Category: Retirement Planning

You Inherited an IRA. Now What? 

Posted on by elaina

Navigating legislative changes like the SECURE Act and SECURE Act 2.0 can be bewildering, especially with their impact on inherited IRA Required Minimum Distributions (RMDs). But fear not! This article provides clarity with dos and don’ts, along with definitions, to simplify the process of managing an inherited IRA.

Key Considerations for Inherited IRA Beneficiaries 

Do’s: 

  • Determine the type of beneficiary you are – different beneficiaries have different rules on drawing down the IRA. 
  • Withdraw funds within the required timeframe under the new laws. 
  • Maintain at least the same withdrawal rate as the original owner if they had reached the Required Beginning Date (RBD) before their passing. 
  • Avoid the 25% under-withdrawal penalty by following the correct withdrawal schedule. 
  • If you have reached your own RBD, consider using inherited IRA RMDs for qualified charitable distributions. 
  • Understand that a “death distribution” exempts you from the 10% early withdrawal penalty but remains subject to ordinary income tax. 

Don’ts: 

  • Ignore the account and fail to withdraw funds. 
  • Overlook tax reporting requirements—each withdrawal generates a 1099-R. 
  • Assume only traditional IRAs are affected—these rules apply to Roth, SEP, and other IRAs. 
  • Neglect to consult your tax advisor for the most tax-efficient withdrawal strategy. 
  • Miss the opportunity to reinvest distributed IRA assets—speak with your financial advisor for reinvestment options. 

Understanding Your Beneficiary Type 

Inheriting an IRA comes with responsibilities, and understanding the rules can help you avoid costly mistakes. Whether you’re required to withdraw funds over a set period or have the flexibility to stretch distributions, the key is knowing where you stand. Failing to follow the guidelines can result in unnecessary penalties, but with careful planning, you can make the most of your inheritance while staying compliant with tax laws. 

Types of Beneficiaries+ –  

  • Eligible Designated Beneficiaries (EDBs) – are spouses*, a minor child of original owner, someone who is disabled**, someone who is chronically ill** or someone who is less than 10 years younger than the original IRA owner.   
  • Non-Person – an entity (i.e. Charity, or Estate)  
  • Non-Eligible Designated Beneficiary (Non EDBs) – everyone else 

Now that we understand the classifications of IRA beneficiaries, let’s look at the rules on how they must distribute the funds. By adhering to these guidelines, beneficiaries can navigate the complexities effectively. 

Withdrawal Requirements by Beneficiary Type

inherited an IRA

*Spouse beneficiaries – spouses are the only beneficiaries who can choose if they want to keep the inherited IRA as an inherited IRA or combine it with their own IRA.  There are reasons for both options, but this decision must be made no later than the year after the IRA owner’s death.  This decision cannot longer be reversed. 

**Disabled and chronically ill beneficiaries must provide qualifying documentation to Custodian no later than 10/31 of the year following the IRA owner’s death. 

***RBD – Required Beginning Date.  This pertains to the age of the original account owner and if they had already began taking annual Required Minimum Distributions (RMDs) prior to their death.  In 2024, that is April 1st of the year after turning 73. 

+Trust Beneficiaries are not mentioned in this article, as depending the type of trust and how it was established will determine if that trust is an EDB, Non EDB or Non-Person beneficiary. 

By adhering to these guidelines, beneficiaries can navigate the complexities effectively. Remember to determine your beneficiary type, adhere to withdrawal schedules, report withdrawals accurately, and seek professional advice for tax-efficient strategies and reinvestment options. Whether you’re an Eligible Designated Beneficiary (EDB), a Non-Eligible Designated Beneficiary (Non-EDB), or a non-person entity, staying informed and proactive is key to managing inherited IRAs with confidence and compliance. 

For more insights on wealth management and financial planning, check out our resource library or connect with one of our advisors at BentOak Capital.

 

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BentOak Capital (“BentOak”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from BentOak.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  BentOak is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of BentOak’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a BentOak client, please remember to contact BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. BentOak shall continue to rely on the accuracy of information that you have provided or at www.bentoakcapital.com. Please Note: IF you are a BentOak client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian.   

What Does the Social Security Fairness Act Mean for You?

Posted on by elaina

On January 5, 2025, President Biden signed into law the Social Security Fairness Act, a significant change that primarily affects former municipal, state, and federal government workers, including teachers, police officers, and firefighters. This law could add hundreds of dollars to beneficiaries’ monthly Social Security checks. 

What Was the Issue Before the Social Security Fairness Act? 

Up to now, as a retiree or surviving spouse of a retiree, if you received both a Social Security check and a pension based on work that was not covered by Social Security, your Social Security benefit would have been reduced. 

This reduction stemmed from two provisions:

  1. The Windfall Elimination Provision (WEP) 
  2. The Government Pension Offset (GPO) 

 

The newly enacted Social Security Fairness Act repeals both provisions, restoring benefits to those who had been impacted. 

What Changes Should You Expect? 

