We are coming up on the end of the year. It is important to consider what your tax bill might be for 2020. Before the end of the calendar year, have a conversation with your CPA and financial planner to evaluate the opportunities detailed in this 2-part tax reduction series. The first part of this series will discuss itemization to increase tax savings, deducting mortgage interest, charitable giving, and deducting SALT. The second part of this series will discuss reducing your tax burden through retirement account contributions, tax-loss harvesting, and real estate investments. Be sure to subscribe so you receive notification of this article’s release. These strategies together can reduce your tax burden and improve your financial well being. Itemize To Increase Tax Savings Compared with taking the standard Federal deduction, many of my clients save thousands of dollars by itemizing deductions on their tax return. Here is how it works. During 2020, the standard deduction is $12,400 for singles filing and $24,800 for married couples. Your CPA or financial planner will then calculate the value of the itemized deductions we mention below. When your itemized deductions exceed the standard deduction, you pay less in taxes and keep more in your pocket. Common itemized deductions are mortgage interest , charitable gifts, unreimbursed medical expenses, and state and local taxes. We will explain these topics in detail below. Mortgage Interest On Your Primary And Second Home Mortgage interest write offs are one of the most popular deductions on tax returns. In today’s low interest rate environment, some individuals are comfortable having a mortgage, paying the bank a paltry 2.5% interest and investing loan proceeds in the stock market. You can deduct the mortgage interest you paid during the tax year on the first $1 million of mortgage debt for your primary home or a second home. If you bought the house after December 15, 2017, you can deduct the interest paid during 2020 on the first $750,000 of the mortgage. As long as you have sufficient income to service your mortgage debt, you may be able to earn more in the stock market than you pay in interest and increase your overall wealth. Bunch Charitable Contributions Donations to charity are tax deductible if you itemize on your return. If you are interested in giving to a charity and usually take the standard deduction on your taxes, you may want to consider bunching your contributions during a single calendar year so your deductions exceed the standard deduction. By bunching donations, you combine multiple years of "normal" annual charitable contributions into a single year. In the bunch years, the relatively large charitable contributions, in combination with other itemized deductions that cannot be timed this way — i.e. mortgage interest, state taxes, and property taxes — will increase the likelihood of exceeding the standard deduction and thus provide you with additional tax savings. You can bunch your donations to support multiple charitable organizations in one year. Or, you can make a large contribution to a Donor Advised Fund and make grants to multiple charitable organizations across many years. Hot tip: Because of the coronavirus, you can take a $300 charitable deduction even if you do not itemize your deductions. Donate Your Stock If you have highly appreciated stock, consider whether to donate stock before the end of the year instead of donating cash. If you sell the stock outright you will have a capital gain with a tax bill. The tax will reduce the value of your donation. If you donate stock , most charities can sell the stock without paying taxes. This strategy will warm your heart, benefit the charity more, and lower your tax burden. State and Local Taxes (SALT) The deduction for state and local taxes, also known as the SALT deduction, is one of the most popular itemizable deductions on U.S. tax returns. Before the passage of the 2017 Tax Cuts and Jobs Act, it was the most widely-used deduction by Americans in terms of dollar value. The SALT deduction includes the following: State and local property taxes, including real estate taxes and taxes assessed on other personal property, such as automobiles. State and local income taxes or state and local sales taxes. The major change made by the 2017 tax law is that the entire deduction is capped at $10,000 per return. In other words, if you paid $12,000 in property taxes and $7,000 in state income taxes for 2019, your SALT deduction is $10,000, not the $19,000 you actually paid for those expenses. Example of these Itemized Deduction Strategies Working Together Let’s say you’re married with $400,000 of taxable income. For this example, you: paid $18,000 in mortgage interest, gave $6,000 to charity, paid $5,000 in deductible medical expenses, paid $7,000 in state income taxes, and paid $12,000 in real estate taxes. In this example if you take the standard deduction in 2020 you would reduce your $400,000 income by $24,800. But, by itemizing you can reduce your income by $39,000. This should allow you to keep $5,700 of additional cash in your pocket on your federal and state tax returns. Final thought. Itemizing deductions takes time and planning. Many individuals skip this valuable opportunity because they just don’t realize what it is they are missing. Schedule an appointment with your CPA and financial planner to make sure you have optimized your tax savings. This is time sensitive, so take action today! If you’d like assistance with your strategy, the Peak Wealth Planning team can assist. Next week, the second part of this series will be released. It will discuss reducing your tax burden through retirement account contributions, tax-loss harvesting, and real estate investments. Be sure to subscribe so you receive notification of this article’s release. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Many of us like certainty and prefer not to change course once we’ve made a commitment. Whenever a change is made, though, I’m curious to understand what propelled such a decision, especially in a service industry. For example, I have a client who switched her OB/GYN 6 months into her pregnancy. Curious, I inquired about her decision to make this change at a relatively late stage. It came down to 3 major issues. Her OB/GYN was notoriously late to appointments. And when they met, the OB/GYN sent her off after 5 minutes. The clinic did a lot of extra tests that were not medically necessary, and my client spent countless hours resolving the issue between the insurance and the clinic. My client felt like she was one of the hundreds being processed in the clinic instead of feeling taken care of during such an important life experience. After each visit, my client left the appointment feeling the overwhelming sensation of redflags. She believed she deserved better service, and ultimately followed recommendations from those within her community. She made a commitment to change to a doctor who matched her expectations, and brought her a sense of confidence and peace of mind after each interaction. She was happy that she did.  I found similarities between her story with many others who decided to switch financial advisors. While many may believe it would be a hassle to do so, 60% of individuals with financial advisors make a switch at least once .  Below are a few key tips on determining when the right time is for you to find a new financial advisor. 1. You only hear from your advisor once a year. Does your advisor check in periodically to see if you need anything? Your advisor should send quarterly reports but also check in at least a couple times a year to see whether there have been changes in your personal life, business, or job situation that may impact your investment strategy and financial planning. If you hear so infrequently from your advisor that you begin to feel unimportant, then it may be time to make a switch. 2. They don’t really care about your needs and goals. Does your advisor create a financial plan to inform your investment needs and create a thoughtful recommendation? Or, does he or she just recommend an investment product without understanding your risk tolerance, lifestyle goals, and tax situation? Investing without a plan is like driving across Europe without GPS. Your investment strategy must be unique to your situation and not a cookie cutter strategy implemented to all clients at a firm. On the flip side, if your advisor seems to nag you about getting your wills done, it shows that he or she cares about your family’s well being. If you feel your financial advisor doesn’t care about your financial success, then it is time to find one that will. 3. Your advisor doesn’t coordinate with your attorney. You are interested in creating an estate plan and don’t want to waste time on the details. Consider whether your financial advisor will have an initial meeting with you and your estate attorney to discuss your short and long term goals. Then see if your advisor, who also understands the drivers of your business and wealth, will strategize with your estate planning attorney to protect your wealth today and minimize taxes for your heirs in the future.  If your financial advisor is not initiating the next steps with your attorney and returning to you with results, then it may be time to consider if this is the optimal partnership for you moving forward. 4. Your financial situation is changing, but the advice isn’t. If your income increases dramatically (over $400k per year), this can trigger the need for a review of your options to minimize taxes today and in the future. The simple advice of saving money in a Roth IRA is no longer sufficient. You may now be interested in tax deferred growth within an insurance vehicle, roth conversion strategies, or exploring ways to reduce taxes with charitable giving. Your financial advisor should understand your changing needs and adapt your plans so you can continually optimize your performance. If this is not happening, then it is time to find a new financial advisor. 5. Your situation becomes more complex. If you have a sudden windfall such as the sale of a business or exercising stock options that propel you into the high net worth space...say beyond $5, $10, or $25 million, you may need a review of how to protect your wealth from lawsuits, generate a steady stream of income through market ups and downs, manage your vacation properties, reduce your taxes, and protect wealth for the next generation.  Having an experienced wealth manager is critical for those in the ultra-high net worth class. Consider whether your financial advisor will coordinate with your CPA and estate planning attorney to meet these unique needs. If your financial advisor has little to no experience or understanding of your new status, you may not get the most out of your partnership.  6. Your portfolio continues to have weak performance. At the beginning of an investment relationship, your wealth manager should outline for you the expected risk and return you may anticipate from your investments. Short term deviations in performance are to be expected, but over a 7 to 10 year period, he or she should be in the ballpark of the projected return that was outlined in your financial plan.  Poor performance may not be a reason to fire your wealth manager, but at the very least you should consider a review of whether the investment strategy is still working.  Investing does involve risk and the current pandemic and low interest rate environment has put us in uncharted waters, but a consistently underperforming portfolio that isn’t providing for your lifestyle or retirement goals is one of the most common reasons for finding a new financial advisor. 7. You don't trust your advisor. I have a friend whose advisor has become a terrible alcoholic. The last time we spoke, he hadn’t heard from her in months and was wondering what was happening with his money.  It is important to have confidence in the relationship with your financial advisor. Being that many financial advisors work with the same people for decades, if you lose trust in them for any reason, that can be very hard to repair. Final thought. If you are dissatisfied with the service your financial advisor is providing, then you’re probably ready to make a break. It may be worth a conversation with another advisor to see whether there could be a better fit for your family’s needs. Emotionally speaking, breaking up with your financial advisor is hard to do. However, legally switching advisors doesn’t have to be. Once you’ve found a new firm to work with and signed an agreement, they will notify your old advisor and initiate the asset transfer. We do recommend that your new financial advisor or wealth manager should create a comprehensive financial plan for your family, before making changes to your investments. You should also be aware there may be financial ramifications to switching investment firms. Read through your advisor’s contract to see if there is a termination fee. In many cases there are no termination fees. However, there may be trading costs, transfer fees, or tax ramifications depending on how investments are moved. Make sure to ask your new advisor to explain what those may entail. Are you looking to make a change? See how Peak Wealth Planning can bring you peace of mind and confidence with your financial wellbeing. If you have more than $2 million saved and need a financial plan to reach your goals, the Peak Wealth Planning team can assist. You may also be interested in reading: 6 Interview Questions for Your Financial Advisor Hunt 5 Scenarios Where You May Need A Financial Advisor 6 Scenarios Where You May Need an Investment Expert Bulletproof Your Wealth for the Next Generation - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

