to everyone who attended our 25th anniversary gala event. Our anniversary celebration at the Kennedy Space Center was a night to remember, and we hope that you enjoyed the event as much as we did. It was an absolute pleasure to celebrate such a significant milestone in our company's history with all of you. Seeing so many of our clients and their families come together to celebrate with us was such a joy.

As we reflect on the past 25 years, we are reminded of all the challenges we have faced and the successes we have achieved. We are grateful for the trust you place in us and truly appreciate the opportunity to work with such wonderful clients.  Seeing your success has been one of the most rewarding experiences for us as financial planners.

As we look to the future, we are excited about the opportunities that lie ahead. Our commitment to providing exceptional financial planning services remains unwavering. We will continue to evolve our services to meet the changing needs of our clients and provide the customized financial plans our clients depend on. 

We would also like to take this opportunity to thank our staff for their hard work and dedication to our company. Without their commitment, we would not be where we are today. We appreciate their contributions to our success.

Once again, we want to thank you, our clients, for entrusting us with your financial planning needs. Your continued support and referrals are what drive our business forward. We are honored to be a part of your financial journey and will always strive to exceed your expectations.

We look forward to many more years of working together and achieving financial success.

If you would like to view and download photos from the event, please visit CrossleyShear.com/gala.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

There is no guarantee that these statements, opinions or forecasts provided herein will prove to be correct. All opinions are as of this date and are subject to change without notice. Past performance is not a guarantee of future results.

Hidden benefits of 529 plans

Beyond education savings, these plans can work for you – not just your kids.

Most commonly, 529s are known as a tool to save for college expenses tax-free, but even if you can cover college costs in other ways, don’t overlook how using these plans can benefit you. These investment vehicles can be used as a tax-efficient way to transfer wealth to future generations, reduce your estate taxes, and more.

Consider the goals you want to pursue with your estate and education planning. Do you want to minimize your taxable estate, provide for your loved ones' education, or have flexibility to move the money? Once you know your goals, you can look deeper into your options.

529 plan basics

Costing almost nothing to set up, 529 plans offer several benefits, including tax-advantaged growth, flexibility, and high contribution limits.

Contributions to the plan are made with after-tax dollars, but earnings grow tax free, and withdrawals do, too, if used for qualified education expenses such as tuition, fees, books, and college room and board.

You can use the funds to pay for the education of any eligible family member, and you can change your beneficiary multiple times – so you can move money across generations without incurring taxes (as long as you don’t reach gift tax exclusions).

There’s no federal limit on the amount of money that can be contributed to a 529 plan, and many states offer additional tax benefits for contributions made to their own state's plan. There’s also plenty of flexibility in how the money can be invested.

Scholarships can be used in conjunction with a 529 plan, and funds can be used to toward graduate school or qualified apprenticeship programs to help students learn a trade and start their careers.

The hidden benefits

Much more than a college savings vehicle, 529 plans empower you with additional strategies that can work to your advantage – and help you make the most of your money now and in the future.

• Reduce your taxable estate. Contributions to 529 plans are considered gifts for federal estate tax and state estate tax purposes, meaning you can remove money from your taxable estate by contributing to a 529 plan.
• Roll a 529 plan over into a Roth IRA. Starting 2024, the SECURE 2.0 Act makes it possible to roll over unused 529 plan funds to a Roth IRA when owned by the beneficiary, turning education savings into retirement savings. The 529 plan must be active for more than 15 years, the funds must be in the account for at least five years, and up to $35,000 can be rolled over to the Roth IRA over the account beneficiary’s lifetime (annual contribution limits for IRAs still apply).

After moving unused 529 plan funds to a Roth IRA, you designate yourself as the beneficiary. After this, you can contribute money to the plan and invest it in a variety of investment options. When you retire, you can withdraw the money from the plan tax-free and use it to pay for qualified retirement expenses, such as living expenses, healthcare costs and travel.

• Take control over how your assets are distributed. You can change the beneficiary at any time, giving you control over how your assets are distributed after your death.
• Pay tuition in cash – to the 529 plan. Instead of writing a check to the institution, fund a 529 plan, which could allow you to take a deduction on that amount. Then pay the tuition straight from the plan. You can also fund tuition out of a Uniform Transfers to Minors Act (UTMA) transaction or trust account.
• Save for college expenses for multiple children or grandchildren. Open a single 529 plan and change the beneficiary as needed – making it easier for you to plan your annual contributions and distributions.
• Gift the money to a beneficiary. You can gift up to $17,000 per year per beneficiary (or $34,000 if you’re married) to a 529 plan without incurring gift taxes. This is a good way to help the beneficiary save for college without having to pay taxes on the gift.
• Gift money to family members or friends. A 529 empowers you to gift up to five years' worth of annual gift tax exclusions in a single year without incurring gift taxes, so you could gift up to $85,000 per year per beneficiary or $170,000 per year per beneficiary if you’re married.
• Gift money to a donor advised fund without incurring gift taxes. A donor advised fund is a type of charitable giving account that allows you to make donations to charity and then recommend how the money is used over time.

With these tax-saving options, even if you can afford to pay cash for college doing so may not be in your best interest. Explore your options and consult with your financial advisor or estate planning attorney to uncover which strategy can help you make the most of this tax-advantaged investment vehicle.

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.

Next steps

• Consider what goals you want to pursue with your estate and education planning and if any of these strategies could benefit you and your family.
• Evaluate and compare 529 plans to determine the one that aligns best with your end goals.
• Talk to your financial advisor for perspectives on choosing a 529 plan.

Links are being provided for information purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

As with other investments, there are generally fees and expenses associated with participation in a 529 plan. There is also a risk that these plans may lose money or not perform well enough to cover college costs as anticipated. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents. Investors should consider, before investing, whether the investor’s or the designated beneficiary’s home state offers any tax or other benefits that are only available for investment in such state’s 529 college savings plan. Such benefits include financial aid, scholarship funds, and protection from creditors. The tax implications can vary significantly from state to state. Donors are urged to consult their attorneys, accountants or tax advisors with respect to questions relating to the deductibility of various types of contributions to a Donor-Advised Fund for federal and state tax purposes.