As of now, the Social Security Administration (SSA) has not officially detailed how or when the law will be implemented. However, the SSA has stated that the law applies to “benefits payable for months after December 2023.” 

Here are some key takeaways: 

  • Beneficiaries may be eligible to receive a lump sum payment for the difference between benefits actually received and what they should have received during 2024. 
  • Based on estimates from the Congressional Budget Office, monthly Social Security payments are expected to increase by $360 on average for those affected. 

What Steps Should You Take? 

Most beneficiaries don’t need to take any action other than verifying their mailing address and direct deposit information with the SSA. You can do this easily through your mySocial Security account. 

However, if you are a surviving spouse or ex-spouse who didn’t file for Social Security benefits due to a pension offset, you’ll need to apply for spousal benefits directly through the Social Security Administration’s website. 

Who Is Affected by the Social Security Fairness Act? 

The repeal of the WEP and GPO provisions impacts a relatively small group of people—about 2,730,000 individuals – roughly 4% of current Social Security recipients or approximately the population of Chicago. Additionally, future public sector retirees will also benefit from this change. While this is a small percentage of all Social Security recipients, it may have  a significant impact  for those affected.  

The Bigger Picture: Impact on Social Security’s Future 

The Congressional Budget Office estimates that this repeal could accelerate the depletion of the Social Security retirement trust fund by about six months. Insolvency is now projected to occur around 2033, a key consideration for lawmakers as they evaluate long-term Social Security reform. 

What Does this Mean for You? 

If you’re a public sector retiree or surviving spouse, the Social Security Fairness Act could restore Social Security benefits you previously lost due to WEP and GPO provisions.

To ensure you’re prepared, verify your information with the SSA and stay updated on implementation timelines. If you have questions about how this change impacts your financial plan, the BentOak Capital team is available to assist.

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BentOak Capital (“BentOak”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from BentOak.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  BentOak is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of BentOak’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a BentOak client, please remember to contact BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. BentOak shall continue to rely on the accuracy of information that you have provided or at www.bentoakcapital.com. Please Note: IF you are a BentOak client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian. 

7 Mistakes to Avoid as you Approach Retirement

Posted on by RFTB Dev

As you approach retirement, ensuring that you have a solid financial plan in place is essential for a secure and stress-free transition. Retirement is a time for celebration and relaxation, but without careful preparation, common mistakes can jeopardize your savings and quality of life. In this blog, we’ll walk you through the seven biggest pitfalls to avoid as you approach retirement, empowering you to make informed decisions for a bright future.

1. Not Saving Enough

One of the biggest mistakes people make is not saving enough for retirement. It’s crucial to start saving early and consistently to build a sufficient nest egg. How do you know if you have enough? This is an area where we can provide you clarity on.

2. Ignoring Healthcare Costs 

Underestimating healthcare costs in retirement can be a costly mistake. Be sure to factor in potential medical expenses and consider purchasing supplemental insurance or long-term care coverage. As you approach retirement, it’s vital to understand how these expenses might impact your savings and plan accordingly.

Dental expenses are a great example that folks do not think about, can have a big impact. Healthcare costs are a major expense in retirement, with estimates suggesting a 65-year-old couple in 2024 will need about $315,000 to cover medical expenses throughout their lives. Individual estimates are around $165,000 for men and $147,000 for women, largely due to women’s longer life expectancy.

Medicare does not cover all expenses, leaving retirees to handle out-of-pocket costs such as premiums, deductibles, and services like dental or vision care.

With healthcare inflation averaging around 5% annually, planning ahead using Health Savings Accounts (HSAs) or supplemental insurance (e.g., Medigap) is essential to help mitigate these rising costs.

3. Relying Solely on Social Security 

While Social Security benefits can provide a valuable source of income in retirement, relying solely on them may not be sufficient. As you approach retirement, ensure you have diversified income sources, such as savings and investments, to maintain your standard of living. For affluent retirees, Social Security typically replaces a lower percentage of pre-retirement income compared to middle- or lower-income households. On average, Social Security replaces about 40% of pre-retirement earnings for the general population. However, for higher earners, this replacement rate drops significantly—often below 20%. This is due to Social Security’s benefit formula, which is designed to provide a higher replacement rate for lower-income individuals to help maintain a basic standard of living. Affluent individuals, who may have higher lifetime earnings, rely less on Social Security as their benefits max out based on a capped income level for taxable Social Security earnings.

4. Taking on Too Much Debt

Carrying high levels of debt into retirement can put a strain on your finances. Pay off as much debt as possible before retiring to reduce financial stress and free up more of your retirement income for living expenses and enjoyment.

5. Failing to Plan for Taxes

Many retirees underestimate the impact of taxes on their retirement income. As you approach retirement, developing a tax-efficient retirement strategy is key to considering factors such as withdrawal timing, Roth conversions, and tax diversification. Tax drag on your portfolio is a real thing that could impact your ability to grow your assets long term.