One of the first steps to choosing the right manager for your wealth is knowing what questions to ask. And knowing the right answers to see if they align with your financial goals. When you have your initial interview, here are the top 6 questions you want to be sure to ask. 1. How long have you worked with high net worth individuals and in what capacities? When seeking an advisor, you are looking for an individual or firm that has worked with clients similar to your net worth or higher. Based on the answer to this question, you are seeking their level of experience with the needs of this type of clientele. By having this experience prior to you, the firm will be able to anticipate your needs -- from real estate to evaluating insurance policies and taxes to estate planning. 2. What training did you undertake to prepare for this role? Consider how your adviser stays up to date and whether their answer reflects their commitment to staying current in a dynamic profession and industry. The top designations in wealth management are the Chartered Financial Analyst (CFA) designation or the Certified Financial Planner designation. Ask how your advisor maintains his continuing education requirements . 3. Describe your proposed fee schedule. How does your fee schedule align with achieving my goals? Many advisors will assess a fee based on the market value of assets they manage on your behalf. Discuss with your advisor how such fee arrangements might affect their advice and what would cause the level of assets under management to decline as well as how growth in assets would affect the marginal cost of their advising services. 4. What is your approach to investment management? Do you prefer a particular investing style? Do you prefer particular investment vehicles? Your advisor should be able to explain why they choose to execute their investment strategy in the way they do. This explanation should reveal their priorities for diversification, expense control, tax management, and/or liquidity. Consider how your advisor has regarded more recent innovations in the marketplace to assure you they bring fresh perspective with their strategy. 5. How often do you interact with your clients and in what way? Communication and transparency are essential elements of your relationship with an advisor. Based on the answer the advisor gives you, consider if the level of interaction is appropriate to the complexity of your needs, the stage of your relationship with the advisor, and your own comfort level. 6. In addition to investment management, what other services does your firm offer? Are there services I will one day need? Will this firm work with my other advisors? As your wealth grows, so will your wealth management needs. Having a firm you trust with services you can grow into as needed will provide you with peace of mind knowing you are in good hands. You may need help with insurance, estate planning, trusts, real estate, and tax planning. Having an advisor that can coordinate with your attorney and accountant will save you time and money. Final thought. The answers to these six questions are important to knowing if the advisor is a good fit for you. But what is even more important is if the advisor brings you peace of mind and confidence in their ability to manage your wealth.  If you have more than $2 million saved and need a financial plan to reach your goals, the Peak Wealth Planning team can assist. You may also be interested in reading: 5 Scenarios Where You May Need A Financial Advisor 6 Scenarios Where You May Need an Investment Expert Bulletproof Your Wealth for the Next Generation - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

The more complex your financial life and portfolio becomes, the more likely you will benefit from outsourcing your wealth management. Having a lot of money is not easy to manage efficiently. A qualified financial professional can do research unique to your situation and guide your decision process to ensure your wealth is managed in the most efficient way possible. Perhaps you’ve hired a financial advisor to develop a plan towards your financial goals . But now you are wondering what the next step is towards building and preserving your wealth. This is where an investment expert could lend a hand. Investment advisors are financial professionals that help clients select and manage specific investments. They can explain larger market trends and outline the pros and cons of alternative investments such as private equity, private credit and real estate. They also have a fiduciary responsibility to determine whether investments are appropriate for each individual client. Investment advisors sometimes offer financial planning services and may also be referred to as wealth managers. Below are examples where an investment advisor will be able to work with you to identify your best financial moves.  You just inherited several rental properties, farmland in another state, mutual funds in a brokerage, and an IRA account. You feel overwhelmed because you're not sure how to decide what to keep or sell.   You are offered the opportunity to sell ESOP shares back to the company and diversify the proceeds into your 401k or IRA. You aren’t sure whether to sell back the shares. If you do sell the shares back, you aren’t sure what to buy in your IRA.  The company you work for recently sold and you received a check for $2.2 million for your share of ownership. You also received  an offer to stay on and work for the new ownership. You're not sure what to do with the cash you received.  Your law partner just told you about a hot local real estate investment fund. You don’t know if you should invest and are not sure whether doing so fits with your financial goals.  The company you work for just completely changed the lineup for its 401k funds. You don’t know whether to invest in a target date fund or an international stock fund. All the options sound like pea soup but you know you need to keep saving for the future and want to make an informed decision.  Your wife’s inherited trusts are managed by three different investment managers. You have confidence in one of them but aren’t sure about the performance of the other two. Moreover, your family business is starting to take off and you expect your income to double in the next 18 months.  What do these six scenarios have in common?  Each of these six individuals found themselves in a complex situation requiring a lot of time to understand. While they may have fared okay without seeking expert investment advice, the trade off is time and confidence in how well they could navigate the complexity of their unique circumstances. Hiring an expert could make a big difference in lowering their taxes and improving their investment returns and peace of mind.  What is the best indicator you may want to seek the advice of a financial expert? If you are making decisions about investing and preserving your wealth, then it is time to seek a financial planner or wealth manager who is a Chartered Financial Analyst (CFA) charterholder . What questions should you ask a wealth manager you are considering hiring?  Next week we'll be exploring this question. If you would like to receive notification of future blog posts, please subscribe here .   Final thought. Do you have a fair knowledge of investments? Do you enjoy reading about financial markets and researching specific asset classes? Do you have the time to monitor, evaluate and make periodic changes to your portfolio? If you do not have the fortitude or interest to keep up to date on all the changes in the investing landscape, then I strongly recommend seeking the guidance of a wealth manager who is a CFA charterholder and is truly an expert.  If you have more than $2 million saved and need a financial plan to reach your goals, the Peak Wealth Planning team can assist. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Getting educated about your wealth preservation options is a necessary part of planning for your financial future. This education may stem from a multitude of personal finance resources available to you from peer groups, white papers, books and blogs , but there are certainly times when you should seek the advice of a financial expert. Save time and boost confidence in your wealth preservation strategy by hiring a financial advisor. Below are examples of scenarios where you may need expert guidance. You make $500k a year as a software engineer and you cash in your stock options regularly to pay living expenses instead of saving for retirement.  You have maxed out your 401k contributions as well as backdoor Roth IRA contributions, and you are still trying to find ways to lower your taxable income.  You opened your Employee Stock Ownership Plan (ESOP) statement and see that the balance has grown to $3 million. You are wondering if that is enough money to retire in five years.  Your elderly father has spent the last several years in a nursing home. You just turned 50 and your income is $200k a year. You are concerned you may need long term care yourself, but the insurance premiums seem quite high to you. You aren’t sure whether to purchase a long term care policy or an insurance policy with a long term care rider.  After twelve years of hard work and grit, your apartment business has grown past 1,000 units and it feels like you are printing money. The apartments are heavily concentrated in a Midwest community. You would like an expert to help you identify and evaluate opportunities to diversify your geographic and real estate exposure. What do these five scenarios have in common?  Each of these individuals found themselves in a complex situation requiring a lot of time to understand. While they may have fared okay without seeking expert financial advice, the trade off is time and confidence in how well they could navigate the complexity of their unique circumstances.  What is the best indicator you may want to seek the advice of a financial expert? If you are making important life decisions about growing or preserving wealth, then it is time to seek financial expertise. Expert help will increase peace of mind with your decision. Final thought. Do you have expert knowledge of investments, taxes, and insurance? Do you enjoy reading about financial topics and researching specific assets? Do you have the time to monitor, evaluate and make periodic changes to your portfolio? If you do not have the fortitude or interest to keep up to date on the changes in investing options, tax laws, trust and estate strategies, insurance products, and risk areas of life, then I strongly recommend seeking the guidance of a financial planner.  If you have more than $2 million saved and need a financial plan to reach your goals, the Peak Wealth Planning team can assist. Next week we'll be identifying several situations where your family may need the help of an investment expert. If you would like to receive notification of future blog posts, please subscribe here .  You may also be interested in reading: Does Your Retirement Include Guaranteed Income Streams? How Long Will Your Money Last in Retirement? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Smart retirement planning often begins with setting up and working diligently to contribute to retirement accounts. Whether it’s a 401k or an IRA, many individuals set up a beneficiary when they first open the account, but never stop and review that beneficiary designation down the road. This is similarly true for life insurance policies. A beneficiary form directs how a deceased participant’s retirement accounts are distributed. Completing beneficiary forms accurately helps avoid problems when a retirement plan participant dies. Failing to complete or update this important document can contribute to the wrong individual(s) inheriting your retirement nest egg. Below are 6 common beneficiary errors I frequently see. 1. Not naming a beneficiary. An account owner may mistakenly think they can use their will to designate a beneficiary, as they do with other assets of the estate. However, in the case of retirement funds (and life insurance too), not naming a beneficiary leaves the beneficiary determined by the default terms of the 401k or IRA plan document. The default of most plans require the spouse to receive the benefits. If there is no spouse, then children typically share the benefits in equal shares. If you’d like more control over who you’d like to see receive your accounts upon your death, then begin by naming the beneficiaries on the account. 2. Not reviewing your beneficiary form regularly or revising after a major life event. Imagine when a happily married individual with a $2 million 401k account passes away leaving behind two children and a wife from his second marriage. But, his death reveals that the primary 100% beneficiary on his 401k and life insurance was his first wife. Perhaps the man thought his new will would take care of his second wife and children, after all, the will says they get everything. In this scenario, the ex-wife happily accepted the inheritance. Unfortunately, this story is not rare. From marital status to the death of a parent or the birth/adoption of a child to the emancipation of a minor child, life changes may come in many forms. It is a good practice to review life insurance and retirement beneficiary designations every other year as well as following a major life change. Beneficiaries should also be reviewed when there is a major change in your family’s finances, such as the purchase of a major asset, sale of a business, or a significant inheritance. It is a good practice to review life insurance and retirement beneficiary designations every other year as well as following a major life change. 3. Believing the will or trust will supersede beneficiaries listed on retirement accounts. No matter what is written in your will, if your retirement accounts (i.e. 401k, 403b, IRA, and pension plans) designated a different beneficiary that individual will inherit the funds of the account(s). The retirement account listed beneficiary supersedes whatever is written in a will or trust document. As seen in the example above, this is exactly why the ex-wife inherited the $2 million 401k account. The beneficiary designation that you entered as part of your plan enrollment form takes precedence. The same holds true for life insurance policies. 4. Not naming a contingent beneficiary. A common mistake on beneficiary forms is designating a primary beneficiary but failing to name a second contingent beneficiary or group of beneficiaries.  If your primary beneficiary doesn't survive you or decides to decline the benefits, then your contingent beneficiaries receive the benefits. However, if you do not have a contingent beneficiary listed and you fail to update your beneficiary form in the unfortunate circumstance of your primary beneficiary passing before you, then the proceeds may go to your children, parents, siblings, or your estate. Naming a contingent beneficiary provides you with control and a back-up plan. Once the assets become the property of the primary beneficiary, the contingent beneficiary loses all claim. 5. Naming a minor child as the direct beneficiary. Minor children cannot inherit as direct beneficiaries. Guardians must be provided to oversee funds until the child reaches 18 or 21 (depending on state) or the court will appoint one on your behalf. This is an expensive process. To avoid confusion, consider setting up a trust in the children’s name with a trustee chosen by the family. This allows for children to be cared for by a trustee and for the family to specify how old children have to be to receive an inheritance. Your family may want to consider an irrevocable trust for children to inherit due to the added creditor and litigation protections they provide. This is called bullet-proofing your wealth for the next generation. This is called bullet-proofing your wealth for the next generation. 6. Naming your estate. A shortcut I often see is when individuals name their estate as the beneficiary of the retirement accounts or life insurance policy. They do this so it is easier to update by having the estate inherited by a list of individuals. One document appears easier to update than multiple.  However, there is a major side effect to not naming individuals directly on an updated beneficiary form. Time. When an individual inherits the retirement account or life insurance policy benefits, the funds become immediately payable. If an estate inherits the policy benefits, it may take months (or even years) for the individuals to receive the funds. However, you may wish to name a trust depending on your goals, estate plan, and tax situation. Final Thought. Properly designating your beneficiary is part of an overall estate plan. Conflicting naming of heirs opens the door to litigation that wastes money and may create hard feelings in the family.  