Resources

Starting about five years ago I began using the term “Income Generation” to describe the demographic encompassing my clients, prospective clients, and myself. To put it simply, the term refers to today’s generation of retirees and near-retirees. That means Baby Boomers but also older Gen Xers, who are also in their 50s now and nearing the age when they’ll need to start preparing for retirement income.

But what makes us the “Income Generation”? Why is it so important for our generation to understand the benefits of investing for income — more so than previous generations? I’ll answer those questions in this report while also sharing a host of facts and tips to help meet your own retirement income needs and goals.

The simple fact is, the Income Generation faces a host of unique challenges — meaning challenges different from those faced by our parents and grandparents. So, let’s start by talking about perhaps the trickiest of these challenges, which is the fact that we live so long.

Longevity
The average life expectancy today in the U.S. is 78.7 years, compared to 68.2 years in 1950. Advances in healthcare have made it possible for people to remain active and productive well past age 65. As a result, you might want to work well past that age, or not retire at all. This is all great on the one hand, but it can also lead to problems, mainly financial ones.

Be aware, if you’re a couple in your 60s today, statistically there is a 50% chance that at least one of you will live into your 90s. That means you need a strategy designed to help provide financial security and retirement income for up to 30 years. Not 20 years. Not 25, but 30 years. Now be aware that the average person is psychologically wired to think and plan no more than five to ten years into the future. And even the average financial advisor doesn’t see much further than that.

Few inventions in recorded history have revolutionized the way we live like the Internet. It has changed the way we communicate and has made thousands of previously slow, complex processes faster and more efficient. Yet, while solving old problems, the Internet — like any invention — has also created new ones. Among the biggest of those problems is the vulnerability of sensitive and/or personal information to a relatively new breed of criminal: cyberthieves.

Most of the country was personally impacted by this problem in September 2017 when Equifax reported a security breach that allowed hackers to access the personal information of 143 million Americans. Equifax is one of three major credit reporting agencies (Experian and TransUnion are the others), and all keep extensive databases of credit-user information that include everything from dates of birth to addresses to Social Security numbers. Once a cyber thief gains access to such information, they can use it to steal your identity and potentially gain access to your credit accounts and personal finances.

Electronic identity theft can ruin a family financially, and unfortunately, it is an issue with no easy solution. According to a 2017 study by Javelin Strategy & Research, between 2011 and 2017, identity thieves stole over $107 billion. In 2016 alone, some $16 billion was stolen from 15.4 million U.S. consumers, up from $15.3 billion stolen from 13.1 million victims a year earlier.1 The increase illustrates that even as cybersecurity measures improve, criminals become increasingly savvy.

Greater Risk for Older Americans
The bottom line is that keeping our identities and finances safe from criminals in the digital age will be an ongoing challenge for both businesses and individuals. That’s especially true for individuals at or near retirement age whose accumulated assets can potentially make them more attractive targets for thieves than younger people who are still in the early process of building their wealth. A top priority for most Americans over age 50 should be “financial defense,” which means they should focus on the use of strategies designed to generate income and protect assets from major losses due to extreme fluctuations in the financial markets. In the digital age, however, another essential component of financial defense is cybersecurity: knowing how to protect your identity as you do everything from online shopping and banking to buying gas.

It seems that tax laws and regulations are constantly changing. That’s why it’s always good to meet with your CPA or financial advisor on an annual basis to talk about potential tax savings strategies as they exist under current tax rules and guidelines. While it’s generally best to have that meeting in November or December to beat all the IRS’s year-end deadlines, a meeting in January or February can also be extremely beneficial and potentially save you thousands of dollars.

The tax savings strategies discussed in this report are primarily geared toward filers in the 12% to 24% income tax brackets and are strategies related to retirement contributions, investments, savings, healthcare expenses, charitable donations, and other key areas. But first, let’s go over some basic tax guidelines as they stand for the tax year 2023.

Deductions & Exemptions: The standard deductions for the tax year 2023 are:

• Singles get $13,850, plus an additional $1,850 if age 65 or over
• Married couples get $27,700, plus $1,500 per spouse if both are 65 or over
• Heads of household get $20,800, plus $1,850 if age 65 or over

Personal exemptions were eliminated with The Tax Cuts and Jobs Act and remain at 0. Most people know how basic tax preparation works: your adjusted gross income minus deductions and exemptions equals your taxable income. Beyond your standard deductions and personal exemptions, you and your advisor may want to explore and possibly implement some of the following additional strategies:

401(k)s and Other Qualified Plans
It is generally a good idea to maximize tax-deferred 401(k) contributions whenever possible. If you feel you can’t afford to put in the maximum amount of money allowed, try to contribute at least the amount that will be matched by employers’ contributions. Contribution limits for 401(k), 403(b), and 457 plans are $22,500, with an additional $7,500 catch-up contribution limit if you are over age 50. You might even consider taking an entire paycheck in December and putting it into your 401(k), if that’s feasible, or taking the equivalent amount from a savings account and putting that into the 401(k) to maximize the contribution.