6. Not Having a Withdrawal Strategy 

Without a clear plan for how to withdraw from your retirement accounts, you risk running out of money too soon or depleting your savings unnecessarily. Develop a withdrawal strategy that takes into account 

factors such as tax implications, market conditions, and longevity risk. This step is critical to having confidence about how to replace your income during retirement. A good example of this is delaying Social Security benefits and drawing from the portfolio to help with longevity risk. You will have increased benefits from Social Security in the future and by taking distributions from an IRA during low-income years you will be able to pay less tax on those dollars versus waiting until RMD age. Also monitoring if withdrawal rates are too high and unsustainable. We do not want to run the risk of running out of money and so sometimes our value is talking through this to adjust high withdrawal rates. These are two of many examples when it comes to figuring out a withdrawal strategy. We have the ability to provide a visualizer for what retirement income can look like. See below an example in projecting future cash flows and withdrawals from portfolio.

7. Overlooking Inflation and Longevity 

Failing to account for inflation and the possibility of a longer-than-expected lifespan can erode your purchasing power and exhaust your savings prematurely. Adjust your retirement plan to account for inflation and consider strategies to mitigate longevity risk, such as annuities or delaying Social Security benefits.

By avoiding these common mistakes and taking proactive steps to plan for retirement, you can enhance your financial security and enjoy a more comfortable and fulfilling retirement. The best way to make sure that you do not make these mistakes is to build a financial plan with a financial advisor. Give our office a call today to have confidence as you enter into this new chapter in life!

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

4 Must-Read Books on Making the Most of Retirement

Posted on by RFTB Dev

Retirement is an exciting phase of life, offering the freedom to explore passions and focus on making the most of retirement. It’s also a time for reflection, personal growth, and reinventing yourself. To help you navigate this new chapter with confidence and joy, we’ve curated a list of four essential books that provide valuable insights on making the most of retirement. These books cover everything from redefining retirement, staying healthy and active, finding purpose, and securing your financial future. They can guide you in making the most of retirement with practical tips on staying fulfilled and financially prepared. 

1. “The New Retirementality: Planning Your Life and Living Your Dreams…at Any Age You Want” by Mitch Anthony

Why You Should Read It 

“The New Retirementality” challenges the traditional notion of retirement as a time to wind down. Mitch Anthony advocates for a more dynamic approach, where retirement is seen as a new beginning rather than an end. He emphasizes the importance of staying engaged, whether through work, volunteering, or pursuing passions.

Key Takeaways 

  • Redefine Retirement: Break free from outdated retirement models and create a personalized vision for this stage of life. 
  • Stay Active: Embrace activities that keep you physically, mentally, and socially engaged. 
  • Financial Flexibility: Develop a financial plan that supports your desired lifestyle while allowing for unexpected changes. 

2. “Younger Next Year: Live Strong, Fit, Sexy, and Smart – Until You’re 80 and Beyond” by Chris Crowley and Henry S. Lodge

Why You Should Read It 

“Younger Next Year” offers a compelling roadmap to aging well. Chris Crowley and Dr. Henry Lodge provide a science-backed guide to maintaining vitality and health well into your retirement years. The book outlines how lifestyle choices can drastically improve the quality of life as you age.

Key Takeaways 

  • Exercise and Diet: Understand the critical role of regular exercise and a healthy diet in aging gracefully. 
  • Emotional Health: Learn the importance of staying emotionally engaged and maintaining social connections. 
  • Lifelong Learning: Embrace the concept of continuous learning and personal growth to stay mentally sharp.

3. “Retirement Reinvention: Make Your Next Act Your Best Act” by Robin Ryan

Why You Should Read It 

“Retirement Reinvention” by Robin Ryan is an empowering guide that helps retirees redefine their purpose and find fulfillment in their post-career years. The book provides practical advice on how to create a meaningful and satisfying retirement.

Key Takeaways 

  • Purpose and Passion: Discover ways to find new passions and purpose in retirement, whether through hobbies, volunteer work, or new careers. 
  • Social Connections: Learn strategies to build and maintain a strong social network, which is crucial for emotional well-being. 
  • Adapt and Thrive: Gain insights on how to adapt to the changes retirement brings and thrive in this new phase of life. 

4. “The Retirement Planning Guidebook” by Wade Pfau

Why You Should Read It 

For those who want a deeper dive into the technical aspects of retirement planning, “The Retirement Planning Guidebook” by Wade Pfau is an invaluable resource. This comprehensive guide covers everything from investment strategies to withdrawal planning, offering detailed advice for securing your financial future.

Key Takeaways 

  • Investment Strategies: Learn how to build and manage a retirement portfolio tailored to your goals and risk tolerance. 
  • Withdrawal Planning: Understand the best practices for drawing down your retirement savings to ensure they last. 
  • Holistic Approach: Consider all aspects of retirement planning, including insurance, taxes, and estate planning. 

Making the Most of Retirement with Guidance and Purpose 

Retirement is not just about financial security; it’s about finding joy, purpose, and fulfillment in this new chapter of life. These four books offer a wealth of wisdom and practical advice to help you craft a retirement that is not only secure but also deeply satisfying. So, grab a cup of coffee, settle into your favorite reading nook, and let these books inspire your journey to making the most of retirement—a journey that’s happy, wild, and free.