Work with your financial advisor and estate planning attorney to set up your retirement plan and life insurance beneficiaries properly. If you have more than $2 million saved and need a financial plan to reach your goals, the Peak Wealth Planning team can assist. You may also be interested in reading: Who Should Be Your Life Insurance Beneficiary? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Debt allows most people to make a large purchase normally out of reach and pay for it over a period of time with interest. A mortgage makes home ownership affordable because you establish a loan to pay for the home over the course of 15-30 years. Between mortgage payments, real estate taxes, and maintenance costs, your home may be your biggest monthly expense. A benefit of paying down your mortgage is an increase in equity. Equity is something that had you been renting you would not be achieving. Equity is the value of your home you keep in dollars if you sell it later. An often asked question is whether the mortgage should be paid off early using funds from another source. While having a mortgage fully paid off may feel great, there are times when even if you have the cash to pay off your mortgage, it may make sense to keep making monthly payments.  Sometimes it is a financial mistake to pay off the mortgage on your primary residence. Other times, it makes perfect sense. Allow me to explain. Don’t Pay Off Your Mortgage When... There are seven reasons it may not make financial sense to pay off your mortgage early. Interest rates are lower than you can earn in other investments. You haven’t fully funded your 401k, IRA, and other retirement savings. You need to withdraw money from your retirement savings to pay off your mortgage. You plan to sell highly appreciated stocks and incur a large tax bill to pay off the mortgage. You have consumer debt with higher interest rates than your mortgage. Doing so would concentrate the majority of your wealth in your primary residence. Your mortgage schedule will pay off near your retirement date without extra payments. It may be worth continuing to have mortgage payments when your budget is balanced. This is where you are saving enough for retirement each year and you can easily make your mortgage payment without budget stress. This provides an opportunity to invest the excess money that would’ve gone to your mortgage and earn a greater return in the stock market than the interest payment.  Remember there are alternatives to paying off your mortgage in one fell swoop. If you’d like to make an impact on your mortgage without contributing the bulk of a sudden windfall, consider one of the following: Refinance your mortgage loan. Take advantage of mortgage rates being at an all time low. Contact a mortgage loan officer to obtain a quote and see if you qualify for a lower interest rate. It shouldn’t cost you anything unless you accept the refinance offer. Add an extra principal payment. Contribute an extra principal payment each quarter or monthly to eliminate your mortgage right before you retire. Make sure to include a note on your extra payments that you want the funds applied to the principal balance as the mortgage company’s default is to apply surplus funds towards the following month’s payment. When It Might Make Sense To Pay Off Your Mortgage: These are six reasons where it may make financial sense to pay off your mortgage early. You own a business that generates sufficient income for you to live comfortably in retirement.  You have enough invested for retirement in 401k, IRA, and brokerage accounts to pay for living expenses as well as unexpected medical costs and long term care if needed. You and your spouse want the creditor protection of a tenant in the entirety holding where your fully paid off home is remote from creditor claims in the event of a lawsuit. The interest rate on your mortgage is higher than you can earn elsewhere.  The burden of your monthly mortgage payment would hurt your lifestyle in retirement. You will still have sufficient emergency savings equal to six months or more salary even after paying off the loan. If paying off your mortgage early will not hurt your current lifestyle or the retirement income projections generated by your financial advisor, then by all means go ahead and pay it off. Once you pay your home off, you can consider a home equity line of credit if you ever need liquidity in the future.  Final Thought. As a financial advisor whose clients have mortgages ranging from $100k to $2.5 million or more on their primary residence, this is a question that comes up at least once a year. There is no one-size-fits-all solution.  The decision to pay off your mortgage note earlier than the agreed schedule needs to be based upon your unique finances and important details.  My recommendation is to consider the interest rate on your mortgage, when the mortgage loan will naturally be paid off without extra payments, where the funds will come from if you are looking to pay it off early, and whether you are getting a tax benefit for your interest payments. If you require assistance to review the details of how your mortgage debt fits in with your overall financial plan, the Peak Wealth Planning team can assist. You may also be interested in reading: 4 Strategies to Turning Home Equity into Retirement Income Don’t Miss Your Boat: Plan for Insurance Changes Before Retirement Other Useful Resources: Rich Dad Scam #6: Your House is an Asset - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

As the President of a financial advising firm in Champaign, Illinois, it is my job to look out for the best interest of my clients. My decades of building wealth have taught me valuable lessons of how to act in a mostly rational manner during times of massive uncertainty. Experience dictates how to build effective portfolios and financial plans that not only create wealth but preserve it for the future. The Covid pandemic has shifted industry needs worldwide, causing some investment sectors to be hit quite hard while causing other sectors to boom. Many small and medium sized companies have failed or will fail.  For investors, this unprecedented moment in time creates an opportunity to consider not only wealth creation but to think carefully about wealth preservation in the context of your financial plan. Without proper financial knowledge, investing in this volatile market can appear to be a minefield. Bet too heavily on the wrong stock or sector, or fail to diversify your portfolio, and millions could be lost. Yet there are still opportunities for wealth creation and preservation. Wealth preservation may involve cash flow planning to avoid overspending, estate planning to lower taxes, or portfolio management to reduce concentrated stock risk. Ride the wave of today’s growth while having enough wealth off the table to avoid a dramatic financial hit on your future’s lifestyle, comfort, and security needs. Through the course of this article I will briefly look at today’s stock market sectors to provide some context on market risk. We will consider individual companies that have fared well and poorly during the pandemic. Most importantly, we will discuss when wealth created primarily from a single stock should be considered for diversification and how diversification is accomplished. The critical question is whether your level of wealth can support your lifestyle in perpetuity when invested in a diversified portfolio. What sectors have done well and which have fared poorly in 2020? Due to oil demand tanking from Covid, energy is down 48% this year while technology is up 29% due to demand for devices, video conferencing and high performance computing applications. It bears noting that many folks believe that the technology sector is overpriced today. Earnings may not grow enough to maintain today’s lofty stock valuations. I’m not suggesting investors should avoid technology exposure, but recognize that returns in the sector may be lower in the future as investors rotate to other sectors with more attractive valuations.  The broader US equity market measured by the S&P 500 has gained 6% during 2020. While lower than the lofty technology returns year to date, consider the ten year period returned almost 14% annually. If you had parked $10 million of family wealth in the S&P 500 index for the past ten years it would’ve turned into $36 million. Many would be thrilled with that level of growth in their wealth.  In terms of sector recommendations today, healthcare looks reasonably valued. Forward price to earnings valuations are in line with the 20 year average and analysts forecast just over a 10% earnings growth rate. Couple this with a population that is living longer with chronic conditions such as diabetes and high cholesterol and the sector should perform well in the coming decade. What individual stocks have done well and which have fared poorly in 2020?  Let’s consider company level returns for a moment. The chart below looks at four companies that have performed very well during the past 10 years and four that have not performed as well as the broader S&P 500 US market index. It shows how much $1 million invested ten years ago would be worth at the end of September. Drug delivery, medical devices, software engineering services, and chip makers have done very well during the past ten years and held up during the coronavirus pandemic. While airlines, shopping malls, cruise lines and copiers have done worse than the broader S&P 500 market index largely due to a big drop since Covid 19. While some public health experts warned of the pandemic, it would have been nearly impossible to accurately predict the timing. Investors with wealth concentrated in a single stock should be wary of unpredictable events.  Should you leave your wealth concentrated in the single stock that made you rich? The general answer is No. Let me explain. Let’s say you invested $1 million in West Pharmaceuticals and now have $17.6 million. $17 million invested in a diversified portfolio could generate $600k a year in income in perpetuity for your family today and for future generations . The normal response to diversification is for investors to avoid selling highly appreciated stock due to a) the erroneous belief that their stock will go up forever, and b) paying taxes to diversify shares.  While taxes may be the cost of diversification, consider the alternative. Let’s say instead of West Pharmaceuticals, you had invested $1 million in Delta stock ten years ago. At the beginning of 2020 you had $6 million of Delta stock. $6 million could easily generate $200k a year in perpetuity when properly diversified. Instead of selling, you hang on because Delta management is doing a great job and the shares keep going higher. Then coronavirus hits and your wealth at the end of September is down to $3 million. How would you feel about losing $3 million in nine months? The airline industry may take a decade to recover from coronavirus. Do you have a decade to weather the recovery? Once you are wealthy and can generate enough income in perpetuity to support your lifestyle, consider diversification of your wealth. Your financial advisor can model the tax implications and in the majority of cases, the tax paid is a lot lower than market fluctuation on a single concentrated stock position. Diversification means you take all or a portion of highly appreciated stock and move it into less risky funds that have the ability to generate income while preserving and growing your wealth. What is diversification? If you have highly concentrated stock positions with enough for you to retire happily, then ask yourself whether diversification is the best option for keeping what you’ve gained. Diversification means you take all or a portion of highly appreciated stock and move it into less risky funds that have the ability to generate income while preserving and growing your wealth. Today that might be an investment in the S&P 500 Index with a tilt toward industries or sectors that could perform well in the next decade. Some investment grade bonds could be mixed in to temper the stock market fluctuations impacting your wealth. Final thought. I coach individuals who have built their wealth through concentrated stock ownership on managing wealth for retirement income and securing wealth for the next generation. If you are interested in learning more about wealth preservation and have more than $2 million saved, the Peak Wealth Planning team can assist. You may also be interested in reading: 6 Ways to Protect Your Financial Future Healthy Life, Healthy Returns Does Your Retirement Include Guaranteed Income Streams? How Long Will Your Money Last in Retirement? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Withdrawing from your 401k should be a last resort. Do not withdraw money from your 401K account unless you are going to be homeless on the street or need a life saving medical procedure and have exhausted every avenue of reasonable financial resources.  For everything else, we recommend that you slow down and look at whether you really need to move to a new or bigger home, buy a new boat or car, start a new bakery, or pay off those grad school loans today. If your answer is still a Yes, we recommend you a) get a roommate, b) find a 2nd job, c) ask family or friends to invest in your bakery, or d) be happy with where you currently live. Drawbacks to Using Your 401(k) to Buy a House If you need to cash out your 401k to purchase a home, you probably shouldn’t be buying a home. Why? Your 401k is for retirement and meeting your basic needs in 20+ years. It is not for shelter today. It can be a challenge to unlock home equity during retirement for living expenses. Even if it's doable, tapping your retirement account for a house is problematic, no matter how you proceed. You reduce your retirement savings, not only in terms of the immediate drop in the balance but in its future growth. Take this scenario as an example. You have $100,000 in your 401(k) account, and are considering taking out $50,000 to purchase a home. The remaining $50,000 could grow to $272,000 in 25 years with a 7% annualized return. If you leave the $100,000 in your 401k instead of using it for a home purchase, that $100,000 might grow to $544,000 in 25 years while earning the same 7% compounding return. This could be the difference between $900 a month in retirement income and $1,800 a month. Our advice is to stay in your current living situation, save up cash for a down payment and then purchase the home when you can afford a down payment with cash. And, remember when you move to a new home, you are going to encounter unexpected expenses such as moving costs, furniture, and home repairs. Have you done a realistic home budget yet? Knowing how much you will need in addition to your down payment will provide peace of mind and remove buyer’s remorse when you do eventually sign the papers on a new home. Drawbacks to Using Your 401(k) to Pay Off Student Loans Student loans are not free money. You should think of them as money you borrow to make an investment in your financial and career future. In other words, if you take a loan for school, you should expect your income to increase to a level that makes it comfortable for you to meet your lifestyle goals and pay back your loan.  