Your New Decade To Do List
A New Year (a new decade) is an opportunity to get things in order and make improvements. Every article published this week and last is a list of things to do to start the new year off right. Personally, I’ve already read more than I can count, so, I’ll keep this brief. Two financial and two non-financial to-do’s for the new year:
Review What the SECURE Act Means for You
The ‘Setting Every Community Up for Retirement Enhancement (SECURE)’ Act was signed into law in December as a part of the latest government spending bill. As a whole, the SECURE Act is a grab bag of various incentives and obligations for individuals and companies providing retirement plans. The overall intent is to make it easier for families to save for retirement with several changes affecting the availability of and incentives for saving in retirement accounts.
Diving into the myriad provisions of the SECURE Act is a conversation for another day, but I do want to highlight two big changes that will affect those who are approaching or already in retirement.
1) Increase Required Minimum Distribution Age to 72.
The age where individuals must begin making required minimum distributions has increased from 70.5 to 72. This goes into effect for individuals who have not achieved age 70.5 by December 31, 2019. There’s not much to comment on here besides alerting retirees that they may further delay distributions from their tax-deferred retirement accounts.
2) Elimination of ‘Stretch’ Inherited IRAs.
Prior to the passage of the SECURE Act, when a non-spouse beneficiary inherited an IRA, they could elect to take minimum distributions from the account over their remaining life expectancy. This allowed the beneficiary to enjoy modest, additional income that could provide for an annual vacation or plug a hole in a spending plan.
Under the new rules, an IRA inherited by a non-spouse beneficiary must be fully distributed within ten years.
When IRAs pass from one generation to the next, the beneficiary is often inheriting the assets in their peak earning years. As a result, the income enjoyed from the inherited IRA is effectively taxed at the beneficiaries’ highest marginal tax bracket. Under the new laws, it is likely that all or most of the income from an inherited IRA will be realized at comparatively high tax rates (potentially even bumping the beneficiary into a higher tax bracket due to the magnitude of distributions).
The reality of this rule change is that more of an IRA that is passed on to beneficiaries will ultimately go to taxes. There are some financial planning steps that can be taken to potentially reduce total tax paid. For instance, the new laws coupled with low current tax rates, make Roth Conversions more attractive than ever.
While someone in their 50s or 60s may think estate concerns like this aren’t worth worrying about right now, the most effective strategies for mitigating the tax burden created by the SECURE Act are available before RMD age (now age 72). Make sure you consult a financial planner in 2020 to get on the right track.
Review Charitable Giving Strategies
The overhaul to US tax law are a few years behind us now, but we still encounter families that are carrying out charitable giving strategies that were put into place prior to 2017. The changes that were made to itemized deductions under the new tax law have resulted in many households no longer receiving tax benefits for their contributions to charity.
If you haven’t revisited your giving strategy in a few years, it’s probably time. Under the new laws, the structure and timing of contributions can make a big impact on the tax benefits available for donors. Speak with your financial advisor this year to review how to make the most of your giving.
Prioritize Your Health
I hate the clichéd New Year’s resolution of “This year, I’m going to get in shape.” If you are serious about taking control of your body and your health, start now, don’t wait until an arbitrary milestone on a calendar. Having said that, if 1/1 is the inflection point that leads to a healthier you, then forge ahead.
Nothing derails quality of life like chronic pain or a loss of mobility. Working with retired investors over multiple decades has allowed us to have an observation into how our clients experience and enjoy their lives. Time spent enjoying travel, hobbies, family, and just general enthusiasm for life all correlate to wellness. Clients that are fit and able just seem to get a lot more out of life. As health declines, so does everything else with it.
Taking a little bit of time each day to get some exercise and engage your muscles will extend your health-span and lead to a longer, happy life. Figure out what works for you: Running, walking, swimming, weightlifting, yoga, cycling, sports, even fitness video games. I’m convinced there’s at least something that everyone can enjoy to maintain an active lifestyle.
Focus on the Good
It’s must feel like a great time to be a pessimist. Due to the acceleration and democratization of news and information, it can seem like there are more problems than ever. It’s easier to sound smart and rational as a pessimist than as an optimist. Plus, you get the added satisfaction of being able to say ‘Hah! I told you so!’ when bad things inevitably happen. Unfortunately, victories for the pessimist are always pyrrhic.
Despite the ubiquity of bad news, it is important to realize that while problems usually manifest quickly, progress occurs slowly and compounds substantially.
Here are a couple significant bits of progress society has achieved over the last few decades. Since 1981,
- The homicide rate in the United States has been cut in half.
- Infant mortality has declined 54%.
- Mortality resulting from heart disease has declined 58%.
- Rates of Dementia have dropped by 44%.
When something breaks, the optimist isn’t surprised – things break. But, as the optimist deals with the break, they look ahead toward how we will learn from and improve from the information gained from the break. The pessimist sees the break as an end, overlooking or ignoring the potential growth that is created from the break.
Life is better as an optimist. Try it out this year.