 

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.  

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.  

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.  

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

Do I Need to Hire a CERTIFIED FINANCIAL PLANNER® Professional?

Posted on by RFTB Dev

Financial advice and planning are unique to each individual’s situation—and so is the decision to hire a CERTIFIED FINANCIAL PLANNER® professional. For instance, a business owner may need guidance structuring their first deal, while a doctor may seek tax-efficient retirement strategies. A recent retiree might need help creating a steady income from their nest egg. The needs vary because everyone’s goals and paths differ.  

Why Should I Hire a CERTIFIED FINANCIAL PLANNER® Professional? 

While financial planning is always personalized, there are key reasons why many individuals should consider hiring a CERTIFIED FINANCIAL PLANNER® professional. 

Reduce the Noise 

In today’s world, information is everywhere. But where do you start? Do you trust your neighbor, a news anchor, or a targeted ad on social media? While picking up trends may not require a discerning eye, high-quality financial guidance does. When you hire a CERTIFIED FINANCIAL PLANNER® professional, you reduce the noise and gain a reliable source for your questions or concerns. CERTIFIED FINANCIAL PLANNER® professionals are committed to offering personalized, sound advice. Plus, as fiduciaries, they are bound to act in your best interest. 

Compare this to flashy headlines designed to grab attention and clicks, often by presenting slanted facts. Following advice from unreliable sources can steer you off course, potentially derailing your financial goals. A CERTIFIED FINANCIAL PLANNER® professional can cut through the noise, breaking down facts and misconceptions to keep you focused on what matters most. 

Take Your Time Back  

Americans lead fast-paced lives. Whether you’re just entering the workforce, in the midst of your career, or preparing for retirement, chances are your schedule is full. Financial planning is a complex task that demands time and effort—resources many of us don’t have to spare. Seeking simplicity, many people turn to professionals in other areas of their lives. Just as you would consult a doctor for your health, you should consult a professional for your financial well-being. 

CERTIFIED FINANCIAL PLANNER® professionals dedicate their careers to helping people navigate the complexities of personal finance. By analyzing your plans and identifying potential weaknesses, they ensure your financial strategy aligns with your goals. Delegating this responsibility to a professional allows you to focus on what matters most to you. 

Navigate the Complex 

When was the last time you reviewed your company’s retirement plan benefits? Will they be enough when you retire? That depends. When you hire a CERTIFIED FINANCIAL PLANNER® professional, they can help you understand the ins and outs of your company’s retirement plan, ensuring you make the most of its features. Retirement plans vary widely, and a CFP® professional can guide you in leveraging your plan to fit your personal financial situation. 

Check out one of our other blog posts for more on when to hire a financial advisor. 

What Do I Need? 

When you hire a CERTIFIED FINANCIAL PLANNER® professional with the right expertise, you gain access to a wide range of services—investment management, tax planning, estate planning, and cash flow management, to name a few. However, financial planning is not one-size-fits-all. Some may need ongoing support, while others require only a one-time consultation to get started on the right path. Your personal circumstances will dictate what type of service you need, and a good advisor will help you figure out the best fit. 

Still unsure? Reach out to us. We’d be happy to help you determine whether you’re ready to hire a financial advisor. 

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.    

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

The Importance of Staying Social During Retirement

Posted on by RFTB Dev

Retirement is a significant milestone, a time when people often dream of having more freedom to pursue hobbies, travel, and relax. However, what many retirees don’t anticipate is the challenge of maintaining social connections once they leave the structured environment of work. The daily interactions with colleagues, clients, and even casual acquaintances can diminish, leaving many retirees feeling isolated. Staying social during retirement is not only essential for your emotional well-being but also plays a critical role in maintaining mental and physical health. We are going to share with you why it is so important to stay social during retirement and provide you with ideas on how to do just that! 

The Emotional Benefits of Staying Social During Retirement 

Retirement can sometimes lead to feelings of loneliness and isolation. Gone are the watercooler conversations, the casual check-ins, and the routine gatherings with coworkers. For many retirees, this abrupt change can cause emotional withdrawal. 

A good example is Mary, a 68-year-old woman who retired from her teaching career of over 30 years. In the first few months, she found herself enjoying the newfound freedom, but soon, she started feeling an emptiness. Without her daily interactions with students and staff, she felt more alone. Mary decided to join a local gardening club, where she met people with similar interests. This decision not only brought her new friends but also gave her a sense of belonging and purpose. 

Research shows that strong social ties significantly boost happiness and life satisfaction. A study published in the National Library of Medicine found that retirees with active social lives report feeling more fulfilled and engaged in life. When you’re socially connected, you’re less likely to feel isolated, and that translates into emotional stability and a greater sense of purpose. 

Beyond the joy of companionship, social connections provide emotional support. Having a network of friends or family members you can rely on during tough times makes a world of difference. Whether it’s sharing happy moments or confiding in someone during tough situations, these bonds offer emotional security. 