Taking money out of your 401k to pay student loans reduces your ability to retire in the future. Most folks need to save 10 times to 15 times their income by the time they are 67 to retire comfortably. The higher income you have, generally the higher your multiple of income needs to be. This is because your taxes on retirement withdrawals will likely be higher if you need more income to live. Ask yourself how you will catch up to hit your retirement savings checkpoint if you withdraw $50,000 or $100,000 from your 401k to pay down your student loan? Typical student loan balances are $57,000. Let’s say you need to withdraw $75,000 from your IRA to pay off a student loan. Why $75,000? Because you will likely owe tax on the withdrawal of around 24%. The long term impact of that $75,000 withdrawal will probably cost you $407,000 of retirement savings 25 years from now. That is the equivalent of $1,350 in monthly retirement income.  While IRAs offer an exception to the early withdrawal penalty for college expenses, early 401k withdrawals are always subject to a 10% penalty (see new CARES Act exception below). If you have done a good job of forecasting the return on your education, you should have sufficient income to meet your student loan debt as well as your living expenses.  What if your student loan payments are challenging to afford?  If you are in a circumstance where your student loan payments are a challenge to afford, you may want to consider one of the following options: An income based-repayment plan (IBR) . These programs set payments based on your earning rather than your loan balance. Ask your employer for help. Some employers offer funds to help tackle student loan debt. Begin this conversation with your HR department. Be transparent and explain your situation. This includes how much you owe, how much you’re paying off per month, and so forth. The more honest you are, the more likely HR is to empathize with you and provide an honest answer in return. Refinance your loans to consolidate or lower your monthly payment. You can refinance both federal loans and private loans. It doesn’t cost anything to refinance student loans, and you may be able to reduce your monthly payment or pay off your debt faster. Make a plan to pay your loans within your current income. Work with your financial advisor to forecast how much you can pay to extinguish your student loan debt while balancing the need to keep saving for retirement.  Try to find a better paying job. If you aren’t earning enough income to build your emergency fund, pay your loans, and save for retirement, then consider looking for a better paying job or incorporate a side hustle into your routine. How do I recover if I have used my 401k to purchase a home or pay off my student loans? If you have used your 401k to pay off your student loans, then at the very least, whatever your monthly student loan payment amount, that should now be going into your accounts dedicated for retirement. That repayment should be in addition to contributing at least 15% of your annual income to your retirement. Take this scenario as an example. If you make $140,000 a year and your student loan payments were $800 a month before you paid them off, you should be contributing at least $30,600 a year to retirement accounts. This is $2,550 per month. Does that sound like too much to contribute? Well, if you start with zero retirement savings and set aside that amount for each month for 25 years earning 7% interest, you should wind up with $2 million in retirement. That should get you about $80,000 a year in retirement income. Add that to social security and you will likely be OK if you don’t live too high on the hog and have your mortgage paid off at retirement.  If you are married or have a partner and you both work, become extreme savers will also aid you in recovering your retirement contributions. Live off of one partner’s salary and save 100% of the other’s salary toward retirement. The benefit of doing this is you will learn to live on less money and you will build your retirement savings pretty rapidly. Seeing those balances increase can bring you great psychological comfort and peace of mind. If you bought a large home with plenty of space, consider getting a roommate or renting your extra space on AirBnB. I had socially distanced drinks with friends this weekend who rents out their finished basement with no contact check-ins even during the Covid measures. Unsure which accounts to save in for retirement? Contact your financial advisor. What if you’ve been impacted by the COVID-19 pandemic? The CARES Act of 2020 provides relief for individuals affected by the COVID-19 pandemic. This includes allowing retirement investors access to up to $100,000 of their retirement savings without being subject to early withdrawal penalties (normally 10%) and with an expanded window of three years to pay the income tax on the amounts withdrawn.  Ordinarily, if you take a hardship withdrawal from your 401k, you permanently reduce your balance. However, with the CARES Act, if you pay back what you had withdrawn within 3 years, you will be refunded the income taxes you paid. Even with these new rules in place, it is still advisable to exhaust every other resource before tapping into your retirement accounts. Every dollar you take from your 401k today means less you’ll have in retirement tomorrow. Final thought. If you are in a circumstance where you are heavily considering a withdrawal from your 401k and have exhausted every other resource available to you, then the CARES Act will provide you with decent relief. Speak with a financial advisor to help you: Navigate between taking a 401k loan and a 401k distribution, Build a retirement repayment plan into your budget, and Assess your retirement savings level relative to your income and age. If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. You may also be interested in reading: 6 Ways to Protect Your Financial Future How Long Will My Money Last in Retirement? Answers to Your Top Social Security Questions Your 401k: 11 Important Questions Answered - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

As an employee of the University of Illinois or other public institution in the State of Illinois, you participate in SURS . The State Universities Retirement System manages your retirement investments, which you contribute approximately 8% of your gross salary during your years employed at the University.   Having had ties with the University of Illinois for nearly three decades, I have known many SURS participants. These participants are in various stages of their retirement planning. Some are diligently working towards receiving their full pension, others have retired, and some have left the system to pursue new career goals.  Navigating your ideal path with SURS is based on your individual circumstances and can be a complicated topic. Many have reached out to me for advice regarding how SURS fits in with their overall retirement plan, and most of these conversations began with the question “I’m leaving the University of Illinois. What should I do with my pension?” I’m leaving the University of Illinois. What should I do with my pension? If you leave the University, you will need to decide whether to leave your retirement investments at SURS or move your money to a different plan. The answer depends on several factors, including: how many service credits did you accumulate while employed at U of I, what type of pension plan had you selected at the start of your employment, and what future employment opportunities might you have within another public institution in the State of Illinois. This article will address the most important questions you’ll need to understand if you plan to leave or have left employment at the University of Illinois.  How long have you worked at the University of Illinois? If you have worked for the University of Illinois for more than 10 years full time, you are vested in the retirement plan (5 years if you started prior to 2011). This means that you may be eligible for a retirement payout depending on when you started working and the age you plan to retire. The most robust retirement benefits generally go to those who retire with 20 plus years of employment or those who retire after age 62. The more years you have worked means the more service credits you have earned, which generally translates to a higher retirement payout. The details are more nuanced than the guidelines here, but the concept is that if you have worked at the University for more than 10 years you are probably eligible for a pension payment or the ability to create an annuity with your contributions and investment earnings.  SURS has a benefit estimator that can forecast your retirement payout. Use this calculator before you decide whether to cash out your pension. If you worked more than 20 years, your health insurance should be paid for by the State of Illinois when you collect your retirement. If that is the case, it is usually a good idea to leave your money with the SURS system even if you change employers. Health insurance is a large expense in retirement and you wouldn’t want to miss out on this significant benefit. Are you in the traditional pension, the portable pension, or the retirement savings plan (previously the self managed plan)? If you participate in the traditional pension plan or the portable pension plan and worked at least 10 years, the retirement payment you have accrued is robust and would be hard to replace by withdrawing your money (aka separation refund) and investing somewhere else. Further, you were probably not participating in social security working at the University, so having a steady income from a pension during retirement is probably a good idea.  If you are in the retirement saving plan (formerly self managed plan), the decision depends on how close you are to retirement and whether you have at least 20 years to get the health insurance premiums paid. If you have achieved the required number of years for health insurance, it probably is best to leave your money with SURS. However, if you only have a few years at SURS in the retirement savings plan and do not plan to continue working with a public university in Illinois, you may want to consider moving your retirement to an IRA or your new employers’ 401k plan. You can leave the University of Illinois and choose whether to draw your retirement income if you have sufficient service credit (10 or more years) and have reached retirement age (62 or over). Or, you can leave and work somewhere else and delay drawing your retirement income. Waiting to draw your retirement income can boost your ultimate payout. You can estimate these benefits on the SURS website.  What if I do take my money with me when I change jobs, how much do I get? Under the traditional pension plan your separation refund is a return of your contributions and includes interest credited, but not in excess of 4.5%. Any interest previously credited to your account in excess of that amount will be forfeited. Under the portable pension plan if you have less than ten years of service credit, you will receive all of your contributions plus the full interest accumulated on those contributions. If you have ten or more years of qualified service credit, you will receive all your contributions, the full interest that has accumulated on those contributions, and the match from the university. Under the retirement savings plan (previously called self managed plan), if you have ten or more years of service credit you will receive your contributions, the match from your employer match, and the investments earnings or losses.  What about taxes? When you take money out of SURS, it is called a separation refund. If you can take a lump sum cash distribution, you will most likely owe a lot of taxes. However, you can also move the funds to another tax deferred retirement account, such as a Traditional IRA or a 401k at your new employer. Make a wise choice to keep the funds invested toward your retirement and avoid paying the taxes today. Where will you work next? If you are going to work at another university in the State of Illinois or to another workplace in Illinois with a public retirement system, it is better to leave your money with SURS.  If you work at another university, your account with SURS will continue and you don’t have to make any changes. For example, if you switched from working at the University of Illinois in Urbana to Illinois State University in Bloomington then you are still a SURS participant.  If you go to work for another public employer in Illinois such as a city or school district, you are eligible to receive reciprocal retirement benefits If you go to work for another public employer in Illinois such as a city or school district, you are eligible to receive reciprocal retirement benefits. This means the record of earnings you have in each system can be combined to raise the base for your pension calculation in whichever systems you draw retirement from. You will need at least one year of service credit in each system to gain the reciprocal retirement benefit. This combination of benefits can really boost your retirement paycheck.  Do you believe you might return in the future? If you are close to being vested with 10 years of service or achieving the 20 years required for health insurance paid by the State of Illinois, you may want to leave your money with SURS while you work somewhere else. That way, you can return to the University of Illinois or another Illinois public college in the future and pick up the last few years you need for fully paid health insurance or to achieve a pension payout if you are in the traditional or portable pension. Final thought. As mentioned, this is a complex subject. This article covers just the tip of the iceberg. If you are planning a life transition, and are looking for advice on how to handle your investments within SURS or other pension systems, the Peak Wealth Planning team can guide you toward the solution that suits you best. You may also be interested in reading: New to SURS? Selecting the Right Retirement Plan for Illinois University Employees Big Changes To SURS Self Managed Plan (And What It Means For You) Does Your Retirement Include Guaranteed Income Streams? How Long Will Your Money Last in Retirement? Other Useful Resources: Read through the SURS Plan Choice Guide - Tier II - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

