Reports

TR=I+G Guide

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.

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Retirement Risk Report: Will You Outlive Your Money?

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.

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Protecting Yourself From the Dangers of Inflation

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.

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Are Your Allocations Right for RMDs

We hear the term “renewable resource” used often when referring to energy — solar, wind, and even tidal energy. Most agree that the practical use of renewable energy is essential for our future well-being. The same can be said for money, investing, and retirement. By planning ahead, Americans born in or before 1970 — a.k.a. The Income Generation — can help to ensure they do not run out of money in their golden years.

Only decades ago, people were expected to retire and only live for a few years, during which time they could simply spend down their savings. However, as life expectancies continue to increase, many people can expect to enjoy 30 years or more in retirement. That’s why it’s become imperative for anyone over the age of 50 to establish their own renewable streams of income to cover the cost of enjoying more time in retirement.

You might think this means you need a bigger lump sum of money to retire, but at the end of the day, it can take a long time to accumulate more lumpsum dollars. In my experience, the more sensible approach is to try to maximize the amount of interest and dividends that a lump sum can generate.

A More Certain Future
By placing a significant part of their portfolio in fixed-income securities, or what I refer to as the universe of bonds and bond-like instruments, members of The Income Generation can establish a renewable source of income they can count on throughout retirement, while also helping to preserve the value of their original investment.

Investing in income-generating instruments can be like lending your money to the largest U.S. companies that pay you regularly scheduled interest. In the case of individual bonds, at the end of the loan term, they send you the last interest payment along with the return of your original principal. This is, of course, assuming there are no defaults.

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Year-End Financial Planning Checklist

Americans are notorious for overspending when the holiday season rolls around. While that may be good for the economy in the short term, it often ends up being bad for household budgets. Ultimately, though, overindulging a bit in spending during the holidays doesn’t need to create hardships if you know your broader financial situation is in good shape. In fact, the last two months of the year are a perfect time to create and go over a Year-End Financial Planning Checklist, ideally in partnership with your financial advisor.

The end of the year is the best time for this process because certain key financial deadlines fall on December 31. Beat them, and you’ll improve your odds of enjoying your holidays knowing you’re on track to meet your long-term financial goals, even if you decide to overspend a bit on gifts for the kids or grandkids. You can consider this year-end financial checkup a gift you give yourself! The items included on your checklist may vary depending on your age and situation, but if you are actively saving for retirement (especially if you are already retired or within 15 years of retirement), your Year-End Financial Planning Checklist should include the following:

Taxes
This is easily the most important and potentially beneficial area to examine before the year ends. One of the most common financial mistakes people make is waiting until February or March to meet with their CPA or advisor to talk about taxes. By that time, the deadline to correct mistakes or take advantage of any potential savings opportunities may well have passed. Having a tax meeting in November or December means you are taking a proactive approach to tax planning, which better ensures that you won’t end up giving the IRS any more of your hard-earned money than you absolutely must.

It’s important to have this meeting every November or December because tax laws and guidelines change from year to year, as does your own financial situation. A savings strategy that might not have been right for you last year (or for which you may not have qualified) may be a smart move that results in big savings this year.

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Women, Money & Retirement- Separating Fact from Fiction

The 100th anniversary of women’s right to vote in the U.S. occurred in 2020. During the last century, women have made great strides in educational achievement and career opportunities. Despite this progress, they continue to be at greater risk than men of not achieving a financially secure retirement.

Today, a woman’s path to secure retirement is filled with obstacles, such as lower pay and time out of the workforce for parenting or caregiving, which can negatively impact her long-term financial situation. No matter their race, age, occupation, or education, women are negatively impacted by the gender wage gap. One of the most cited statistics comes from the 2016 U.S. Census Bureau report that shows women earn 79 cents for each dollar men earn in the U.S.
Further, the report highlights the negative effects race plays on a women’s income. Compared to white men, Black and Hispanic women are paid only 65 cents and 58 cents on the dollar, respectively.

Statistically, women also tend to live longer than men, which creates an even greater need to plan and save. In short, for women, many factors influence financial wellness spanning the social and economic spectrum—factors that often undercut their security later in life. These life events can place extreme pressure on retirement resources.

The Financial Industry is Getting a ‘Wake-Up Call’ About Women and Money
When you search the word “investor” in Google Images, you are instantly overwhelmed by photos of men in suits and ties, gazing seriously at stock charts, pointing at computer screens together, and even holding stacks of money. When women are included in these images, they are usually standing behind their male counterparts, appearing to gently offer emotional support. The message these images convey is loud and clear: the world generally considers men to be the more skilled and knowledgeable gender when it comes to investing.

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Why Investing in Mutual Funds Could Jeopardize Your Retirement Plans

Unfortunately, since many financial advisors working today entered the business in the 1980s and 90s, during the best stock market in US history, they became stock market specialists, favoring growth instead of income. Many of them also became heavily focused on mutual funds. Mutual funds, in general, are a murky pool of investments that only publish their holdings once a quarter. That means in the middle of the quarter, you don’t know what stocks your money is invested in. And when you do find out, you may not always be getting an accurate picture. That’s because sometimes, fund managers will engage in something known as “window dressing”. Here’s how this tactic works:

Let’s say that during the quarter, a particular stock that the fund owns drops in value significantly and receives bad press. The fund manager may not want to sell it because its price is down. However, he might go ahead and sell that stock just before the quarter ends, so he doesn’t have to disclose that it was in the fund — but then he’ll go ahead and buy it back again when the new quarter starts. This is window dressing and it’s one of the problems that can result from the lack of transparency in this murky pool of investments.