The Mental Health Benefits 

Social engagement isn’t just about feeling good; it plays a vital role in cognitive health as well. Regular interaction with others stimulates the brain, which helps keep it sharp and active. Engaging in conversations, debates, or learning something new within a group setting activates cognitive functions that might otherwise stagnate. 

Take, for instance, Jack, a 72-year-old retired engineer. After retirement, Jack noticed he wasn’t as mentally sharp as he used to be, so he decided to join a chess club in his neighborhood. Playing chess regularly, meeting new people, and strategizing in a competitive yet fun environment helped him regain his mental edge. His memory improved, and he felt more alert and focused. 

Studies have shown that retirees who maintain social connections are less likely to suffer from cognitive decline. A study by Penn State University revealed that retirees with active social lives were 30% less likely to develop memory loss or dementia. Engaging in group activities—whether it’s playing cards, volunteering, or attending a class—keeps your mind challenged and sharp. 

Beyond that, maintaining social relationships can help stave off depression and anxiety, which can become more prevalent in older adults. When you have people to talk to, laugh with, and share experiences, it eases the feelings of sadness or worry that might arise during significant life transitions. 

The Physical Health Benefits 

The benefits of staying social during retirement aren’t limited to emotional and mental health; they extend to physical well-being, too. Strong social connections can lower your risk of developing chronic illnesses like heart disease and hypertension.  

Social activity can also lead to physical activity. Many social interactions in retirement are built around group activities such as walking clubs, fitness classes, or community events. For instance, senior yoga classes or mall walking groups not only keep you physically active but also provide opportunities to connect with like-minded people. 

Regular socializing has also been linked to better immune function. A Stanford study found that older adults who had a close-knit social circle were more resistant to colds and infections, likely due to the positive effect that relationships have on the body’s stress response and immune system. 

Building and Maintaining Social Networks in Retirement 

So how can you stay connected in retirement? First, consider reconnecting with old friends. Retirement gives you the gift of time—use it to rekindle relationships you may have lost touch with over the years. Maybe there’s a high school friend or former colleague who’d love to catch up. 

Another great option is to join clubs or social groups that match your interests. Whether it’s a book club, a hiking group, or a volunteer organization, these activities provide natural ways to meet new people and form lasting bonds. Volunteering, in particular, is a powerful way to contribute to your community while building meaningful relationships. 

Technology can also play a pivotal role in staying connected. Video calls, social media platforms, and online communities enable retirees to maintain relationships even when they can’t meet in person. Many people use Facebook groups or Zoom to participate in virtual meetups, ensuring they remain socially engaged regardless of geographical barriers. 

Lastly, don’t overlook intergenerational relationships. Whether it’s spending time with younger family members, mentoring younger professionals, or participating in community programs, connecting with younger generations can bring fresh perspectives and enrich your social network. 

Overcoming Social Barriers 

Of course, not all retirees find it easy to stay social. Health issues or limited mobility can pose challenges. However, solutions like transportation services, accessible community centers, or even digital platforms can help bridge the gap for those with physical limitations. 

For introverts, the idea of large social groups might be overwhelming. However, building meaningful, one-on-one relationships or engaging in small group activities can provide the same benefits without feeling too drained. 

Conclusion 

Staying social during retirement is much more than just a way to pass the time; it’s essential for your emotional, mental, and physical well-being. By actively engaging with others, whether through old friendships, new hobbies, or technology, you can ensure a healthier, happier retirement. So, take the initiative today—reach out, connect, and make the most of this exciting phase of life!

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by BentOak Capital (“BentOak”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from BentOak.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  BentOak is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of BentOak’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a BentOak client, please remember to contact BentOak, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. BentOak shall continue to rely on the accuracy of information that you have provided or at www.bentoakcapital.com. Please Note: IF you are a BentOak client, Please advise us if you have not been receiving account statements (at least quarterly) from the account custodian. 

Changes Coming to Your Online Social Security Account: What You Need to Know

Posted on by RFTB Dev

Retirement planning involves considering multiple sources of income, and for many individuals, Social Security is a significant piece of the puzzle. Your free online Social Security account is a great resource not only to review future estimated benefit amounts, but also to submit benefit filing requests, manage current elections, and request new Social Security cards. This government program provides financial support during retirement, and keeping track of your benefits is crucial for effective planning. 

We wanted to make you aware of a recent change that could impact the accessibility of Social Security online services for some existing users. The Social Security Administration (SSA) has announced that all account holders who created a Social Security account through ssa.gov before September 18, 2021, will be required to transition to Login.gov or ID.me to access their online services. 

Why Is This Change Happening? 

Based on a recent press release from the SSA, this change is being made to simplify the sign-in process and ensure that all online services are safe and secure for their customers. 

In addition, the transition will streamline the login process across different government agencies. This means that if you have accounts with other government agencies that use Login.gov (such as USAJobs.gov or the Small Business Administration) you can easily access them all with one set of login credentials. 

How Does This Affect Current Social Security Account Holders? 