The 401(k) plan has grown to become the most popular type of employer-sponsored savings plan in America. It is a way for you to save for retirement via direct payroll contributions, thus ensuring you have dependable income available when you retire. If you are employed at a company offering a 401(k) plan, then it is in your best interest to understand the key benefits of this particular retirement investment strategy. I’ve answered 11 typical questions received from inquisitive readers, and am sharing these insights with you below. 1. What are the benefits of a 401(k)? Contributing to a 401(k) provides an automatic method to add to your future retirement fund. Your employer automatically deducts your contributions every paycheck, which means you won’t even miss the money. Company sponsored 401(k) plans typically offer an employee match to encourage participation. This essentially means you have an opportunity to receive bonus money toward your future retirement fund. So if your company’s plan is among the 70% offering a matching contribution, don’t pass up the opportunity. Participating in a company sponsored 401(k) plan offers two tax breaks. First, your contributions are tax-deductible. The money you contribute doesn't count toward your gross income for the year, lowering your tax bill. Second, your money grows tax-deferred, meaning your earnings are rolled back into the plan and don't have to be listed as income on your tax return until you begin to withdraw them. Your savings grow faster this way. 2. What if my company offers a Roth 401(k) option? If you are employed at a company offering a Roth 401(k) plan as an optional alternative to the traditional 401(k) plan, then you should understand the major differences between the two before you decide which option is better suited for you. The Roth 401(k) is a type of retirement savings plan that allows you to make contributions after taxes have been taken out. This type of investment account is well-suited for people who think they will be in a higher tax bracket in retirement than they are now, as withdrawals are tax-free.  Introduced in 2006, Roth 401(k) plans are relatively new. It was designed to combine features from the traditional 401(k) with the Roth IRA. Think of it as a hybrid. With a Roth 401(k) you can take advantage of the company match on your contributions just like a traditional 401(k). However, unlike your contributions, the employer's contribution is placed into a traditional 401(k) plan, and it is taxable upon withdrawal. Many employers have found the additional administrative demands of offering the Roth 401(k) outweigh the benefits to their employees and elect to not offer the option. 3. When should I participate in the 401(k) plan? If your company offers a 401(k) plan, take action today! The earlier you begin to participate and the more you contribute each paycheck, the better your chances of accumulating a substantial retirement nest egg. 4. What investments can I choose? Usually you must choose among a list of investments your employer’s plan offers. Some of the options you may be able to select include stock mutual funds , index funds , bond funds, or a target date funds . Your plan sponsor or a financial advisor can provide a recommendation for a fund based on your age and planned retirement date. 5. How much can I contribute? The maximum 401(k) contribution for 2023 is $22,500 if you are under age 50 and $30,000 if you are over age 50. At the very least, you should contribute enough to get whatever company match your employer is offering. After all, this is free money.  If your budget allows you should contribute at least 15% of your salary to the 401(k). 6. How much can my employer match? During 2020, the combined employee and employer contribution to a 401(k) is $57,000. This means if you contribute $26,000 an employer could hypothetically contribute $31,000. However, most employer contributions are based on a percentage of your pay. For example, if you make $200,000 each year, an employer will contribute 5% of your salary as a match to your 401(k) contribution. That would equate to being $10,000 from the employer even if you max out your contributions.  7. Do I get to keep the employer match if I leave the company?  Companies use benefits as incentive for employees to stay long term. For 401(k) participants, this means you’ll need to understand what the vesting schedule is before you make any major career moves. The schedule for your particular plan should be clearly spelled out in the information your employer provides about its 401(k) plan. If you don't see it, ask someone in your human resources department or the employee who provided you with new hire forms.  The process of becoming vested takes place on a schedule. If it's an Immediate Vesting Schedule, then you own the employer matching dollars as soon as they are contributed. If it's in your 401(k) account, it's yours. If it’s a Graded Vesting Schedule, then you will vest a certain percentage of the employer contribution over a period of time, until you are fully vested (you own 100% of the employer match). For example, it may take you 5 years to become fully vested beginning with 20% being vested at the end of your first year of employment. If it’s a Cliffed Vesting Schedule, you will become fully vested at a specific time, and there is no interim percentage vesting like with a graded vesting schedule. Employers have up to three years to vest employees in a cliff vesting schedule, meaning at the end of the 3rd year you’ll be fully vested. Once you are indeed vested, then you own the rights to the money contributed by the company in your retirement account. If you leave the company's employment before you are vested, you will have to forfeit the matching 401(k) money. 8. If I leave my employer, what should I do with my 401(k)? Either open an individual retirement account (IRA) and move the funds there. Or, roll the money into your new employer’s 401(k). We generally don’t recommend leaving money with an old employer because it is too easy to lose track of your accounts especially if you change jobs every few years. 9. When can I withdraw money from my 401(k)? You can begin taking withdrawals from your 401(k) at age 59 ½. If you withdraw earlier, you will pay a 10% penalty to the IRS.  10. What are the biggest 401(k) mistakes? The two biggest mistakes are not starting contributions early enough and withdrawing from a 401(k) for emergencies. Not starting contributions early enough. If you start investing at age 35 you can invest $820 a month in a 401(k) with stocks and bonds and wind up with $1 million at age 65. If you wait until age 45 to invest, you will need $1,920 a month. If you withdraw from your 401(k) for an emergency, you will likely not be able to save enough for a comfortable retirement. You should have an emergency savings account instead. 11. When is it a good idea to skip the 401(k) plan? If your employer doesn’t offer match contributions with the company’s 401(k) plan, then you may be better off considering alternative investment strategies. Since the money you contribute to your 401(k) will be taxed later in life and often has limited investment options, you may want to opt for an alternative retirement savings account, such as a traditional or Roth IRA. A disadvantage with the IRA is the low cap to your annual contributions. Final Thought. Plan for the future while protecting your assets. No matter how savvy you are at investing, there is no way to predict what our economy is going to look like several years from now. There are a few essential things to keep in mind: Diversify your portfolio. Your 401(k) plan should be one of the eggs in your metaphoric basket.  Remember corrections are temporary. Keep in mind that the volatility of the market will always affect your assets to some degree. Corrections are normal and temporary. Invest for the long term. No matter how close you are to retirement, stick to a sound investment strategy so your money will never run out. Meet with a financial advisor. Schedule regular meetings with your financial advisor to ensure you know how your portfolio is growing towards meeting your future goals. Are you interested in learning how a financial advisor can help you achieve your goals? Contact the Peak Wealth Planning team to see if you will benefit from a financial coach. You may also be interested in reading: Does your retirement include guaranteed income streams? Answers to Your Top Social Security Questions - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

As you venture closer to your retirement milestone you may consider what proportion of living expenses will come from guaranteed retirement income. After planning diligently, you likely have a mix of income sources to draw on during retirement. Non-guaranteed income sources may even make up the majority of your income stream if you have spent your working years prioritizing building wealth.  Having a solid financial plan to utilize both guaranteed and non-guaranteed income will allow you to sleep better at night. What is Guaranteed Income? Guaranteed income is fixed income, meaning it’s money you can depend on receiving for the rest of your life. It comes from sources including: social security, pension payment, and annuity payments. Social Security Social Security is an important social welfare system in the U.S. for retirement income. You and your employer pay a portion of each paycheck you earn into the social security system. The benefit amounts you’ll be eligible to claim are based on the earnings reported to the Social Security Administration and the time you elect to begin your benefits. Once you start filing, social security will pay you a monthly benefit for the rest of your lifetime. Have more questions about Social Security? Read more in Answers to Your Top Social Security Questions . Pensions Pension payments come from working at a company or government entity for a long period of time and in return, once you retire, the company pays you a regular monthly income. Although becoming more rare, some folks in the private company sector still have traditional pensions. Today, pensions are more likely to be found for teachers and federal employees. Later this month, I’ll be sharing some information valuable for individuals part of the State University Retirement System (SURS) or systems similar to SURS. Annuity  An annuity is a contract between a person (or married couple) and a life insurance company. You can purchase an annuity with a portion of your retirement savings in either a single payment or with multiple payments, depending on the type of annuity. Annuities can ensure that your retirement income is steady even when there are downturns in the stock market. No matter how your other investments perform, annuities can provide you with a source of protected lifetime income. Contact your financial advisor or insurance provider to learn more about how an annuity could become one of your retirement income sources. Use guaranteed income to support your basic needs. For retirement planning purposes you may want to consider allocating the funds from social security, an annuity contract, or a pension payment to meet your basic needs such as rent or mortgage, utilities, health insurance, and groceries. What is Non-Guaranteed (yet predictable) Income? Non-guaranteed income is variable income, meaning it’s money you invested throughout retirement (or inherited) with the intention of withdrawing from throughout retirement. It is income that’s subject to market changes and is not guaranteed to last indefinitely. This income may include: planned withdrawals from 401k or mutual funds, dividends paid by stocks, appreciation of stocks, interest paid on bonds or from a bank account, and rental property income. Just because income isn’t guaranteed, doesn’t mean that it isn’t reliable. These sources may also require closer management and planning. Just because income isn’t guaranteed, doesn’t mean that it isn’t reliable.  401k Plan If you have a company sponsored 401k plan, you may have significant wealth in mutual funds. The total value of a 401k will dictate the regular planned withdrawals from your 401k which can be used to meet basic needs or more lofty lifestyle goals such as travel or a grandchild’s wedding.  Financial planners recommend that withdrawals be modest, roughly 4% of the total value. For example, if your 401k has $1 million, you may withdraw $3,000 a month and potentially not run out of money. Modest withdrawals from a 401k can provide predictable retirement income. Stock Dividends Another source of income during retirement are dividends paid from stocks. One thing to look out for is when a company is paying out a large portion of its earnings as a dividend. If the company’s earnings drop, it may be forced to cut the dividend payout. If you want reliable dividend income during retirement, you should consider working with an investment manager or financial advisor to create a selection of stock across different industries ranging from communications to industrials to consumer stocks. That way if earnings or dividends are cut in one industry, your other dividends may still be flowing. The more diversified your dividend stock portfolio, the more reliable income you might expect. Appreciation (Change In Value) of Stock If you own a stock or selection of stocks that has gone up significantly in value, you might consider selling a portion of that increase to meet your living expenses. If you have a significant portion of your wealth in a single highly appreciated stock, selling a little bit each year not only allows you to pay living expenses, but you may wish to work with a financial advisor to take some of your ‘winnings’ and re-invest in a diversified portfolio of stocks to reduce the risk of losing your wealth if a single stock goes bad. Interest Paid on Bonds or From A Bank Account You may earn less income on government backed or investment grade corporate bonds, also known as ‘safer’ bonds, but your nest egg will be preserved. This might allow you to take advantage of an upcoming real estate correction and sleep at night knowing a portion of your wealth is safe. It is a good idea to keep money you will need for expenses during the next year in a savings account (even if earning little to no return) or short term Treasury bills. Rental Property Income Many families who have created wealth typically own various real estate properties. When well managed, real estate can generate substantial current income. This income may not be fully guaranteed, but if you have a diverse portfolio of investment properties without too much debt and a solid management team, you can probably draw a steady income during retirement. Like an idea of the returns various investment vehicles offer today’s market?  At the time of this writing, $100,000 in IBM stock is paying around $5,200 a year or $100 a week in dividends. For comparison, an investment of $100,000 in U.S. government bonds (2 year Treasury notes) is paying $1,500 or about $30 a week. But, the IBM stock could be worth $75,000 tomorrow or $125,000. The value of stocks moves around much more dramatically than bonds. An investment in a stock mutual fund owning the largest 500 US companies (S&P 500) is paying about $1,850 a year or $35 a week.  Final thought. If you need help aligning your retirement lifestyle spending with guaranteed and non-guaranteed income sources, please reach out to the Peak Wealth Planning team. Having a solid financial plan to utilize both guaranteed and non-guaranteed income will allow you to sleep better at night.  You may also be interested in reading: How Long Will My Money Last in Retirement? Answers to Your Top Social Security Questions Don’t Miss Your Boat: Plan for Insurance Changes Before Retirement - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Aah retirement, the nirvana and reason you are working so hard today. In this upcoming chapter of your life, your focus will shift from career goals towards self-determined purpose or even a cruise.  You’ve probably considered what you will do to fill your time and the expenses associated with the activities on your bucket list . However, there are expenses you may have overlooked. As you enter your final stretch before retirement begins, give yourself an insurance audit to make sure you are prepared for the unexpected. This article covers four types of insurances you should consider and why. 1. Consider health & supplemental insurance. For many of us, despite our best efforts , our health will decline as we age. This can add up to substantial medical bills after you have left the workforce. If you plan to retire before age 65, you should consider the cost of health insurance between the time you stop working and your eligibility for Medicare begins. The premiums can be shockingly high (around $10,000 to $14,000 a year), and you should identify a source of funds to cover this cost.  