A Bigger Problem
Another problem with stock mutual funds is that they are geared toward growth and not income. This could be a big problem if you are retired or nearing retirement and the growth you are counting on turns into a loss or a series of losses. The reason most stock funds are geared toward growth is that they are all judged against the performance of the stock market, typically the S&P 500 Index, which doesn’t have a particularly high dividend. So, fund managers are all trying to beat the S&P 500, or at least trying not to underperform it.

If these fund managers were to focus on high-dividend-paying stocks (which is a strategy that typically makes more sense for most investors in retirement or near retirement age), then in some years they would likely outperform the S&P, and in other years it will underperform it. But fund managers know investors have short memories. So even if their fund experiences a couple of good years in a row and then has a year where it underperforms the S&P 500, investors may leave the fund. This is why fund managers are always trying to avoid underperforming the S&P 500 by focusing more on growth instead of income.

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Passive Income For Retirement

Passive income has become a hot topic and for good reason. Who wouldn’t like to generate income without putting in a hard day’s work? From teenagers seeking recurring revenue from advertisements on social media to retirees turning their hard-earned nest eggs into a reliable income stream, more people are interested in creative ways to create passive income than ever before.

Despite this enormous interest from all ages and walks of life, securing passive income streams is especially critical for retirees. This is because, over the past several decades, the responsibility has increasingly fallen on individuals to fund their own retirements. Gone are the days of working for the same company for 40 years and retiring with regular pension payments. Sure, an employer may set up, or even contribute to, a retirement plan. After that, however, it’s your responsibility to save enough for retirement, while navigating the hostile waters of financial markets while in retirement. Social Security may cover a portion of these needs, but, more than likely, the majority of retirement income will come from the fruits of your labor through saving, planning, and executing a sound income strategy.

Therefore, because passive income will play such a central role for most retirees, it is vital to have a clear understanding of precisely what passive income is and which sources of income will allow you to realize the retirement you envision.

How Can You Generate Passive Income?
While most people have a vague understanding of what passive income is, let’s drill down a bit further to gain a more precise grasp of this critical concept. Passive income is often contrasted with active income, or the income earned for a specific job — in other words, the income earned for a hard day’s work.

Passive income, on the other hand, is income earned from an activity in which you are not actively involved. Income from rental property, for example, is perhaps the most common activity associated with passive income. In a perfect world, tenants’ rent checks roll in every month without having to actively work for those payments.

Business ventures, too, can become passive income streams if they can generate income without active participation, or where the work is done up-front. Royalties from book sales, income from pre-recorded educational courses, or flipping retail products are all examples of this sort of passive income.

The digital age has also opened an entirely new realm of passive income sources where YouTube channels, social media posts, or other digital content can earn money years after its creation through revenue from advertisements or direct payment from customers.

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Understanding Price-to-Earnings Ratios

Have you ever bought a pair of pants for your child or grandchild that were too big? It’s a common occurrence, and when it happens, you have two options: 1) you can throw the pants in the wash and try to shrink them, or 2) you can just sit back knowing that your child or grandchild will eventually grow into them. This same phenomenon applies when the price of stocks gets overinflated in relation to annual corporate profits. If you can learn to recognize when it’s
happening, that knowledge can go a long way toward helping you make smart savings and investment decisions.

In 1998, the overall price of stocks in the market was becoming overinflated – like a baggy pair of pants – relative to actual corporate profits. With knowledge of market history and a grasp of basic financial ratios, an investor could have anticipated that one of two things were likely to happen to correct this growing imbalance. Either overall stock prices had to drop, or we had to slip into a period of market volatility while we waited for corporate profits to grow into these baggy price levels.

The Formula
Every stock has a price-to-earnings ratio, and so does the entire stock market. The formula is simple: price per share divided by earnings per share. By comparing these two measurements in one stock and calculating the ratio alongside that of another stock, you can often get an idea of which stock is a better buy. As a very general rule of thumb, the stock with the lower priceto – earnings ratio is the more attractive stock because it is considered undervalued, and
remember, the goal is always to “buy low.”

For instance, let’s say you have a stock selling at $30 per share in a company whose corporate earnings are $1 per share. Then you have a stock selling at $50 a share in a company whose corporate earnings are $5 a share. Which one is the bargain? Well, it’s the second one with the higher-priced stock. That’s because 50 divided into 5 is 10, while 30 divided into 1 is 30. Ten is lower than 30, and thus, that’s a lower price-to-earnings ratio. Now, it’s important to remember that in the real world, there is a lot more to consider than simply P/E ratios when choosing which stock to buy, but it is something you want to understand.

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The Income Generation Report

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.

The Income Generation Report Read More »