If you created your Social Security account before September 18, 2021, you must transition to Login.gov or ID.me to continue accessing your online services.  

Do not worry – the process is simple and can be completed quickly. Simply log into your Social Security account as you normally would. Once logged in you will be prompted to begin the transition to Login.gov or ID.me. The Social Security Administration has prepared a quick tutorial video which is a great resource to review before starting the transition process. 

What About Existing Login.gov or ID.me Account Holders? 

If you already have a Login.gov or ID.me account, there is no need for you to create a new one or take any action. Your existing credentials will still work for accessing your Social Security account. 

How to Create a Social Security Account with the SSA 

If you do not have a Social Security account yet, now is the perfect time to create one. It is important to note that this change does not affect new account creation – only existing account holders need to transition to Login.gov or ID.me. 

To create a Social Security account, simply visit the SSA website and select the option to “Create an Account.” You will need personal information such as your Social Security number, date of birth, and mailing address. 

Understanding your Social Security benefits is an important factor when planning for retirement. Utilizing the online resources described above can help you prepare, monitor, and maintain this portion of your retirement income and how it impacts your overall financial plan. If you have questions about accessing your Social Security benefits and building a retirement income strategy, please contact our office to connect with one of our retirement income specialists.

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com. 

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.

SEP IRA or Solo 401(k): Which Option Should I Choose?

Posted on by RFTB Dev

Navigating the realm of the various retirement plan options available to self-employed business owners can feel like a daunting task, especially when it comes to selecting the right option for your unique circumstances. Among the array of choices available, two popular options stand out for self-employed individuals: the SEP IRA and the Solo 401(k). Each comes with its own set of benefits and drawbacks, tailored to suit different business structures and financial goals. Let’s delve into the nuances of both to help you understand which option might be best for you. 

SEP IRA (Simplified Employee Pension Individual Retirement Account) 

A SEP IRA is a straightforward retirement plan designed for small business owners and self-employed individuals. Here’s why it might be the right fit for you: 

Benefits: 

  • Simplicity: Setting up and maintaining a SEP IRA is hassle-free, making it an attractive option for those who prefer a straightforward approach to retirement planning. Contributions are typically made by the employer, based on a percentage of each eligible employee’s compensation. Therefore, if the business is owned and operated by you and you alone, there’s only one contribution you have to worry about. 
  • High Contribution Limits: As of 2024, you can contribute up to 25% of your net self-employment income or $69,000 (whichever is less) annually – assuming you made more than $750 this year, we’re betting that if you’re reading this you probably did. This allows for substantial tax-deferred savings, empowering you to build a robust retirement fund. It’s important to consult with your wealth advisor and CPA to ensure that you are deferring as much as possible and taking advantage of this. 
  • Flexibility: SEP IRAs offer flexibility in contributions, allowing you to adjust your contributions annually based on your business’s financial performance. There are no mandatory contributions in years when business is slow, providing relief during lean times.  

Drawbacks: 

  • Maxing Out Contributions Requires High Income: SEP IRAs limit you to the lesser of 25% of your net self-employment income or $69,000.  Therefore reaching the $69,000 max contribution limit requires net income of $276,000.  Annual income below that amount will reduce the maximum amount you can contribute. 
  • Employer Contributions Only: SEP IRAs rely solely on employer contributions, which means you bear the entire responsibility for funding your employees’ retirement accounts. While this can be a generous perk, it might not be feasible for businesses with fluctuating revenues. That said, if you are the only employee of your business, this is not a factor but is still important to know if and when you expand your business beyond just yourself. 

Real World Example: Consider Sarah, a late 30s freelance consultant helping civil engineering firms with their complex problems. Her husband is a high level executive with a military contractor. She decides to take advantage of the simplicity of a SEP IRA as it allows her to save a significant portion of her income while providing flexibility in contribution amounts, depending on her project workload and allows her to focus on her business instead of worrying about managing a retirement plan.  

Solo 401(k), Individual 401(k), or Self-Employed 401(k) 

These terms all mean the same thing. A Solo 401(k) is a retirement plan tailored for self-employed individuals or business owners with no employees other than a spouse. Let’s explore why it might be a good option for your retirement strategy: 

Benefits: 

  • Higher Contribution Limits: As of 2024, Solo 401(k) participants can contribute up to $69,000 annually, plus an additional $7,500 in catch-up contributions for individuals aged 50 and above (for a total of $76,500). This enables substantial tax-deferred savings, especially for those nearing retirement age. 
  • Employer and Employee Contributions: Solo 401(k)s allow for both employer and employee contributions, providing the flexibility to maximize retirement savings. You can contribute as both the business owner and the employee, effectively doubling your retirement contributions. Some additional important notes about contributions below: 
    • As the employee, you can contribute up to $23,000 in 2024, or 100% of compensation, whichever is less. As previously stated, those 50 or older get to contribute an additional $7,500. 
    • As the employer, you can make an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income. “Net self-employment” is defined as your net profit less half your self-employment tax,  plus the plan contributions you made for yourself.  
    • Keep in mind that if you’re side-gigging, employee 401(k) limits apply by person, rather than by plan. That means if you’re also participating in a 401(k) at your day job, the limit applies to contributions across all plans, not each individual plan. 
  • Spousal Savings: The solo 401(k) rule typically prohibits having employees, but the IRS makes one exception: your spouse, provided they receive income from your business. This exception potentially doubles the contribution limit for your family, depending on your earnings. Your spouse can contribute as an employee up to the maximum employee contribution limit (plus any applicable catch-up provision for those aged 50 and above). As the employer, you can also make a profit-sharing contribution to the plan for your spouse, capped at 25% of their compensation. 