At age 65, you are eligible for Medicare. However, don’t be fooled into thinking Medicare is low cost. For the average adult, Medicare requires supplemental Medigap insurance and other insurances. This can typically run $7,200 a year (or more) per adult by the time you add in premiums and deductibles.  Too many individuals don’t realize their health needs could change dramatically as they age. So while you may help avoid some expenses by making healthy choices now, it is wise to prepare. Make sure funding Medicare and supplemental insurances are part of your overall financial plan. Plus, consider adding a Health Savings Account (HSA) to your financial plan to take advantage of its triple-tax savings. 2. Consider long-term care insurance. Someone turning 65 today has almost a 70% chance of needing some type of long-term care services and support in their remaining years. You may never need a nursing home or home care services, but in the event you do, long-term care (LTC) insurance protects your assets when your healthcare costs spike. Long-term care insurance is private insurance that covers nursing home care, assisted living care services, and any costs associated with home care should you require it. It works as a supplement to Medicare or Medicaid, which typically only cover medical-related activity. Long-term care is costly and Medicare only covers a limited nursing home stay after hospitalization. And if you are under the impression Medicaid will be available to you in the event you require long-term care, think again. To qualify for long-term care benefits through Medicaid you must have very low income and virtually no assets.  The ideal time to consider purchasing a long-term care policy is between age 45 and 60. If you wait until you are older or ill, the policy may be unavailable or too costly. Contact your insurance agent to compare plans and see if your life insurance policy offers a rider. You can also consider self-insuring, meaning you take what you would be spending on premiums and investing those funds instead. By self-insuring, you have the flexibility to spend your money how and when you want. Plus, if you never end up needing long-term care you can use your savings for other medical costs or just for living expenses. However, by self-insuring you also take on some risk. Will you have the discipline to save and invest the premium you would otherwise be paying for long-term care insurance? Will you have the discipline to earmark that money for medical expenses? As with any investment, market risk is a concern as well. You’ll be assuming the risk that the money will grow and be there when you need it most. Your financial planner can help you assess the self-insurance option. 3. Consider life insurance. If your wealth has grown substantially during your working years, your need for life insurance may decline or be eliminated during retirement. However, there are situations where you may need to maintain or even increase life insurance during retirement.  Here are some examples: You’ve started a business and taken on debt or significant financial risk. You’re invested in real estate and have a significant mortgage balance. You’ve remarried to a younger spouse and would like to provide financial support. You had children later in life who may need ongoing financial support. Your retirement savings are not sufficient to adequately care for your heirs. You’re very wealthy and would like insurance to pay your estate tax bill. It is a great idea to include a comprehensive review of life insurance when you speak with your financial advisor about retirement planning. Learn more about life insurance in There's a Global Pandemic. Should I have Life Insurance? and Who Should Be My Life Insurance Beneficiary . 4. Consider liability coverage for home & auto policies. If you are liable for a home or auto accident, claims against you for medical bills or other expenses can be substantial. You don’t want your assets put at risk, which is why it is a good idea to review your liability coverage. Personal liability is optional coverage available on your homeowners and auto insurance policy. It covers you against lawsuits for injury or property damage that you or a family member causes to other people. Liability coverage pays both the cost of defending you and for the damages a court rules you must pay up to the limit established with your policy. For example, most policies provide a basic limit of liability of $300,000, but this amount can be increased for additional premium. You should buy enough liability coverage to protect your net worth.  To make an assessment with your financial advisor, consider whether property or investments you own are worth a great deal more than the limits of liability on your current insurance. If the answer is yes, you should consider protecting yourself further by adding an umbrella policy proportional to your wealth. The cost of umbrella coverage depends on how much liability coverage you carry on your basic homeowners policy and the kind of risk you represent. For example, purchasing a $1 million umbrella policy could be as little as $150 a year in extra premiums if you only own one home and are a low risk driver. This cost could inflate to $300 or more if you also have a lake cabin, ski boat, and sport vehicles because of your exposure to risk. Ask your insurance agent or financial advisor to solicit multiple quotes. Final thought. To help you figure out the best way to care for your family and cover serious risks, discuss these questions with your financial advisor: How much debt do you have now and what debt do you plan to take on in the future? Is there a steady income stream available for your family if you were to pass away? What is your net worth? What are my other liability risks? Peak Wealth Planning recommends a comprehensive review of your insurance coverage at least 10 years before your planned retirement. Schedule a call to learn more today and begin achieving peace of mind. You may also be interested in reading more about these key retirement issues: Three Reasons to Get a Health Savings Account (HSA) How Long Will My Money Last in Retirement? Prepare for your Retirement on a Fixed Income Three Questions about Planning and Paying for Alzheimer’s Care You may also be interested in reading more about Insurance: Life Insurance Explained: Term vs Whole Life Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

Ideally, retirees should have multiple sources of retirement income. For millions of Americans, one key source are social security benefits. In this post, we will explore answers to commonly asked questions about social security. When do I become eligible to receive social security? Americans first become eligible for social security benefits between ages 62 to 67, but monthly benefit amounts depend on how early you elect to start. Choosing when to begin receiving social security benefits is an important part of your retirement income plan. If you start receiving benefits when you reach full retirement age (66 or 67 for most people) you will receive your full benefit. If you delay receiving benefits until age 70, you will receive a greater monthly benefit. If you collect social security before you reach full retirement age, say at age 62, your benefits will be dramatically reduced. Here is an example: Social security has a term called full retirement age which dictates based on your birthdate when most people will stop working and start collecting social security. Let’s suppose you start claiming monthly payments of $2,000 at age 66. If you start claiming 4 years early at age 62, you may receive 25% less or only $1,500 per month benefit. This lowers income for the rest of your life. On the other hand, if you wait until age 72 you will get an extra 32% monthly income or $2,640 in this example.  Whenever you take social security you get small annual cost of living increases, but the best thing you can do is visit ssa.gov to find your full retirement age and create your own benefit estimate. How do I know if I can collect social security? You must have worked at least 10 years full time to receive social security benefits at retirement. What if I did not work, but my spouse worked? Spouses can claim benefits regardless of whether they held paid jobs, based on their partner’s record. To qualify, the spouse with a work record must already be receiving retirement benefits and the non working spouse must be at least age 62. If the non working spouse waits until full retirement age, they will receive a spousal benefit of up to 50% of their partner’s full retirement benefit. How do I know what my monthly benefit will be? Your monthly social security benefit is based on your highest 35 years of averaged earnings. You can visit ssa.gov and use the retirement estimator to see your personal benefit amount. Can my social security benefit be reduced? For individuals with government sponsored pensions such as teachers, police officers, firefighters or other public employees, there is a high probability that your social security benefits will be reduced or possibly eliminated. One way to avoid this is to have 30 years of social security earnings from a non-government source in addition to your government pay. But, your non-government pay must meet an earnings threshold test which is $25,575 in 2020 and increases by inflation each year. What if I am a widow? Widowed spouses become eligible for 100% of their partners full benefit unless they also have a job and the benefit they’ve earned through their own income is higher. What if I am divorced? If you meet the following criteria below, you may be eligible for social security based on your ex-spouse’s earnings record. The marriage lasted 10 years or longer You have been divorced more than 2 years You are unmarried and age 62 or older Your ex-spouse is entitled to social security benefits If you have an earnings record with social security, your benefits may be primary and your ex-spouses may be secondary. Contact your local Social Security office to get an estimate, based on your former partner’s benefits, that you can receive as a divorced spouse, Call Social Security at 800-772-1213 to make an appointment.  Are social security benefits taxed? It depends on how much you earn while collecting social security. For example, if you earn above $34,000 if single or $44,000 if married you may be taxed on up to 85% of your social security benefits. How do I apply for benefits? Apply at your local Social Security office, by telephone 800-772-1213, or online at ssa.gov . You should apply within four months of the date that you want benefits to start. Will social security run out of money? Under current projections, the program should be able to pay full benefits until 2035 when the funds are depleted. After that the program’s income from current workers is expected to pay about three-quarters of scheduled benefits until 2093. It will be up to lawmakers to correct the tax rate or make other programmatic changes to avoid a failure. What should I do if I am concerned about the possibility of a social security failure? Save in other retirement buckets such as a workplace 401k or an Individual Retirement Account (IRA) so you are not solely reliant on social security. I have a very high income, what is the maximum amount of social security I can receive? The maximum monthly Social Security benefit that an individual who files a claim for Social Security retirement benefits in 2020 can receive per month is as follows: $3,790 for someone who files at age 70 $3,011 for someone who files at full retirement age (FRA) $2,265 for someone who files at 62 To plan ahead, keep the following four things in mind: To qualify for Social Security at age 62 requires 10 years of work. The maximum monthly Social Security benefit that an individual can receive per month in 2020 is $3,790 for someone who files at age 70.  If you are healthy and expect to live a long life plus have other sources of income before age 70, you should seriously consider delaying your social security benefit. Check your social security statement each year to make sure your earnings are properly recorded. You can compare this with the W-2 you receive from your employer. Promptly contact your local social security office to correct any errors. If you’d like to discuss how social security fits in with your overall retirement plan, the Peak Wealth Planning team can assist. You may also be interested in reading: Preparing for Retirement on a Fixed Income 6 Ways to Protect Your Financial Future Healthy Life, Healthy Returns Are you wealthy? Know your Net Worth. - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

If you are an ESOP (Employee Stock Ownership Plan) participant it is imperative you consider when and what you will do once you are eligible to diversify your shares or receive distributions. An ESOP is a wonderful benefit from your employer. If you’ve been with the company long enough, you may have a significant amount of your net worth invested in your employer’s stock. This is all well and good if your company continues to grow. However, having a large concentration of employer stock could expose you to huge losses if things go sideways. Take Kodak as an example. At one point, Kodak was the 5th most valuable brand in the world. Owning shares in Kodak seemed a sure thing. Unfortunately, when Kodak declared bankruptcy in 2012 employees participating in their ESOP program faced tremendous financial loss. In fact, this situation is why the IRS requires ESOP plans to allow employees to diversify a portion of their stock once they reach a minimum eligibility requirement. Often, the minimum is 10 years in the plan and age 55. Companies use the term diversification when you sell stock back to the company while you are still working. Companies fulfill stock repurchase obligations, or diversification , when an employee reaches age 55, buying 25% of an employee’s stock, and another 25% again at 60. The employee’s remaining stock is repurchased during retirement across 5 years. What you do with the cash you receive is up to you. You can pay the tax and spend what remains. Or, you can delay paying the tax and move that cash to an Individual Retirement Account (IRA). You can use your IRA to invest in a diversified portfolio. This is where the term diversification comes from. You move your nest egg from a single stock to many different stocks, bonds, or mutual funds. Diversification protects you from the risk that a single company may do poorly. And, diversification may help to protect and further grow your wealth. Diversification happens while you are still working for the company while distribution happens once you retire from the company. Companies use the term distribution when you sell stock back after you've retired from the company. At retirement you sell stock back to the company over a certain number of years, typically five. For example, you retire at age 65 and sell back one-fifth (20%) of your stock to the company each year during a five year period.   Similar to diversification , what you do with the cash is up to you. You can pay the tax and spend it immediately, or move the cash into a tax deferred IRA where you invest in a portfolio of mutual funds, stocks, and bonds. How do I actually sell my shares back to the company? At the end of each year, the company will send you a statement saying how much your stock is worth. Upon reaching the milestone age for diversification or retirement, the process for selling shares back to the company begins with the stock record keeper notifying you of eligibility. You’ll be asked to sign into a company website and complete a form. This form will indicate the number and value of shares eligible to be sold back to the company. Once completed, the company will issue a check. You can spend the check or deposit it to your IRA. Why should I move cash from my ESOP diversification or distribution to an IRA? Moving your ESOP cash to an IRA allows you to continue to grow your wealth for retirement by investing in a variety of stocks, bonds, and mutual funds.  IRAs have many more investment options than 401k accounts and the mutual fund fees may be lower than your 401k.  You can plan withdrawals from your IRA with the help of a financial advisor to create a steady retirement paycheck. You can spread the taxes owed on your company stock over many years instead of paying a large amount all at once.  How much risk is there with my ESOP concentrated stock? Ideally, your ESOP is not the only wealth building vehicle in your portfolio. The more company stock you own, the higher your concentrated risk.  Take these two extremely different retirement accounts as an example. Account A has a total of $500,000 in their portfolio with the ESOP account making up 20% of its overall value. If their ESOP flops overnight, they will still have 80% of their savings for retirement. Account B has a total of $4,000,000 in their portfolio with the ESOP account making up 80% of its overall value. If their ESOP flops overnight, they would have only 20% of their anticipated retirement savings.  As you near retirement it becomes essential to lessen your risk through diversification. Taking your concentrated stocks from the ESOP and moving it into an IRA will spread the risk among a variety of companies rather than just one. Why should I invest cash from my company stock in an IRA instead of spending it? If you cash the check, you may have a larger tax bill and ultimately less retirement income than if you move the proceeds to a diversified IRA account. Further, the temptation of spending all of the cash at once on a very expensive purchase may be too great to resist.  Depositing the funds into an IRA will spread your tax obligations across many years, and allow the funds to continue growing. You should be able to take sustainable withdrawals from your IRA throughout retirement. When properly invested, your IRA should provide 3% to 5% of the value to withdraw for living expenses each year.  In the example shown below, at age 69 this person has $2.4 million in their IRA and could potentially draw about $90,000 per year.  Your financial advisor can help you do this type of modeling or you can have the Peak Wealth Planning team create your customized Retirement Income Forecast . What are the risks of running out of money during retirement? The risk of running out of money could mean you need to take a reverse mortgage on your home (assuming it is paid off), move to a less expensive home or area, or lean on family for financial support.  How much you spend each month relative to the total amount you have saved affects your potential to run out of money. As a rule of thumb, you should not spend more than 3% to 5% a year of your investments for retirement if you do not want to run out of money.  Work with a financial planner to develop a retirement income projection. Mapping out your desired spending and aligning that with your various investments will set your mind at ease. Timing of your action will greatly influence your income. The choices you make will have a big impact on your retirement income.  The time you elect to begin social security can make the difference between 20% less or 42% more monthly income. Gauge your anticipated life expectancy before committing to your start date. The timing of selling your stock (ESOP) back to the company could dramatically affect your retirement. Typically following the diversification and distribution schedule is wise, but seeking the counsel of a financial advisor that specializes in ESOP distribution will provide you with additional insights.  What you do with the cash from selling company stock back to the company can greatly impact the yearly income you receive during retirement. Final thought. Decisive actions you take today could make the greatest impact on your financial future. If you are uncertain or would like a second opinion regarding diversification of your company holdings, the Peak Wealth Planning team can assist. Continue learning about ESOP: How Peak Wealth Planning helps ESOP participants Our Collection of Resources Specifically for ESOP participants Access Peak Wealth Planning's eGuidebook for Employee Owners - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

There isn’t an exact science to estimating how long your money will last you after retirement. There are many variables at play — your lifestyle, future inflation rates, investment returns, unforeseen expenses — and all of them can dramatically affect the longevity of your savings. But there’s still value in coming up with an estimate. What do you want of your retirement? The first question I ask of anyone approaching retirement is, “What is your retirement vision ?” What would you like to do with the extra 40 hours once you are no longer working full time? Perhaps take up a new hobby? Volunteer? Work part-time? Travel? Knowing what you intend to do with your time reveals what you will need financially to support that vision. To keep your retirement spending within budget, aim to spend no more than 3-5% of your investment per year. This assumption is based on the fact that your investment should grow at a similar or better pace. Therefore, your nest egg should remain the same throughout your retirement. Following this basic rule of thumb throughout retirement will insure you do not want to run out of money. Your worst case scenario is underestimating how long you will live or the amount you will need to live your best life. Begin by checking out this Life Expectancy Calculator . What expenses may change during retirement? First, if you currently have a budget, sit down with your spouse or partner and review your budget .  Try to estimate expenses that might decrease when you retire. For example, your children may finish college or you may stop paying for a cell phone bill or subsidizing rent. Your mortgage may be paid off in a few years. Make a list of any expenses that may end.  Then try to estimate expenses that might increase in your retirement . For example, if you intend to travel more, set an annual budget for road-trips or air travel. If you are planning to nurture new hobbies, budget their costs. Some hobbies can be inexpensive such as drawing and reading or very costly such as sailing and skiing.  Most importantly, create a retirement budget even if it is not perfect. How will my healthcare expenses change during retirement? Healthcare expenses inflate 6% per year. Your health care expense may double during the duration of your retirement. Be sure to include funding for increased health care insurance premiums and out of pocket deductibles. These can run up to $14,000 a year prior to age 65 (per person). And $7,200 a year starting at age 65 for Medicare and Medigap insurance you purchase.  Remember that Medigap policies don’t cover long term care, vision or dental care, hearing aids, eyeglasses or private duty nursing. So, you should plan for out of pocket expenses or shop for insurance. Review Medicare.gov’s Out of Pocket Cost Calculator to help estimate future expenses and look for a good supplemental policy. Lastly, check to see if you can stay on your employer’s group plan during retirement.  What other insurance should I consider before retiring? Because long-term care has become more expensive, you may want to consider long-term care insurance . Straight long-term care policies that pay a daily benefit have become almost cost prohibitive, which is why I would recommend evaluating if your life insurance policy offers a long-term care rider. It may also be worthwhile to evaluate whether you have sufficient wealth (or sources of income) to self-fund long-term care. Work with a financial advisor to evaluate setting aside sufficient long-term care funding before you retire. Place those dollars in a separate investment account earmarked for long-term care.  How do I replace my income in retirement? How long your retirement income will last depends on the sources of the income you will have at your disposal.  Social security (and a pension if you are lucky enough to have one): One of the major benefits of social security is it will be paid until you pass away. At age 67 or 70 you should receive somewhere on the scale of $1,500 to $3,000 per month in social security benefits. If you take social security early at age 62, your benefit will be dramatically reduced. Head to the SSA website to begin estimating your Social Security Benefits . 401k, IRA, Brokerage Accounts, or ESOP (rolled into one of the latter): For every $500,000 in your investments accounts, anticipate approximately $1,500 to $2,000 per month in steady retirement income. So if you have $1.5 million, you should be able to generate about $3,800 to $6,000 a month before income taxes. Work with your financial advisor to confirm these amounts. Annuity: Perhaps you have been paying into an annuity contract for 20 years, you may be able to receive a stream of monthly income when you retire. You can also buy a single premium lifetime annuity that pays you income for life and potentially to your spouse. Your financial advisor or insurance agent can help you evaluate options. Inheritance: Each $500k of funds you inherit should generate approximately $1,700 a month in income during retirement. This assumes a 4% withdrawal rate and how long the money lasts will depend on how you invest the $500k.  If you inherit or own rental real estate or a family business, your income could vary dramatically. Use the Peak Wealth Planning Income Replacement Calculator to give yourself a full picture of what you have now and what you will continue to contribute to your investments in the years leading to retirement. Final thought. How much you have saved and your retirement lifestyle (budget) are the leading factors to determine how long your money will last. I always tell my clients to make a commitment to paying yourself first while working, be strategic in your investments, and be realistic with your budgeted spending. By doing all three, you will be able to live your retirement vision. If you are requiring guidance on your path towards retirement, the Peak Wealth Planning team can assist. You may also be interested in reading: Enjoy your Retirement Roadtrip - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

The purpose of life insurance is to give someone money if you die. The beneficiary is the person who receives a death benefit payment when an insured passes away during the covered term. Whether you leave behind $50,000 or $1 million it’s important to choose who receives the money and keep that person up to date on your policy. You can generally add one or more life insurance beneficiaries. If you put multiple people, you can divide the proceeds evenly or give a specific percentage to each. You can name a primary beneficiary who is ‘first in line’ to receive funds such as your spouse or partner, and then you can name a secondary beneficiary such as adult children or a charity. If you have minor children, you may want to consider a custodial account to receive life insurance proceeds. Under the Uniform Transfers to Minors Act , you can set up an account for your child with a financial institution, such as a bank or life insurance company. This is in effect within most states. You name a custodian — a person you trust — who manages the life insurance money, and other assets you might have in the account, as they see fit while the child remains a minor. You can also establish a trust for your child and name the trust as the beneficiary of the policy. This is a more precise, albeit complex, way to ensure that your exact wishes for your children are followed. The trust, which is a legal document, spells out the person you choose as the trustee and how you’d like the money to be managed and spent. To ensure the trust is set up properly, consult with a qualified attorney. What if I Don’t Choose a Beneficiary? If you don't choose a beneficiary, the policy generally pays out to your estate. That puts the cash up for creditors and lenders who will try to get the money for unpaid debts instead of writing a check directly to your loved ones. What About My Will or Trust? Life insurance beneficiaries are final. A will or a trust controls what happens to your assets like bank accounts, investments, real estate, and possessions. However, life insurance is outside of a will or trust. You have to update your life insurance beneficiaries through your provider; it cannot be done through your will. If you don't keep them updated, the results can be catastrophic for your family. For example, if you get divorced and forget to update your policy, your ex will receive your death benefits.  How are Death Benefits Paid? Since the inception of the industry more than 200 years ago, beneficiaries have traditionally received lump sum payment of the proceeds. The default payout option of most policies remains a lump sum, which is typically tax free.  Another option can provide a stream of income, or an annuity , in which the proceeds and accumulated interest are paid out regularly over the life of the beneficiary. The policy owner may select a predetermined period to provide his or her family a guaranteed income stream for a period of five to 40 plus years. There may be tax due on the interest component of an annuity payout. Some life insurance companies have designed policies that allow their policyholders to draw against the face value of the policy in the event of a terminal, chronic or critical illness. You may want to review this option or a long term care rider while shopping for life insurance. “Tomorrow is never guaranteed to anyone,young or old. Today could be the last time to see your loved ones, which is why you mustn't wait; do it today, in case tomorrow never arrives.” Gabriel García Márquez Have further questions? Life insurance is a complex topic. If you’ve questions or need guidance in navigating this topic, please don’t delay. Reach out to the Peak Wealth Planning team. Tomorrow is never guaranteed to anyone. Let me help you achieve peace of mind knowing your family is taken care of if you were to pass away unexpectedly.  You may also be interested in reading: Life Insurance Explained: Term vs Whole Life Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