Drawback: 

  • Complexity: Compared to SEP IRAs, Solo 401(k)s involve more administrative responsibilities, including annual filings and compliance with IRS regulations. This could be daunting for individuals who prefer a hands-off approach to retirement planning. 

Real World Example: Imagine Mike, a high income, self-employed freelance architect in his late 40s, and his wife Emily, who assists him in his business – scheduling meetings, running to the print shop, etc. They have been so focused on running the business and putting kids through school that they have neglected to save for themselves. They opt for a Solo 401(k) to take advantage of higher contribution limits, both now and in their 50s, with the ability to make both employer and employee contributions for each of them and grow their retirement savings quickly.  

Which Option Should I Choose? 

In the realm of retirement planning for self-employed individuals, the choice between a SEP IRA and a Solo 401(k) hinges on factors such as simplicity, contribution limits, administrative responsibilities, and employee structure. While the SEP IRA offers ease of setup and flexible contributions, the Solo 401(k) provides higher contribution limits and the ability to make both employer and employee contributions. Ultimately, the decision should align with your business’s financial objectives and long-term retirement goals. Evaluate your options carefully and consider consulting with your financial advisor and CPA to determine the best fit for your unique circumstances. 

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.   

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.    

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. 

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

3 Things to Regularly Review in Your 401k

Posted on by RFTB Dev

A 401k plan is a common savings vehicle offered by employers that allows employees to make contributions towards their retirement savings. However, simply contributing to a 401k account is not enough. It is important to regularly review your 401k and assess your account to ensure it aligns with your long-term goals and needs. In this blog post, we will discuss three crucial elements you should regularly review in your 401k account. 

1. Understand Your Investment Options

The first thing you should do when regularly reviewing your 401k account is to understand your investment options. The investment options available vary from plan to plan but may include stocks, bonds, target date funds, and other mutual funds. The investment options available can change so make sure to review your elections at least on an annual basis. It is important to research and understand these holding options so you can make informed decisions on how to allocate your contributions. 

When choosing your investment options, it is essential to consider your risk tolerance. This refers to how comfortable you are with taking risks in hopes of generating higher returns. Gauging your risk tolerance in conjunction with your financial planning goals will play an important factor in the risk level of your 401k allocation.  

Once you have constructed your desired allocation, you will want to make sure that you apply the changes to assets currently in your 401k. In addition, you may have to make a second election for all future 401k contributions as well. Working with a financial planner can help you confidently select the right investment strategy to maximize your retirement goals.

2. Review Your Contribution Elections

Another crucial aspect of maintaining a healthy 401k account is regularly reviewing, and preferably increasing, your contribution elections. Most plans allow you to contribute a percentage of your salary, and some even offer employer matching contributions. If possible, try to contribute at least enough to take full advantage of any employer matching contributions. Some 401k plans also allow you the option to choose between making pre-tax, Roth, or after-tax contributions. It is important to regularly review and adjust your contribution amount based on your financial situation and retirement goals. Consulting with your financial planner can help you determine the ideal amount and what type of contributions to make.

3. Verify Beneficiary Designations

Many people overlook the importance of updating beneficiary information on their 401k account. Having a beneficiary listed on your account will supersede any instructions in your will. Therefore, you want to check on this regularly to make sure it is up to date. Life circumstances may change, such as marriage or divorce, which may require you to update your beneficiaries. For example, even if you have been divorced for 10+ years, if your ex-spouse is listed as beneficiary then they will still inherit your 401k assets. Make sure to review beneficiary designations annually or during any major life-changing event (marriage, divorce, new child, job change, etc.) to ensure that your assets pass according to your wishes. 

Why You Should Regularly Review Your 401k 

Regularly reviewing and checking on these important aspects can help you make the most out of your retirement savings. By understanding your investment options, reviewing and adjusting your contribution elections, and verifying beneficiary designations, you can ensure that your 401k aligns with your long-term financial goals. It is important to regularly consult with a financial planner to make informed decisions and stay on track towards a secure retirement.

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.  

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial. 

Understanding the Rise in Retirement Savings: Insights from the Vanguard Study

Posted on by RFTB Dev

In a recent study, Vanguard revealed that American retirement savings have reached record heights, with the average 401(k) savings rate hitting an all-time high of 11.7% in 2023. This is a significant milestone, indicating a positive shift in how individuals approach retirement planning. At BentOak Capital, we’ve observed similar trends among our pre-retiree clients, underscoring the importance of maxing out retirement contributions. But what’s driving this upward trend in savings, and what can you do to make the most of it? 