In my previous life insurance post I discussed the reasons why you may want life insurance, the amount of insurance you should consider, and what type of insurance you should consider . This article will dive into the key differences between the two primary versions of life insurance available to you -- Term Life Insurance and Whole Life Insurance (also known as Permanent Life Insurance). Both Term Life and Permanent Life Insurance provide a death benefit to the beneficiaries, but that is where the similarities end. Here’s a chart showing the key differences between the two types of policy. Term Life Insurance Term Life Insurance pays a death benefit in exchange for the regular premium payments (for a fixed annual or monthly amount) you make for a specified period of time. Typically policies will last 10, 15, 20, or 30 years. If you die within the term or time period, the policy will pay your beneficiary the specified death benefit amount. This could range from $50,000 to $5 million or more payment tax free to your beneficiary. Term life insurance is generally the least expensive coverage. The premium you pay depends on your age, the time period you would like coverage, and the death benefit amount. If the term expires and you decide to renew, your premiums will increase. Also, you may have to undergo a medical exam to renew. Depending on the result of the exam, your premiums may be higher. Whole Life Insurance Whole Life Insurance is a permanent insurance policy guaranteed to remain in place for the insured’s life as long as premiums are paid. The premiums are level and guaranteed for the life of the policy as long as you pay them. Whole life costs more than term insurance because the policy is for a lifetime, without additional medical exams, rather than a shorter term. Whole life policies have a death benefit amount which does not change (unless a policy loan is not repaid). Whole life policies do not expire (like term insurance) and will stay in effect until you die or the policy is canceled. Over time, the premiums you pay into a whole life policy will build a cash value that may also receive dividends from the insurance company. The cash value can be taken as a loan or it can be used to help pay your insurance premiums. The loan plus interest must be repaid before you die or it will reduce the policy’s death benefit. Loans can be useful for meeting a major unanticipated expense, but remember to pay it back or your dependents will receive less money at your death. In my experience, many people between ages 35 and 55 dramatically underestimate the amount of life insurance that is adequate to meet the needs of their surviving dependents. Which kind of life insurance should I get? It really depends upon the needs of your dependents and how life insurance fits into your overall wealth building strategy. If you intend to build significant wealth by age 65, then perhaps an inexpensive term policy that stops at age 65 is sufficient. However, if you believe you will have dependents or a spouse beyond age 65 who will still rely on your income and not only your accumulated wealth, you may consider a permanent solution such as whole life insurance even though the premiums will be higher. You should consult your financial advisor and life insurance agent to discuss the pros and cons of insurance where the premiums are level (as with term or whole life) versus those with cash accounts that may earn a return but have increasing insurance costs across time (as with universal life or variable universal life insurance). In my experience, many people between ages 35 and 55 dramatically underestimate the amount of life insurance that is adequate to meet the family support and education needs of their surviving spouse, partner, or dependents. A very dear friend of mine passed away last fall and left his family sufficient life insurance. His widow was fortunate and while grieving, did not need to be overly concerned about finances . If you have any doubt about whether you have adequate life insurance coverage, the Peak Wealth Planning team can assist. You may also be interested in reading: Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

I recently spoke with an old friend living near the beach of Melbourne, Florida. He has been concerned, as many folks are, about the health scare related to Covid-19. As an entrepreneur, he is accustomed to addressing issues head on, being resourceful, and finding solutions. Which is why he reached out to me for advice. He wanted to know more about life insurance and reducing financial risk for his family. With two young sons and a wife, he worries how they would cope in his absence. Life insurance is a very important topic for your financial planning. Make sure to check out the rest of the series: Should I have Life Insurance? Life Insurance Explained: Term vs Whole Life Who Should Be Your Life Insurance Beneficiary? Do I need life insurance at all? If you have dependents such as children, spouse/partner, or aging parents who rely on the income you provide for them, then chances are you may need some type of life insurance. The death benefit from insurance provides a tax free cash payment to your beneficiaries when you die. The cash payment can replace a portion of, or all of, the income your dependents rely upon. However, if you have significant wealth in the form of non retirement investments such as stocks, mutual funds, a significant real estate portfolio, or a valuable family business, your life insurance needs could be minimal.If you invest in real estate or a business and take on debt,  consider life insurance in an amount sufficient to pay off the debt. If you have a significant net worth, over $10 million, you may want to consider life insurance to pay your estate tax bill. At a minimum, you should consult with your financial advisor to determine what amount of wealth or life insurance is sufficient to replace your income. How much life insurance should I consider? A simple rule of thumb is to multiply 15 times your annual income. So, if you make $60,000 a year, consider having $900,000 in life insurance.   If you prefer a more precise method, follow the Needs Based Approach. Your goal with the Needs Based Approach will be to cover the expenses associated with the absence of your annual salary, until either your last child is through college or your spouse is near retirement age (around age 67). When estimating the following calculations, use the number of years between now and whichever is further (child vs retirement) to discover your support obligation. TOTAL EXPENSES: Add up the following amounts Final expenses: Costs associated with funeral, attorney, medical, etc. Long-term family maintenance expenses (i.e. living expenses): necessities such as food, clothing, utility bills, insurance, and transportation. Forecasting this expense is easier if you use a budget. Important: Take the annual amount and multiply it by the number of years until you or your spouse reaches age 70. TOTAL DEBT & OBLIGATIONS: Add up the following amounts Mortgage: Primary home, vacation home, home equity loan Outstanding debts: credit card, auto loan, college loans, etc. Future college tuition expenses Emergency Fund: Ideally, you’ll leave behind a minimum of 6 months living expenses in cash. TOTAL RESOURCES MEETING YOUR FAMILY'S NEEDS: Subtract the following amounts Investments: Stocks, bonds, mutual funds, 401k, IRA accounts Bank accounts: Checking, Savings, Certificates of Deposit Existing life insurance: Face amount of all policies you already own Your ideal life insurance amount is equal to expenses (both immediate and long-term) plus your debts minus your existing resources. If you need help with the calculations above or you do not have sufficient resources to meet your family obligations today, speak with your financial advisor or a life insurance agent. What type of life insurance should I consider? We generally advise people to purchase term or whole life insurance. The reason is that both of these policies have a fixed death benefit which is what your dependents receive if you pass away. With whole life insurance, the premiums you pay can be level for your lifetime and will not increase. Level premiums can help you budget and avoid dramatically increasing insurance expenses later in life.  There are two other types of life insurance, known as universal life insurance or variable universal life insurance, which offer flexible premiums and flexible death benefit amounts. We will address these in a future blog post. How long of an insurance term do I need? Consider a policy that would take your kids through college and your spouse/partner to their full retirement age (usually age 67 or 70). This can typically be obtained in a cost effective manner using level term insurance or permanent whole life insurance. We will cover these two types of insurance in more detail in our next blog post. I can help. Due to the complexity of financial and estate planning, it is important to consult qualified professionals to ensure the life insurance policies you choose are consistent with your immediate and future wealth building, retirement, and family protection needs. As a financial advisor and insurance expert, I can help guide you in your decision making process. You may also be interested in reading: Life Insurance Explained: Term vs Whole Life Should I Have Life Insurance? Who Should Be Your Life Insurance Beneficiary? Why is Insurance an Important Investment for Protecting Personal Wealth? What do I Need to Know about Disability Insurance? When Should I Review My Insurance Plans? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .

At the end of a recent financial wellness webinar, I offered attendees the opportunity to speak with me one-on-one. I enjoy speaking with people, helping them through a complex subject, and offering them ideas on how to gain pe ace of mind.  Jane took the opportunity to schedule a call with me. She wanted to confirm whether she would  have enough money to live comfortably after retiring from the employee owned (ESOP) medical equipment manufacturing company she has worked at for 25 years. Jane shared her plans to rollover her ESOP to an IRA. And she had a 401k account with a healthy balance. We made a plan to create her retirement income projection. However, she really wanted to discuss what to do with her home equity . “How does my home fit into my retirement plan?”  Generally your home is not considered to be a part of your retirement income plan. Practically speaking, you need a place to live, and unless your home is generating income, it is more likely to count as a personal asset.  So what if you are in the circumstance of having your home be a large part of your net worth and have minimal retirement savings? If you are inching closer to your retirement date and don’t want to push it back, you may need to to make some sacrifices. This article focuses on the topic of using equity in your home to meet your income needs or lower your expenses. Here are 4 strategies you could consider if you needed to supplement your retirement budget or reduce maintenance so you can live your best retirement life. 1. Downsize and invest the proceeds. My aunt and uncle recently sold their home in Florida, receiving $250,000 after the sale. They plan to use $25,000 as a down payment to purchase a townhome for $100,000, and then use another $25,000 for remodeling. The cost of their new home with mortgage, HOA fees, and taxes is estimated at $1,000 a month. This is far less than the $2,500 a month they were spending on their previous home. With the guidance of their trusted financial advisor , they plan to invest the remaining sale proceeds of $200,000 to generate an $800 a month income. This will offset monthly home expenses down to $200, which should easily be covered by their social security income.  Looking for additional advice on downsizing? Here are some tips on what to look for when you downsize.  1. Sell your home, invest the proceeds, and rent a low maintenance townhome. A gentleman I know in Chicago had a greystone for 35 years. It had increased in value to $1.2 million. His mortgage was paid off. He sold the home a few years ago and received $1.1 million in proceeds. He was relieved to sell the home because it needed significant repairs. He split the proceeds with his ex-wife and invested $550,000 with his financial advisor. That money is generating $2,000 a month for him to supplement his retirement income. He moved to a brand new condo for $1,800 monthly rent and doesn’t have to worry about upkeep and maintenance. 3. Move to an inexpensive location. Perhaps you live in a major city with high property and income taxes . Maybe you have dreamed of country living for a slower pace of life or to be closer to nature. Or, you long for the education and community benefits of a University town with public transportation such as Champaign-Urbana where the University of Illinois is located. There can be many entertainment, education and social benefits of university communities coupled with a lower cost of living.   4. Obtain a reverse mortgage. A reverse mortgage pays you a monthly income. This is the opposite of a regular mortgage payment. A reverse mortgage is a special type of loan for homeowners who are over age 62. With a reverse mortgage you are adding to the debt on your home. Why would you want to do this? If you have significant equity in your home and limited income that doesn’t meet your living expenses, then obtaining a reverse mortgage may be your solution. Before you proceed, carefully evaluate whether the payments you receive will cover all of your expenses. It is very important to keep your home insured and your property taxes current with a reverse mortgage. This debt created by a reverse mortgage is repaid with a sale of your home upon your death.  The downside of a reverse mortgage is that there are closing costs which can be significant. However, if you want to stay in your home and use home equity for retirement expenses this is an avenue worth exploring.  Learn more about reverse mortgages on the Consumer Financial Protection Bureau website . Before taking action: talk with a financial advisor for personalized advice. There are pros and cons to each of the options above, from closing costs to the hassles of moving. If you haven’t saved as much as you wish you had for retirement, but own your home outright then you have some very good financial planning options. Before putting into action any of these options, talk with a financial advisor to get personalized advice.  Do you need help navigating the use of home equity for retirement income? If you have more than $2 million saved and need help from a wealth manager, the Peak Wealth Planning team can assist. You may also be interested in reading: Does Your Retirement Include Guaranteed Income Streams? How Long Will Your Money Last in Retirement? - - - - - - - - - - - - - - - About the Author Peter Newman is a Chartered Financial Advisor (CFA) and president of Peak Wealth Planning. He works with individuals nationwide that have accumulated wealth through company stock, ESOP shares, real estate, or running a business. Peter applies his unique background to help clients achieve their specific goals and enjoy peace of mind. Peak Wealth Planning offers personalized concierge services  to meet your wealth management needs, including  financial planning, investment management, ESOP diversification, retirement income, i nsurance, and estate planning. As a fee-based  financial advisor based in Chicago, Peak Wealth Planning serves a select group of clients in Illinois and across other states .