The Drivers Behind Record Savings Rates 

Several key factors are contributing to this increase in retirement savings. Understanding these can help you leverage current trends to boost your own retirement nest egg. 

1. The Phasing Out of Private Sector Defined Benefit Pension Plans

We believe that the gradual phasing out of traditional defined benefit pension plans is a significant factor. As these plans become less common, individuals are increasingly responsible for their own retirement savings. This shift places greater importance on contributing to 401(k)s and other retirement accounts. Without the guaranteed income from pension plans, many people are taking a more proactive approach to their retirement planning, ensuring they save enough to maintain their desired lifestyle in retirement.

Rise in Retirement Savings

Source: Congressional Research Service

2. Auto-Enrollment and Escalations

We also believe that the rise of auto-enrollment and automatic escalation features in retirement plans has significantly contributed to increased savings rates. Auto-enrollment ensures that employees are automatically enrolled in their company’s 401(k) plan, often starting with a default contribution rate. Additionally, automatic escalation features gradually increase employee contribution rates over time, typically annually. These features make saving easier and more consistent, helping employees build their retirement savings with minimal effort. The simplicity and automation of these features have been effective in increasing overall participation and contribution rates. 

3. Rewarding Financial Markets Post-2008 

We believe that the financial markets’ performance post-2008 has been another major driver. The financial crisis of 2008 was a wake-up call for many investors. However, those who continued to invest and save through the subsequent market recovery have seen substantial growth in their retirement accounts. The rewarding financial markets over the past decade have demonstrated the power of compounding returns, encouraging individuals to increase their savings rates. At BentOak Capital, we’ve seen firsthand how consistent saving and investing can grow a nest egg significantly over time, providing greater financial security and peace of mind.

rise in retirement savings

4. The Current Inflationary Environment

We believe that the current inflationary environment also plays a crucial role. Inflation is a growing concern for many pre-retirees. While rising costs might seem like a reason to cut back on savings, it actually underscores the importance of saving more. Inflation erodes purchasing power, meaning that the money you save today will be worth less in the future. By increasing retirement contributions now, you can help ensure that your savings will be sufficient to cover future expenses, even as prices rise. This proactive approach to combating inflation can provide a buffer against the uncertain economic landscape.

Maximizing Your Retirement Savings 

Given these trends, it’s crucial to take a strategic approach to your retirement savings. Here are some practical steps to help you make the most of your retirement contributions:

1. Max Out Your 401(k) Contributions

If you’re not already maxing out your 401(k) contributions, now is the time to start. For 2024, the contribution limit for 401(k) plans is $23,000, with an additional $7,500 catch-up contribution for those aged 50 and over. Taking full advantage of these limits can significantly boost your retirement savings, especially with the added benefit of tax-deferred growth. Consider escalating your contributions over time to work towards the maximum contribution if it is currently out of reach.

2. Diversify Your Investments 

Diversification is key to managing risk and maximizing returns. Ensure your retirement portfolio includes a mix of asset classes, such as stocks, bonds, and real estate. This can help protect your savings from market volatility and provide more stable returns over time. Consider working with a financial advisor to develop a diversified investment strategy tailored to your risk tolerance and retirement goals.

3. Take Advantage of Employer Matches

Many employers offer matching contributions to their employees’ 401(k) plans. This is essentially free money that can significantly enhance your retirement savings. Make sure you’re contributing enough to take full advantage of your employer’s match, and if possible, aim to exceed that amount. 

4. Regularly Review and Adjust Your Plan

Retirement planning is not a set-it-and-forget-it task. Regularly review your retirement plan to ensure it aligns with your changing goals and circumstances. Adjust your contributions and investment strategy as needed to stay on track. At BentOak Capital, we work closely with our clients to provide ongoing support and guidance, helping them navigate the complexities of retirement planning.

5. Consider the Impact of Inflation 

As mentioned earlier, inflation can erode the value of your savings. To combat this, consider allocating a portion of your retirement portfolio to investments that have historically outpaced inflation, such as stocks and real estate. Additionally, keep an eye on your spending and adjust your budget as needed to account for rising costs.

Rise in Retirement Savings

Looking Back and Moving Forward 

Those who have consistently saved through market cycles can now look back and see how far they’ve come. This perspective not only boosts confidence but also reinforces the importance of continued, disciplined saving. By understanding the factors driving the rise in retirement savings and implementing these strategies, you can take control of your financial future and work towards a confident retirement.

 

Please remember to contact BentOak Capital (“BentOak”), in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you want to impose, add, to modify any reasonable restrictions to our investment advisory services, or if you wish to direct that BentOak to effect any specific transactions for your account. A copy of our current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at www.bentoakcapital.com.   

This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.   

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.   

Securities offered through LPL Financial, Member: FINRA/SIPC. Investment advice offered through BentOak Capital, a registered investment advisor and separate entity from LPL Financial.